MARSHLAND COMMUNITY FEDERAL CREDIT UNION
Transcription
MARSHLAND COMMUNITY FEDERAL CREDIT UNION
MARSHLAND COMMUNITY FEDERAL CREDIT UNION COLLECTION POLICY INDEX POLICY NUMBER PREFACE PAGE NUMBER 2 INTRODUCTION TO CREDIT UNION COLLECTIONS 1401 3 DELINQUENCY REPORTS 1402 4 TELEPHONE CONTACTS 1403 5 FACE TO FACE COLLECTIONS 1404 6 COLLECTING THE UNSECURED LOAN 1405 7 COLLECTING THE SECURED LOAN 1406 8 COLLECTING MULTIPLE LOAN ACCOUTS 1407 9 COLLECTING FROM COMAKERS 1408 10 EXTENSIONS AGREEMENTS 1409 11 REPOSSESSIONS AND LIQUIDATION 1410 13 MORTGAGE FORECLOSURES 1411 17 SKIP TRACING 1412 18 THIRD PARTY COLLECTIONS 1413 20 MAGISTRATE COURT 1414 21 BANKRUPICIES 1415 22 INSURANCE RISK 1416 25 RETURNED ITEMS 1417 26 NEGATIVE ACCOUNTS 1418 27 CHARGE OFF 1419 28 BOND CLAIMS 1420 29 REVIEWS 1421 30 APPENDIX 31 Policy revised November 2015 1 MARSHLAND COMMUNITY FEDERAL CREDIT UNION COLLECTION POLICY REVISED APRIL 18, 2006 PREFACE The Marshland Community Federal Credit Union must implement and maintain an effective control of all loans in order to safeguard the funds entrusted to it by its members. The credit union philosophy of helping other people to help themselves should be considered when the causes of delinquency are determined and collection can be implemented through adequate financial planning. The credit union shall always consider the well being of the member should be considered as part of a sound collection policy. Vigorous collection action within limits of federal and state consumer laws shall be initiated when it is indicated that the member has no intent to fulfill his obligation. COLLECTION The President/CEO is responsible for maintaining effective collection practices. The Collections Manager is responsible for the coordination of the collection efforts of the Marshland Community Federal Credit Union in accordance with the philosophy outlined in the policies set forth by the board of directors. Policy and procedures relating to the collection of delinquent loans and interest are applied as necessary to prevent losses to the credit union. The major objective of the collection department is to prevent losses. The procedures include provisions for determination of the causes of delinquency and for cooperation with the member to the fullest extent possible without incurring a financial loss to the credit union in order that the member repays the loan. EXCEPTIONS TO POLICY Where good judgment dictates, these policies may be modified, based on the circumstances of the member in the best interest of the credit union. Policy revised November 2015 2 POLICY 1401 INTRODUCTION TO CREDIT UNION COLLECTIONS It is the policy of the Board of Directors of Marshland Community Federal Credit Union is to protect the assets and profitability of the credit union through a professional collection program. The Board has established limits for delinquency and charge-offs as measurements of adverse default risk. The maximum 60 day delinquency ratio at any month end is set at 1.50% of total loans. The goal of the collection department is to keep the delinquency under 1% of the total outstanding loans. The collection effort begins not in the collection department, but in the office of our loan officers. The old saying that a "well-made loan is half collected" holds true today. Since the credit union deals with numerous loan applications each day, the proficiency of the loan department is imperative. Employees involved in the collection effort should not be critical of individual loan officers, but constructive suggestions are welcome by management. Good loan officers do not make "bad" loans, but some of their "good" loans go bad after they are made. Keep in mind that the interest rates on our loans are designed to offset loan losses, provide for operating costs, and pay dividends. A poor collection effort could be detrimental to the credit union, and will affect the overall profitability of the credit union. COLLECTIONS ARE IMPORTANT! The member is delinquent if he/she fails to make a scheduled payment on or before the due date. If the payment is not made by the close of business on the date due, the loan is technically "past-due". The benefit of the doubt is granted to the member; however, as the first late notice is not sent to the member until eleven (11) days after the first payment is due. A late fee is charged on payments more than 10 days past due and 15 days past due on Home Equity Line of Credit Loans (HELOC). Early or new delinquents should be given all consideration, because in SOME cases, the delinquent condition is due to an error by the credit union; usually a payroll error. Extreme care must be taken to insure that a good member is not contacted in error. When a member is legitimately past-due on a payment for the first time, he/she will usually respond to the computer generated notices (2 sent in the first 21 days). When there is no apparent effort made by the member to bring the account current, and no contact is made, then the collection "clock" is started and does not stop until the account is current. The only way for the credit union to prevent collection problems is to make share-secured loans only or to stop making loans altogether, because even with the most careful selection processes, every loan officer will make an occasional mistake in judgment and allow credit to a member who will not pay promptly. Unfortunately, the credit union would die a slow death with such a policy in effect. The credit union, historically has taken the approach that some members save so that others may borrow. In today's modern credit oriented society, loans are made with a margin of risk. This risk generates collection problems that may be numerous to an organization like MCFCU who generate a volume of loans. These problems are expected but are manageable if the credit union has well-organized, well-trained management in collections and loans. All collectors should