Where Are All the Collectors Going to Come From?

EDITORIAL

Delinquency has risen to pre-pandemic levels and everyone knows a recession is coming, but no one in the credit union or banks spaces seem to be doing much to get ready for it. Having been over a decade since the last recession, just how well equipped and staffed is everyone? Let’s face it, collectors don’t just fall out of the trees. So, let me ask a stupid question; where are all of the collectors going to come from?

Rock Stars and Red Headed Step Children

Auto lending, and credit of all types, had been booming for years until recent. Lending is the profit center for every financial organization and the source of growth and income. These positive contributions to the finance world have always made these divisions the “Rock Stars” of the bank and credit union worlds.

On the other hand, the economy had been strong for so long that delinquency was an afterthought of little consequence. Collections departments diminished in staffing through layoff or non-replacement and budgets were slashed. Training, software upgrades and attention to the “Red Headed Step Children” of the finance world left many of these departments relegated to be of lesser importance than the file room.

So here we are after all these years, rising interest rates are snuffing out the bonfire of loan production and creating liquidity issues for lenders of all sizes as the cost of funds far exceeds the yield on those huge crops of loan portfolios they’d been growing over the last few years. Inflation remains stubbornly high and unemployment numbers are expected, no wait, desired by the Fed in order to squash the aforementioned inflation.

The stage is set and now we find ourselves with our legs dangling in the breeze over the precipice of a highly probable recession, are you ready?

Tap Dancing in a Minefield

It’s often the little things that get overlooked and taken for granted. And often they are important things. Things that can lose a financial organization a lot of money, or worse, get the snot sued out of them. Yet for years, and even still, the top brass of many lenders take for granted the risk that goes on with every activity in their collections departments. 

With the myriad of overlapping and often contradictory laws and regulations at the state and federal levels, the very act of communicating with borrowers can be perilous and litigious. But a seasoned experienced collector can manage this treacherous environment with the agility of Fred Astaire tap dancing in a minefield.

It is a skill, a craft perfected. One that takes time and does not happen overnight. It’s one that requires training and experience. There are no shortcuts.

Reaction vs. Proaction

I’ve seen it before, delinquency spikes as lending draws down. “We’ll just turn some loan processors or underwriters into collectors.” A well-intentioned CLO or VP is oft to suggest when it’s already too late to staff up.

Unfortunately, this reaction to a serious problem is a band aid on a broken leg solution. It’s like running down to the Home Depot to buy a fire extinguisher while a grease fire rages in your kitchen. Damage done.

The naivety of this reactive premise leaves a lender often ill equipped to deal with the complexity of the collections issues that even a standard entry level collector will encounter on an almost daily basis. Should they say or do one wrong thing, they could unleash a Pandora’s Box of peril. As I said before, there is probably nothing more litigious that a lending organization does than the act of collections.

That’s not to say that they couldn’t become collectors, but that would take training and time. Events that should occur before the house is on fire. Proaction, not reaction.

“We’ll just outsource it.” is another common but reactive and short sighted response you’re likely to hear. But here’s is the problems with that. While companies like SWBC’s AutoPilot or PSCU’s The Loan Service Center do great work, what’s to say that they won’t become understaffed and overwhelmed in the future as well?

Keep in mind, collections is far more than just smiling and dialing. Collectors are problem solvers and solving problems requires time and skill. And time is what is required to develop these skills.

The solution to the growing problem is proactivity.

Sharpen Your Tools

Ask any Collections Manager, VP or Director; good collectors are hard to find. It’s been 14 years since that last recession and a lot of experienced collectors have retired or moved on to endeavors with better pay or where their better appreciated.

If your organization plans to hire experienced staff for the recession, the time is now. If you wait too long, there likely won’t be any available, that is if you’re lucky enough to find any now. Which leads me back to being proactive.

When was the last time your organization upgraded their collections software? If it’s been more than seven years, you’re probably long overdue a conversion. There are some great software programs out there like Akcelerant and even better, AKUVO Aperture that can help you work smarter and more efficiently.

But of course, these require capital investment which requires C suite and usually Board approval. This takes time. And don’t forget, even once approved, these programs take time to launch. Time that is working against you of you don’t act proactively to this situation.

In the meanwhile, this is a good time to get your staff engaged in continued training. There are many great options like Triverity’s Collection Academy and digital training programs. And of course, every collector should attend Eric North’s annual Collections and Bankruptcy Courses as well as NorthLegal webinars.

Abraham Lincoln once said, “If I only had an hour to chop down a tree, I would spend the first 45 minutes sharpening my axe.”

If you’re not getting ready, you’d better. The time to act is now. Not when the dumpster fire is already raging.

Kevin Armstrong

Publisher

Where Are All the Collectors Going to Come From? – Delinquency – Repossession