4 Reasons Your Credit Union Should Partner with a CUSO for Collections

Jul 31, 2023

Today’s members expect credit unions to provide a full array of modern banking products and services and to suggest right-timed personalized offers in their channel of choice, a task requiring robust data analytics.

It’s a struggle to fulfill this primary expectation when you’re allocating a disproportionate amount of your limited resources to burdensome back-office operations like collections. Of course, you can’t neglect collections without impairing liquidity, profitability, and potentially, safety and soundness.

However, there’s a more cost-effective way to manage collections—outsourcing it to a trusted third-party provider—especially when that partner is a credit union service organization (CUSO) that works exclusively with credit unions and understands their unique relationship with their members.

Here are the most compelling reasons to partner with a CUSO like CU*SOUTH for collections.

Reduce Delinquencies and Charge-Offs

The ever-challenging task of collections is exacerbated any time the economy falters. Today, sustained inflation, higher interest rates and recent company layoffs have put additional pressure on household budgets and consumers’ ability to pay their debts.

As proof, the Credit Union National Association (CUNA) reports the overall loan delinquency rate at credit unions rose from 0.44% as of April 2022 to 0.72% in April 2023, the highest it’s been in that time.

Transunion’s Credit Industry Insight Report breaks down delinquencies across the industry by loan categories. Only mortgages slightly buck the overall upward trend between Q1 2021 (when consumers were flush with COVID relief money) and Q1 2023:

  • Unsecured personal loans 60+ days: 2.68% to 3.91%
  • Credit cards 90+ days: 1.27% to 2.26%
  • Auto loans 60+ days: 1.33% to 1.69%
  • Mortgages 60+ days: 0.99% to 0.98% (but up from 0.87% in Q1 2022)

As for charge-offs at federally insured credit unions, the National Credit Union Administration (NCUA) indicates they rose 8 basis points between Q4 2021 and Q4 2022. The increases in delinquencies and charge-offs contributed to the NCUA’s reported 336.7% increase in credit union loan and lease loss provisions in 2022.

The situation could further worsen as many experts still predict a coming recession, including industry insiders like the CEOs of the biggest U.S. banks.

It takes staff, technology and expertise to recognize the first sign of trouble and contact members to develop a plan to bring them current and prevent further credit deterioration. Within a year of partnering with CU*SOUTH, 100% of credit union clients have experienced a significant reduction in their delinquencies and charge-offs.

Streamline Back-Office Operations

The Credit Union Times reports that income fell in the first quarter of 2023 at the 10 largest credit unions, which typically lead smaller ones.

Meanwhile, the ability of credit unions to increase non-interest income always faces hurdles. Currently, this includes consumer backlash against fees, which is bolstered by the Consumer Financial Protection Bureau’s (CFPB) battle against so-called junk fees.

This leaves credit unions searching for cost savings to strengthen their balance sheet. An inefficient internal collections function is a natural target for streamlining, and outsourcing is one of the quickest, easiest and most affordable ways to achieve this goal.

It means you don’t lose valuable time or money researching, implementing and training staff on an upgraded collections platform and improved processes. Instead, by transitioning your collections to a partner like CU*SOUTH, you benefit from its investment in cutting-edge technology and processes proven to speed up collections and lower the cost per loan to collect.

Ensure Regulatory Compliance

Don’t forget about the laws and regulations related to debt collection, most notably the Consumer Financial Protection Act (CFPA), the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).

They prohibit debt-collecting conduct that harasses, oppresses or abuses consumers, and the civil money penalties (CMPs) for violating them can be steep. Here’s a sampling of three recent enforcement actions issued by the CFPB related to violations of these laws:

  • $12 million CMP plus $12.18 million in redress
  • $6 million CMP and $13.2 million in redress
  • $5.25 million CMP

Moreover, the CFPB can always stack additional penalties for Unfair, Deceptive or Abusive Acts and Practices (UDAAP) on top of other debt-collection violations.

The collections staff at CU*SOUTH are well-versed in these laws, enhancing your credit union’s overall compliance stance while allowing your compliance officer to focus on other laws like the Bank Secrecy Act (BSA), which examiners are always intently scrutinizing.

Protect Member Relationships

You work incredibly hard to build strong and lasting relationships with your members. That can be easily jeopardized when members are struggling financially and your collections process is disjointed or collections staff is oblivious to the importance of relationships.

The ideal outsourced collections service provider follows several simple but powerful rules:

  • Work as a seamless extension of your credit union to recover outstanding balances.
  • Catch delinquencies early so members’ situations don’t get harder to resolve.
  • Create a connection with members through frequent but courteous communication.
  • Prioritize member relationships by approaching each situation individually.
  • Treat members with dignity and respect by listening to them.
  • Help members get back in good standing as quickly as possible.

When you engage a CUSO like CU*SOUTH to handle your collections, you’re not choosing a vendor. You’re gaining a partner who is 100% credit-union owned and committed to saving you money, increasing your revenue and helping you build and maintain stronger relationships with your members. 

Contact us to learn more about CU*SOUTH’s collections services.

CU*SOUTH is building a collaborative, peer-to-peer community of Credit Unions
through shared development of technology and service platforms. CU*SOUTH is headquartered on the Eastern Shore of Mobile Bay, with a nationwide network of CU experts.

Related Content

How Fintech Partnerships and Digital Transformation Help Credit Unions Thrive

How Fintech Partnerships and Digital Transformation Help Credit Unions Thrive

Credit unions are facing a pivotal moment in their evolution, addressing the critical need for technological innovation through the integration of advanced technologies. As a result, collaborations with fintech companies—once viewed as advantageous—are now essential for survival and growth in the modern financial landscape.