remember that they must not only collect the money, but must try to retain the relationship of members. Policy revised November 2015 3 POLICY 1402 DELINQUENCY REPORTS The collection department uses an electronic “collection” system that tracts all loans that are past due more than 10 days. Queues are created for each collector to work by Alpha, Bankruptcy’s, Repossessions and Legal Accounts. The system tracts and records collection activity notes on each account. The record on each account should include; cause of delinquency or circumstances that have changed since the loan was made and the ability of the member to resolve the delinquency problem. On a regular basis the collectors and manager review all accounts that are 31 days past due and over. Special attention is paid to the new loans that have not made a payment or have not obtained insurance for the vehicle. The queues are reviewed also for the first-time delinquent account and sorted to work the large dollar balances first. The collectors must also handle the member who has had prior past-due histories that the collector recognizes more firmly. All other accounts remaining in the queues must be worked. A delinquency report is generated when needed showing the remaining accounts that are past due. At month end the delinquency is divided into various stages of delinquency, starting with 0-30 day loans, continuing with 31-60 days, 61-90 days, 91-180 days, 181-365 days, 366 and over days. These listings are used for reporting purposes with the 61 and over accounts tracked for classification to the Board of Directors. Policy revised November 2015 4 POLICY 1403 TELEPHONE CONTACTS The collection effort requires extensive use of the telephone. A good collector should be able to maximize the results and minimize the cost of the telephone contact. The key to being effective on the telephone is organization. This means that the collector must have a thorough, working knowledge of the account and all the information it contains. HOW TO USE THE TELEPHONE The three K's to all calls, local or long distance are: 1. Know whom you want to reach. 2. Know what you want to say. 3. Know what you want to accomplish. Be sure you know the member's full name (is the member a Jr. or Sr.). Any nickname the collector is able to obtain from a contact with the members' past place of employment or relative could be valuable in getting the member to the phone. The collector should be careful not to disclose the nature of the call until the right person is on the line. The collector should tell the answering party his/her name, the name of the credit union, and to whom he/she would like to speak. Prior to making a call, the collector must review the account information and history. Make notes as to what needs to be discussed during the conversation. As with face-to-face contact, the collector must be able to get the same information from the member: 1. WHO? 2. WHY? 3. HOW MUCH? 4. WHEN? 5. HOW MUCH, WHEN AGAIN? The collector must summarize the conversation on the member’s collection work card. Also the collector should set up the next contact date based on the conversation. This information will be vital for future reference. Policy revised July 23, 2013 Policy revised November 2015 5 POLICY 1404 FACE-TO-FACE COLLECTIONS Dealing with the member "face-to-face" can be the most effective means of solving a delinquent problem. The collector must be able to communicate with the member in order to obtain the best results from a personal contact. It should be understood that this individual member may not be easy to communicate with. The collector must be able to do the following things to accomplish a satisfactory contact: 1. Put the member at ease, not on the spot. 2. Maintain a helpful attitude toward the member. 3. Counsel the member and be able to determine why the delinquency occurred. 4. Reach a clear and firm understanding of the payment arrangements made during the conversation 5. Obtain as much personal information as possible without offending the member. 6. Assure the member that the Credit Union will work with him/her to resolve the problem. 7. Close the meeting on a positive note, along with a reaffirmation of the agreement Record the gist of the conversation on the work card and be sure that the following questions are answered: WHO? WHY? HOW MUCH? WHEN? HOW MUCH, WHEN AGAIN? With whom were you meeting? Why is the member past-due? How much will the member pay? When will the member pay? The collector should try to have the member obligate himself/herself to more than just a single payment. REMEMBER, THE OBJECTIVE FOR THE COLLECTOR IS TO BRING THE ACCOUNT CURRENT!! The collector must know the "whole story" in order to be effective. Only the member can provide that story. The collector should remain calm during the course of even the most heated conversation with the member. The collector will, in some cases, ask for assistance from the manager where the member seems out of control. Policy revised November 2015 6 POLICY 1405 COLLECTING THE UNSECURED LOAN An unsecured (signature) loan is usually more difficult to collect since the member often forgets the reason or purpose of the loan, and there is no collateral to serve as a reminder. Payments on an unsecured loan receive a very low priority in the household budget and even less priority in hard times. With this in mind, the following collection process is prescribed: 11-30 days Late notices are mailed out at 11 days and 21 days of delinquency. If the member is local, on the job, or home, a telephone contact would be in order. 31-60 days The process demands aggressive action as time marches on for the delinquent account. At this stage of delinquency, the member should have received AT LEAST two letters, and AT LEAST two phone contacts. Emphasis at this point is on making concrete arrangements with the delinquent member as to when the account will be brought current. 