Case Study

Quality and Productivity of Financial Partners CU Collections Department Improves Significantly Using Solutions in Finance Consulting Services


In an effort to continue enhancing its in-house operations, Financial Partners Credit Union ($727 million; 61,753 members; Downey, CA) proactively looked to improve the quality and productivity of its in-house Collections and Recovery team to ensure proper controls were in place and adequate monitoring was being conducted. The credit union also wanted to update its underwriting criteria, minimizing exposure as its loans aged.

“To ensure all aspects of our in-house operations were of the highest quality, we started looking for subject matter experts who could evaluate our operations and make recommendations to improve our collections and recovery performance,” states Nader Moghaddam, President/CEO of Financial Partners Credit Union. “We also looked for experts who could update underwriting guidelines for consumer loans based on current industry standards and best-in-class examples.”

That said, Moghaddam called upon Solutions in Finance (SIF), an established lending and collections consultant for credit unions. Moghaddam had first worked with SIF in 2003 when he was EVP of another credit union. Because of the positive experiences at his previous credit union, he again hired SIF to work with Financial Partners in 2005. Since then, SIF has been doing various projects for Financial Partners in both the lending and collections areas.

A few of those projects included:

  • Assessment of the Collections Department
  • Guidance and support for the Collections Department during major managerial and staff changes
  • Assessment of consumer loan underwriting guidelines and creation of underwriting guidelines for new consumer loan products
  • Re-evaluation of Collections Department

Evaluation

During its most recent evaluation of Financial Partners’ Collections Department, SIF consultants reviewed procedures and guidelines, interviewed employees, reviewed system notes to track collection efforts, reviewed reports, observed department operations and sampled recorded collection calls. (Each project’s timeline varied from one week to 12 weeks depending on their scope.)

After its initial evaluation, SIF provided specific recommendations that included:

  • Creation and use of collections queues and determining factors (For example, past due loans enter collection queues earlier for borrower’s with low FICO scores.)
  • Distribution of queues depending on collector’s experience and proficiency
  • Transfer of responsibility for processing monetary transactions and general ledger reconciliation to Loan Servicing Department
  • Creation and use of roll-rate and productivity reports to manage collector effectiveness and productivity
  • Implementation of a formal quality review program for maintaining effective and constant quality collection and recovery methods
  • Implementation of process for the remarketing of repossessed vehicles including setting auction floor prices to maximize recovery amount
  • Establishment of dedicated skip-tracing collector to minimize time spent skip tracing by all other collectors
  • Obtain updated FICO scores on a quarterly basis
  • Improvement of score card, including new performance criteria
  • Creation of scripts to be used by collectors to assist borrowers who are experiencing financial difficulties as a result of this turbulent economic environment
  • Guidance in the process to centralize underwriting functions for consumer loans

Results

According to Moghaddam, the goals of SIF’s recommendations are to produce a highly motivated and productive Financial Partners’ Collections and Recovery team by adding more structure and controls as well as the implementation of more conservative underwriting criteria for consumer loans based on the current economic environment.

“We have benefited from the experience of SIF’s consultants. The recommendations they provided were based on proven and effective best practices.” he adds. “For instance, SIF was instrumental in the process of centralizing our consumer loan underwriting functions during this time.”

As a result of SIF’s recommendations, the quality and productivity of the Collections Department has improved significantly by implementing new measurement tools such as roll-rate reports, productivity reports, and score cards to enhance monitoring of its collections efforts. In addition, collection calls are now recorded and routinely monitored for quality assurance. And monetary transaction processing and G/L reconciliation have been removed from the Collections Department to ensure adequate checks and balances are in place.

Today, Financial Partners’ members have also benefited with a more effective Collections and Recovery team, translating into less losses and higher recoveries for the credit union. This effectiveness, in turn, has had a direct impact on ROA and benefits to its members.

We are confident that based on the most recent review by SIF, our Collections and Recovery team is performing efficiently and effectively and compares favorably with our peers,” Moghaddam says. “The VP of Loan Operations and the Directors of the Collections and Consumer Loan departments are pleased to have such a valued resource as SIF to review our processes and make recommendations for improvement.”