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A Guide to Auditing Your In-House Collections

executive auditing with tablet displaying a 3-D chart
By Jeff Mortenson

4 minutes

Seven scenarios to help you evaluate your current strategy

Sponsored by SWBC

Year after year, financial institution portfolios continue to grow—especially auto loans. According to Experian’s data for the first quarter of 2019, auto loan balances have soared to $1.18 trillion, increasing 6.5% throughout 2018. Unfortunately, as your portfolio grows, so does your delinquency risk. 

Like many credit unions, you’re probably trying to determine if outsourcing various stages of collections makes sense or if keeping it in-house is the better option. And, if your portfolio is experiencing growth, you may be worried about scaling your department.

To evaluate your current strategy, consider what makes the most sense for your credit union in the following scenarios:

1. Who could make the most impact at various stages of collection?

Various stages of the collections life cycle require different contact strategies. Do you have the staff to make hundreds or thousands of calls a day? Maybe your staff can have a greater impact in the mid-or late-stage where you have more time to leverage relationships and creative methods. Identify your collection team’s strengths and weaknesses. Keep what your team is good at and consider outsourcing the rest. 

2. What makes the most economic sense—fixed or variable cost?

Is your collections department able to scale up or down quickly? With a fixed-cost model, which most in-house teams follow, scaling rapidly provides its challenges. Think about what it takes to add five new agents to your team. You must consider hiring costs, training, equipment, physical space, benefits and more. Many outsourced partners provide an infrastructure that allows credit unions to benefit from a variable cost model that can ebb and flow depending on need. Plus, your partner often carries the burden of costs associated with hiring, training, equipment and physical space. 

3. How does our formal training program compare to others?

Often, errors in procedures or documentation stem from a gap in employee training. Do you have collections-specific training that includes best practices on member service, payment negotiation and compliance? Experts recommend a four-week training program that combines the classroom and a “nesting period” to properly train new employees. And, as best practices evolve, so should the training program—all to maximize the effectiveness of collectors

4. Which team could respond to compliance changes or proactively prepare for them?

Compliance is no longer an afterthought. It must be baked into every aspect of your collections program. Does your training program include compliance modules with sections on unfair, deceptive, or abusive acts or practices and Fair Debt Collection Practices Act? If you decide to outsource your collections activity, make sure your team’s service providers’ training includes how an agent handles complaints, trigger words and information about disclosures. 

5. Who is better equipped to consistently monitor team performance? 

Measuring performance is a must to effectively determine the success of collectors and strategies deployed. Beyond looking at how much money was collected, are you looking at total efficiency and meeting compliance standards? Outsourcing this activity can provide capabilities outside the reach of some credit unions. Some partners can record 100% of live calls, allowing for feedback to agents to increase performance and efficiency—and to recognize collectors who perform exceptionally. 

6. Am I satisfied with the level of reporting we currently receive?

Keeping a pulse on your collections program requires reviewing the call and program data regularly. Total collected funds is a critical measurement stick, but how about promises-to-pay and standardized notes to make sense of borrower conversations? Some collection systems offer reporting that’s difficult to navigate or doesn’t offer the level of detail you’d prefer. Outsourced collectors often provide the benefit of additional collectors working on behalf of your credit union, as well as access to high-level and loan-level detailed reporting available on multiple platforms. 

7. Do I benefit from external support reviewing our collections program regularly?

When you work close to a project, it can be difficult to step back and view your entire collections program against your entire risk management strategy. Depending on the size of your credit union, you might be the only one looking at the numbers. An upside to outsourcing collections activity is the external support, including a dedicated account manager. 

Jeff Mortenson is VP/client relations, collections for AutoPilot® services at CUES Supplier member SWBC, San Antonio, Texas. Read how SWBC’s outsourced collections program helped Fairwinds Credit Union achieve a 75% reduction to its delinquency rate over a five-year period in this case study.

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