5 Credit Union Repossession Best Practices
As one of the top repossession management firms in the country, we work with some of the largest credit unions. Doing so has given us deep insight into the strategies deployed by many different lenders. With many leading credit unions, this strategy has been highly refined over the years and is constantly being adjusted to maximize their repossession results.
In this post, we will share our observations as to what we have observed as the key components of a best practices model employed by the nation’s top credit unions. While there are many variations and nuances to the model, the strategy that gets the best results has these 5 basic elements:
- Multiple agents or repossession management firms (forwarders)
- Relatively short assignment durations
- Multiple pre-charge off and post charge off rotations
- Transparent and frequent scorecards
- Clear process for rewarding and penalizing vendors based on performance
Below are some more perspectives on each of these issues:
Multiple Vendors – Depending on the volume of your institution’s repo activity, the optimal number of vendors seems to be 3-4. Some credit unions have figured out that they need multiple vendors to create real competition but few enough to make their business really important to each agent or forwarder.
Assignment Duration – Probably the single biggest mistake that we see credit unions make, is. leaving assignments with their agents or forwarders/skip companies open too long. The reality is that after a certain period of time, the vendor is likely putting very little effort into the case.
In recent years, we have definitely seen a trend towards shorter assignments durations among the larger credit unions. From our experience, the following strategy yields optimal repossession results:
1st Placement: 20-30 days
Pre-Charge Off Skip: 15-25 days
Post Charge Off Skip: 60 – 90 days (depending on placement)
If your agents/vendors have not located and recovered the vehicle in this period of time, it is highly improbable that they ever will.
Multiple Rotations – The best results come from having 5 rotations during the entire repossession process:
- Pre-Charge Off: 1 forwarder/agent placement + 1 skip placement
- Post Charge Off: 3 skip placements (60,90,90-day durations)
An increasing number of credit unions are combining this enhanced approach with an LPR staging strategy whereby all assignments are put into one or more LPR systems and remain there throughout the rotation process.
Download the chart at the end of this article for a best practice strategy illustration.
Regular/Transparent Scorecards – We have observed a great deal of inconsistency in the use of scorecards by credit unions and have found that the approach that yields the best results includes:
- Published at least monthly – we have one client that publishes it every day. You bet we watch it closely!
- Transparent – the methodology is fully disclosed. This level of understanding allows your partners to adjust their strategies to maximize the results you
- Batch Focused – measuring performance on closed (or almost closed) monthly batches provides the best insight into achieving ultimate performance. Anything less really just gives you a snapshot of performance.
Rewards/Penalties – Nothing motivates an agent or nationwide repossession management company more than the opportunity to gain or lose meaningful market share based on performance. Frankly, that is all the motivation that we need to really focus on your business. Some credit unions have really figured this out and reallocate market share at least once per quarter and the top 1-2 performers get the lion’s share of the business. Being rewarded with an additional couple of percentage points of market really does not create the level of motivation that will maximize results.
Obviously, the impact of these tactics varies based on how they are deployed, but the impact can be very significant. Below is a simple case study from one of our clients, whose original strategy was to assign their accounts to a forwarder at approx. day 60 of delinquency and leave it with that forwarder until charge off (approx. 120 days delinquent). But by changing their strategy to rotating it as a skip assignment at day 90, they improved their recoveries showing significant results, with an improvement of over $4.0MM in net auction proceeds per year.
While all of this opportunity does come at a cost, taking full advantage afforded by a strategy consisting of these practices will require resources to manage and some system changes may be required. However, the results are well worth it.
To discuss how you can implement a similar strategy for your organization, schedule a free consultation. We’ll help you customize an effective repossession process that fits the needs of your credit union.
Download a Copy of Our Credit Union Best Practice Strategy Chart
The illustration chart is a graphical example of when top credit unions rotate assignments pre and post charge-off. Get a PDF copy to share among your coworkers and colleagues. Should you have any questions, contact our team.