New Case Study: Reducing Credit Card Delinquencies

A widely held misconception about recessionary periods is that they are a boon to debt collection activities. The common belief is that when the U.S. economy heads south, consumers stop paying their bills and an abundance of money is simply waiting to be reclaimed by credit grantors and private debt col­lectors working on their behalf. The reality, however, is somewhat more complicated because the hypothe­sis assumes that consumers’ willingness to pay and their ability to pay are one and the same.

Like many other U.S. financial institutions that extend consumer credit through various monetary instru­ments, HEW Federal Credit Union (HEW) has faced a difficult collections environment since the financial crisis began in the fall of 2008. Recognizing the pro­tracted effects of the recent recession on HEW mem­bers’ ability to make timely payments on credit cards it had issued and acknowledging the organization’s limited internal success at effectively converting those unpaid receivables into cash, HEW sought a custom-fit, cost-effective solution to reduce its unacceptably high credit card delinquency rates.

It should come as little surprise then that 41 percent of collection agencies surveyed by insideARM.com reported finding it harder to collect in the second quarter of 2011 than during the same interval a year earlier. And if third-party debt collection agencies are experiencing increased difficulty in performing their primary business objective, card issuers like HEW and other financial institutions are reasonably assured to confront even greater recovery challenges precisely because debt collection is not a core competency for creditor organizations.

PSCU Financial Services and insideARM.com recently published a new Case Study on the numerous operational challenges that credit unions and other financial institutions grapple with in a down U.S. economy.

Among the administrative stumbling blocks at HEW:

• An overwhelming increase in the number of past-due credit card accounts
• Insufficient staff to place weekly, let alone daily, collection calls to cardholders
• Too little internal account volume to create a stand-alone, scalable, and cost-effective payment system

The Case Study, entitled Reducing Credit Card Delinquencies at U.S. Financial Institutions, examines the current economic landscape and its impact on financial institutions’ internal collection efforts; the specific organizational barriers to reducing member delinquencies at HEW Federal Credit Union; and a comprehensive solution to those barriers to success provided by PSCU Financial Services that resulted in a 45 percent reduction in 3-cycle-plus credit card delinquencies for HEW.

For a free download of Reducing Credit Card Delinquencies at U.S. Financial Institutions click here.

Michael Klozotsky is the managing editor of insideARM.com. He still uses a pen from the University of Illinois Employee Credit Union when engaged in woodworking projects (because it’s an orange and blue “clicky pen” and, well, he likes to think of himself as handy).