With U.S. household debt reaching a record $17.796 trillion, credit unions face increasing pressure to manage collections effectively while maintaining their member-first philosophy. Limited staff, tight budgets, and the need to stay compliant with evolving regulations make it difficult for credit unions to handle growing numbers of delinquent accounts without straining their resources.
To stay competitive and reduce the costs of servicing both performing and non-performing loans, credit unions need innovative solutions. Below, we’ll explore five strategies designed to help credit unions solve costly debt collection challenges, backed by real-world examples, industry data, and a focus on compliance.
1. Automate Repetitive Tasks to Maximize Staff Efficiency
Credit unions typically operate with smaller teams, which makes it hard to keep up with a rising number of delinquent accounts. Manual collections processes consume staff time and often result in errors or inefficiencies, increasing the cost of servicing delinquent loans.
According to the Mortgage Bankers Association’s Servicing Operations Study, servicing non-performing loans costs 15 to 25 times more than servicing performing loans. Automating low-value tasks significantly reduces this burden. By automating repetitive tasks like sending payment reminders and tracking responses, credit unions can free up valuable staff time for high-value tasks, such as resolving complex delinquency cases. South Texas FCU was able to increase collections by 51% using Lexop’s automation—without adding additional full-time employees.
2. Prioritize Member-Centric Communication
Member relationships are at the heart of a credit union’s business model, and collections should align with this member-first philosophy. Rather than using a one-size-fits-all approach, credit unions should leverage member data to provide personalized and empathetic communication across their members’ preferred channels—whether that’s email, text, or phone.
For example, text reminders might work best for younger members with small overdue amounts, while more personal, phone-based conversations may be necessary for higher-value delinquencies. Tailoring messaging to specific member groups is crucial for ensuring communications are relevant and effective. By focusing on understanding the unique circumstances of each segment, credit unions can deliver the right message at the right time, improving both member engagement and collections outcomes.
- Focus on Circumstances: It’s essential to recognize the different financial situations and behaviors of various segments.
- Right Message, Right Time: Sending timely, relevant communications that match the member’s needs leads to higher response rates.
Segmentation Approaches
- By Loan Type: Customize your communications based on loan characteristics, such as auto loans, mortgages, or personal loans. This allows you to address specific financial obligations and provide solutions that resonate with the member’s situation.
- By Delinquency Severity: Tailor outreach depending on how overdue the account is. For example, you can differentiate between current accounts, those overdue by 30-60 days, and accounts 60+ days past due. Adjusting the tone and urgency of your communication can encourage earlier engagement and payment.
- By Demographic: Consider factors like age, payment history, and financial behavior. Younger members may prefer digital communication methods, while older members might respond better to personalized, empathetic phone calls.
By incorporating these segmentation approaches, credit unions can create more personalized, effective communication strategies that drive better results in their collection efforts.
3. Leverage Data to Refine Your Collections Strategy
Data is one of the most powerful tools for optimizing collections. Tracking key performance indicators (KPIs) such as member response rates, payment timelines, and channel effectiveness allows credit unions to refine their outreach and collections strategy continually.
Lexop’s platform offers detailed reporting and analytics, allowing credit unions to see which communication methods yield the highest payment recovery rates. South Texas FCU, for example, discovered that sending SMS reminders on Fridays drove the most payments. Members said it was convenient for them to get the reminder right before the weekend.
4. Offer Flexible, Digital Payment Options
Today’s members expect flexible and digital payment options, and offering these options is essential to boosting payment recovery rates. Traditional payment methods like in-person payments or mailed checks may no longer meet the needs of members who prefer the convenience of digital-first options. Offering solutions such as online portals or mobile apps allows members to make payments anytime, anywhere, including outside of traditional 9-5 operating hours. With flexible options like credit cards, ACH, or mobile wallets, members have the freedom to manage their payments on their own schedule, improving convenience and encouraging timely payments. This flexibility not only enhances member satisfaction but also boosts payment recovery rates. In fact, McKinsey research shows that digital-first customers contacted digitally make 12 percent more payments than those contacted via traditional channels.
5. Reduce Operational Costs Through Technology
For credit unions with limited resources, hiring additional staff or outsourcing collections to third-party agencies isn’t always financially feasible. Technology can provide a cost-effective alternative. By automating collections and providing flexible member options, credit unions can manage delinquent accounts in-house without expanding their team or increasing operational costs.
Lexop’s platform helps credit unions reduce the cost of loan servicing by automating manual tasks, scaling outreach efforts, and delivering data-driven insights to collections teams. Many Lexop clients have seen significant cost reductions by moving away from manual collections processes and third-party agencies.
6. Stay Ahead of Compliance Challenges with Automation
In addition to operational efficiency, credit unions must stay ahead of evolving regulatory requirements, especially when handling member data and payment solutions. The CFPB’s final rule 1033 now includes payment apps and data brokers, introducing new compliance requirements that impact how credit unions handle and share consumer financial data.
Non-compliance can lead to significant fines and reputational damage. Automating collections with Lexop not only ensures efficiency but also helps credit unions stay compliant with these new rules by offering secure, trackable digital payment solutions. Lexop’s platform integrates seamlessly with existing systems, providing secure data handling that aligns with the latest regulatory standards.
By automating your processes, credit unions can minimize the risk of compliance violations while providing a digital-first payment experience that satisfies both regulatory requirements and member preferences.
A Smarter Approach to Collections
Credit unions no longer need to choose between maintaining strong member relationships and improving collections efficiency. By leveraging automation, data analytics, and flexible payment options, credit unions can optimize their collections processes, reduce operational costs, stay compliant, and recover more delinquent payments.
Ready to transform your collections strategy? Book a personalized demo today and discover how Lexop can help your credit union recover more payments while reducing servicing costs.
