Our Collections department at United Solutions Company has a very successful track record when dealing with delinquent loans. We sat down with Anne-Marie Foote and Denise Zuehlke in order to better understand what delinquent loans are and the patterns associated with them.
Measurable Delinquency Cycles
Measureable delinquency for a credit union is the pool of delinquent loans that are 60 days or more past due. This is the information that is available on the NCUA call report for individual credit unions. In order to keep delinquency down, the credit union should be in regular contact with the borrower and keep an eye on delinquency cycles. Denise characterized delinquency in “different buckets: 1 - 30 days, 31 - 60 days and 60 days or more past due.” The majority of loans that are 1 to 30 days past due usually self-cure. Most time in the case of early delinquency, it’s a new loan and the borrower could have either had their direct deposit setup wrong, something could have happened with their coupons, or another technical issue occurred.
Later delinquency, 31 days and greater, can be caused by a number of factors. This is a common occurrence during the holiday months; people have limited financial resources and they make the choice of buying presents and a tree instead of making their car payment. This “trade-off” is just the way some consumers budget. To counter-act the holiday debt many consumers get their tax return and use this money to get caught up. This holiday and tax return time cycle is one of the most common delinquency cycles, and our collections department sees it happen year after year.
Another repetitive cycle, is in the summer months when people spend money on summer vacation or extra childcare due to summer breaks. So in the months of May, June, and July the credit union may have a higher delinquency. These cycles, holiday and summer seasons, are caused by external influences outside of the credit union’s control. Another external effect to delinquency is a credit union’s Select Employer Group or SEG. An example of an SEG would be a county’s group of teachers, state workers, or another category of employment. A credit union that has a SEG of teachers can help lower delinquency by implementing a summer skip-a-pay program, since teachers aren’t paid during the summer and may struggle to make payments. With skip-a-pay programs, the credit union sets up the loan so no payments would be due during a certain month or months. August and September are often lower delinquency months because the school year is beginning, which leads to teachers going back to work and families returning from vacations. This is usually the best time to collect for the summer, while preparing for the Holidays coming up.
Seasonal employees, as a SEG, can effect delinquency as well, and the credit union must be aware if an employer is seasonal. Another SEG is government employees. If a borrower works for the government and then government shuts down, the borrower isn’t getting paid, so the borrower will probably not be making a loan payment. In order to manage delinquency, the credit union needs to be aware of those external influences and factors affecting their delinquency. When a SEG goes through an economic downturn that causes lay-offs or mergers within the company this will also effect a credit union’s delinquency, but since it is unpredictable and not repetitive it is not considered a cycle, such as the case with the riots in Missouri. March, April, and May are probably the calmest months.
More natural influences also affect a credit union’s measurable delinquency. For example, the ‘February effect’ occurs because there are only 28 or 29 days in February, so a borrower can’t be 30 days past due. This causes lower delinquency for March when all these borrowers are not past due for February’s payment. It’s an easy thing to overlook for the credit union, because borrowers and lenders alike think in 30-day increments. Another contributing factor during the month of February is that a lot of these borrowers receive their tax return and are able to make their payments. This causes lower delinquency in the first three months of the year, but it could also be the opposite for some members if they owe taxes.
The other natural effect is when two 31-day months occur back-to-back, with December and January and then again with July and August. A credit union will have a higher pool of delinquency because of the higher range of days. For example, if a credit union has a loan that’s due on June 30th, on July 31st the loan will be 31 days past due and on August 31st the loan would be 62 days past due, making it past 60 days due, and reportable.
Weather is another natural influence. Anne-Marie recently had a good example, “We had a foreclosure case in Pennsylvania that closed in November, and the credit union was thankful they were able to prep the house, have it on the market and sold before the snow hit. While in Florida we don’t ever have to worry about snow hit when there aren’t too many people looking at houses. It’s these seemingly small observations and cycles that make a big difference for collections.
Managing Measurable Delinquency Cycles
Credit unions can be more proactive off-setting delinquent cycles by knowing their segments. The previous example involving teachers illustrates being ready by having skip-a-payment programs in the summer. However, you can’t be proactive if the government shuts down. When the credit union discovers a group of its members is out of work for an extended period of time, the credit union has the ability to modify those particular members’ loans if necessary. Credit unions that have one SEG are more at risk than community based because there is always the potential that they could go on strike or have another interruption in work flow. When the credit union can offer a program that is anticipatory towards the needs of the members, the members feel more connected to the credit union. After all, they did join a credit union and not a bank. If the credit union is open minded with what’s going on with their members, the credit union can be more successful in keeping delinquency down.
Our collections services help credit unions become more in tune with these cycles. Sometimes a credit union already knows their cycles, and other times we can educate them on what patterns USC collections has learned. By the time USC collections is involved, sometimes the credit union’s measurable delinquency has already become very high and hard for the credit union to manage, yet the USC collections department will do everything possible to help curve the trend.
