Charge offs continue to plague credit unions; hurting bottom lines, causing dramatic cuts to expenses and ultimately decreasing the value delivered to members. Some areas, such as Florida, California, Arizona and Nevada, are especially feeling this pain. However, by changing your marketing focus, you may be able to substantially change the position of your credit union. We call this approach Reverse Marketing.

As marketers, you traditionally seek to promote specific products and services and influence members’ perception of your institution in order to help steer your credit union’s overall strategy. However, the current landscape provides you with an opportunity to build trust and goodwill with members while helping your credit union’s bottom line.

We call this approach Reverse Marketing because instead of growing your institution, you seek to sustain your institution’s net worth through defensive initiatives.

The Problem:
Credit unions are charging off a record number of loans. Many institutions have put new measures in place such as deferring payments, extending loan terms, creating work out or hardship loans, etc. These programs are showing positive results; however, when members do not contact the credit union or respond to Collections’ communications, the credit union has no choice but to repossess the asset and charge off the remaining balance.

The Solution:
Instead of focusing on bringing in new loans to replace the losses your institution is taking, reroute your marketing efforts to establishing communication with delinquent members. Collections have no choice but to charge off loans when members refuse to respond.

To keep our example simple, we will use vehicle loans and assume each loan the credit union charges off results in a loss of $5,000 (after the vehicle is auctioned or sold).

# of Loans Charged Off Per Month: 10
Average Amount Charged Off: $5,000
Total Monthly Loss: $50,000
________

1st Year Interest Income from a $20,000, 5% APR, 60 Month Term Auto Loan: $918

By rerouting your marketing efforts to delinquent members, assume you are able to establish communication and prevent just 3 of the 10 loans from being charged off. The result – you save your credit union a loss of $15,000 (3 members x $5,000 charge off balance).

In order to generate $15,000 in 1st year interest income, you would otherwise have to bring in 16 new auto loans that month (using the amount and terms in our example). A goal that is proving difficult in most parts of the country.

Establishing Communication:
If you lost your job today or were facing bankruptcy, how long could you sustain your current financial requirements? If you were laid off two months ago and lost a large portion of your retirement in the stock market, how quickly could you turn your financial situation around? The answer is probably not as quickly as Collections would like.

Collections’ New Name:
You are not the only company calling your members and as stress and fear amounts, most people hide as a defense mechanism. Changing your approach on how you communicate with members may help. Credit Unions across the country have been changing their scary “Collections” departments to “Member Solutions”, “Credit Assistance”, and “Financial Recovery” departments. Marketing these departments as solutions to helping members may help change your members’ perception of your credit union and encourage them to emerge from their hiding places; ultimately preventing charged off loans.

Collections Incentive Plans:
Speaking with credit unions across the country, one thing we’ve noticed is most institutions’ collections incentives are set up backwards in the current environment. Incentives are granted for recovering losses, not working with members to prevent them. At a time when members are strapped for cash and panicking, going after what little money they have is almost a waste of your employees’ time and resources. Change your collections incentives to focus on preventing charge offs, not encouraging them.

Ask yourself, in the current landscape, would it be easier for you to prevent $300,000 from being charged off or recovering $300,000?

Note: The above example doesn’t factor in remarketing costs and attorneys’ fees, which only add to the credit union’s loss per charge off.

Brandon Diehl | President