61-90 days During this time, the account is determined to be in a critical state. At this point, the balance of the loan will fall into the Credit Union's "Reportable Totals", meaning that the delinquency rate is now affected by the very presence of the delinquent loan in this category. The collection effort now calls for a very firm action in making whatever arrangements need to be made in bringing the account current. Towards the latter part of this time frame, the collector should be prepared to take legal action if the member does not show signs of being able to, or wanting to bring the account up-to-date. 91-180 days At this point, legal action should begin. Suits should be filed; judgments obtained and wages garnished and other options available by law. **The loan should be reviewed for charge-off when a full payment has not been made within 120 days. Policy revised November 2015 7 POLICY 1406 COLLECTING THE SECURED LOAN The credit union generates a large number of collateralized loans using a wide variety of collateral. Anything from a riding lawn mower to an airplane could secure a loan and, in turn, become delinquent. By experience, secured loans are somewhat easier to collect. The logic is simple; the member is reminded of the purpose of the loan and does feel there is something to be lost by not keeping the loan current. The emphasis on the loan being secured should not overshadow the main goal of bringing the account current and paying on a regular, monthly basis. REPOSSESSING THE COLLATERAL IS NOT THE GOAL! Repossessed collateral seldom sells for the balance of the loan, but waiting too long to repossess can be even more hazardous. If the member can't afford the payment and feels that the collateral is about to be repossessed, little or no maintenance is performed, and in extreme cases the collateral is abused intentionally. The key to the successful collection of a secured loan is knowing when to take possession of the collateral. As a general rule, 60-90 days without payment or satisfactory payment arrangements will trigger a repossession. There are few exceptions to this rule. (One being if the member has the collateral out of state, a new loan or collateral protection insurance has been added to the loan.) In all cases, the up-to-date payment is the goal. Frequency of follow-up and a close adherence to any arrangements are other keys to successful efforts. If the member fails to keep a promise, the collector should respond quickly (within 2 days). In cases where the member can be reached by phone, a call late on the afternoon of the promised date is very effective and often gives the member an opportunity to "save face" when another day may make the difference. The following is the prescribed collection process: 5-25 days Two computer notices. The first at 11 days, the second at 21 days. 30-45 days Letter asking the member to pay the past-due amount or contact the Credit Union for payment arrangements along with telephone contact 46-60 days If member has failed to keep promise or has not contacted the Credit Union for payment arrangements, phone contact in conjunction with letters. 61-75 days Contact member by mail or by phone to make arrangements to take possession of the collateral. 61-90 days Turn account over to repossession agent. Policy revised November 2015 8 POLICY 1407 COLLECTING MULTIPLE LOAN ACCOUNTS Many of the credit union borrowers have more than one loan. When these loans become delinquent the collector must consolidate the collection procedures and then add to the letters the additional information on more than one balance and collateral type. In a majority of cases the member will have at least one loan unsecured and another secured by an automobile or light truck. When this situation occurs the collector should place emphasis on collecting the unsecured loan first and place any compromise payment arrangements on the secured loan. It should be very clear to the member that the signature loan as well as the secured loan is to be current. In the event the member refuses to pay the unsecured loan and continues to pay the secured loan (any payments received by the credit union may be applied to any loan account the credit union wishes to pay unless the check for payment bears a specific instructions), the member is to be informed that the credit union may at anytime deem itself to be insecure as to the repayment of the collateral and demand the balance in full or in may elect the option of cross-collateralization wherein the credit union can use any security instrument to secure any promissory note held by the credit union in the borrower's name. These are all subject, however, to interpretations of the contract provisions and should be approached only on the advice of the credit union attorney. The same basic collection procedures are used with this type of delinquent by the time frames are adjusted to coordinate with the secured loan collection procedures. The collector must consult with the Collections Manager prior to initiation any type of cross-collateralization. Policy revised November 2015 9 POLICY 1408 COLLECTING FROM CO-MAKERS Co-makers are individuals who have agreed in writing to pay a loan if the primary member defaults. It is imperative that the co-maker(s) be kept informed of any adverse activity that may take place on the primary members account. The co-makers will automatically receive a past due notice when the primary member does not make the scheduled payment. All additional correspondence sent to the primary member should also be mailed to the co-maker(s) and the collector will advise all co-makers of any pertinent telephone conversations with the delinquent member. It is the intention of this credit union to require immediate payment by the co-maker when the member first becomes delinquent or some problem occurs. A cooperative spirit should be generated by the collector with each co-maker as most co-makers can be very effective collectors. This cooperative effort will also reduce any ill will that may be generated as the result of the co-maker having to pay. In cases where there is more than one co-maker, the collector will attempt to have all co-makers respond to their contractual responsibilities and pay the account current. The collector will consult with the Collections Manager prior to any action to effect collections direct from the comakers. Policy revised November 2015 10 POLICY 1409 EXTENSION AGREEMENTS Occasionally members find themselves in situation where they cannot make their payments as agreed and become delinquent. However, some of these situations are only temporary and once the member's problem is resolved he or she can begin making regular monthly payments. After such a problem occurs, it is often a problem bringing the account current by payment or a large past due amount at one time. Such problems may be loss of employment, medical, divorce, unforeseen expenses, etc. All delinquent members are to be encouraged to bring their account current by making additional payments over a period of time. When this is not possible the member should be offered some sort of incentive to be able to rehabilitate himself in his eyes and the eyes of the credit union. The extension agreement procedure places the obligation on the collector to work harder with the past due member to seek a total solution (not just a temporary one-time payment) to the problem of the delinquent obligation. This procedure will also aid in the relationship between the borrower and the credit union and in the long run will benefit the member and the credit union in rehabilitating members who have previously had delinquent loans. Procedure: 1. Any member who has made 3 or more consecutive payments with no collection effort on the part of the credit union will be eligible to APPLY for an extension agreement. Each case must be reviewed on its own merit and the following requirement met: A. The loan cannot have had previous extension agreement for delinquency purposes under this policy. B. The collector must be reasonably sure that the member will be able to continue paying on a timely basis. C . Whenever possible, a payroll deduction should be obtained to repay the extension agreement NOTE: The collector should make the member fully aware that this is a onetime event in the life of a loan and that all future payments must be made as agreed. 2. The collector will contact the member (or the member the collector) and confirm the reasons for the member not being able to pay up-to-date payments but will be able to make the regular payments on time in the future without reminders from the credit union. If the member agrees, the collector will suggest that the member apply for an extension agreement after paying regular payments for a predetermined period (minimum of three months). The collector will obtain a new loan application and if any new collateral or a co-maker is being added to enhance the credit union's position (and to encourage the approval of the extension) a new agreement or security agreement must be signed. Policy revised November 2015 11 EXTENSION AGREEMENTS –PAGE 2 3. The Collections Manager , after reviewing the member's credit history, collection history, and new application, will make a recommendation to the VP of Loans for approval. The VP of Loans may extend the number of payments to be made prior to approval of an extension agreement in the form of a counteroffer. 4. In NO EVENT shall any form of the extension procedure be used at anytime for the sole purpose of reducing the number and amounts being carried on the delinquent report. Such a transaction is in direct violation of these policies and serves no useful purpose because it only make collection problems not solves them. Policy revised November 2015 12 POLICY 1410 REPOSSESSIONS AND LIQUIDATION When action to collect a delinquent loan or protect the credit union’s interest requires repossessions (recovery) of a vehicle or other personal property, care must be taken to comply with the laws of the State of Georgia, Uniform Commercial Code and the laws of the state in which the property is located. Whenever there is any doubt, or unfamiliar with the laws of jurisdiction, consult the credit union’s retained attorney. There are basically three methods for taking possession of collateral on loans in default: 1. Voluntary Surrender 2. Voluntary Surrender through Forced Repossession 3. Involuntarily Repossession through Court of Law An attempt is made in this section to give the collector the basic parameters of each of the three methods. In no event will a collector initiate a forced repossession or judicial foreclosure without insuring that all was done to recover payments from the member. Voluntary Surrender This method of taking collateral should be discussed with any member who has kept a good line of communication with the credit union. It may even be discussed with the less cooperative members once they are fully aware of the ramifications of the alternative methods. The reasons for this method being preferred are as follows: 1. It is the least adversary to the member and often leads to the successful collection of the unpaid balance if any after the sale of the collateral. 2. It is the least expensive method in as much as no third party (agent or attorney) is involved. 3. It is the least damaging method to the member's credit history and is not looked upon with the same disfavor as the other methods. 4. Executed properly, it allows the credit union a potential avenue to make future loans available to the member once he is again in good standing. A voluntary surrender of collateral usually takes place when the member is in the local area but may take place outside of the local area if the member is in a location where another credit union could handle the surrender. Regardless of the member's location, