We recently sat down with our Collections Department Manager, Anne Marie, to learn more about how delinquency rates are affected by mergers.
Do members lose a sense of loyalty to the merged credit union and behave differently including to decide to just stop paying? Do some members feel they get a free pass because the credit union was merged?
Yes, the members do have a sense of lost loyalty, but it depends on the new collection practices and delinquency practices of the merged credit union on how to prevent the loss. Sometimes members will in fact, “get a free pass” for a month or two due to the merging technologies. Sometimes the merger and/or conversion doesn’t go as smoothly as possible and payment due dates are compromised. While this may happen, a monthly payment is always required, no matter what technical glitch has occurred. Members sometimes have an attitude about the merger, stating, “That’s not my credit union, I’m with XYZ.” As a collector you have to reassure them, that their “old” credit union sent out many pamphlets and posted on the website about the merger prior to its occurrence. The members of the larger credit union that didn’t have a name change maybe aren’t so severely affected, it’s the members that were a part of the smaller credit union who see the most changes.
For example, we’ve dealt with a merger case for about six months now and we are still getting complaints about the merged credit union. In this case, the original credit union’s culture was characterized by personalized service with everything being hand carried. The credit union would look at a member knowing their background story and call on the account that was past due for three months, but chat about personal items not the delinquency and plans to resolve it. The members adhered to that culture, and grew accustomed to this culture. After merging with the larger credit union, the members have to adjust to a new culture and learn that the credit union rules are applicable to all members. We still want to work with the members because we understand the change has been hard, but the member signed a paper with the credit union saying that that they were aware of the terms and agreed to pay by them. So whether it’s a big entity, a small entity, merged or not, you have to pay the loan back and as a collections service it’s our job to ensure that.
Members get a lot of notices about their loan, but many people who are in good standing don’t read papers or pamphlets about their financials from their institutions. With new technology and online bill pay, many things are on auto-pay. Members assume everything is the same and it will never change, but mergers in financial institutions happen every 10 to 20 years. A name change may not affect anything, but when credit unions merge, members may get new routing numbers and even account numbers.
People in good standing can sometimes get behind, because they didn’t realize there was a merger. They didn’t change their direct deposit or they didn’t have their payroll deduction set up to the new account number. That creates a bit of a headache for everyone. We recently went through a conversion in which all the cards were changed from VISA to MasterCard. The cards look the same, so members didn’t even realize it has MasterCard at the bottom so it created problems. Status quo is easy to keep up, it’s the change that’s hard to deal with.
How best can the credit unions merging handle these delinquent accounts up front?
I don’t think that credit unions give delinquency enough weight when they are evaluating their decision making matrix concerning a merger. They acknowledge it and think it’s manageable. They don’t investigate and recognize that delinquency is X% because two board members have mortgages they haven’t paid. It could be a bigger deal than they think. Depending on the size of the credit union, mortgages could be a huge headache too.
Unfortunately, there is no perfect way a credit union can handle the merging delinquent accounts. The best thing would to be to let the collections department handle the delinquent accounts more strongly before the merger. Turning the delinquent accounts over to the predominant credit union and having them collect for the smaller credit union would go a long way in helping the delinquent members adjust to the merger.
Credit unions can help themselves by starting early, by letting members know about the merger. If the credit unions were using a third party like USC Collections Services, then they could do that easily. Both credit unions would technically be hiring USC Collections Services and we would be able to disclose information such as mergers. We can contact the member about their delinquency AND educate them about the merger.
How long after a typical merger does everything settle down?
It depends on the size of the merging entities, but usually about a year. That may seem like a long time, especially to members who have delinquent loans or other complicating issues. For example, we started with a credit union in June, and things finally started to settle after about 6 months. Mergers are bigger than any one member. The good thing about credit unions is that they make members feel special, but when things change members feel a loss of loyalty - when in fact they have just become owners of a new, often stronger credit union.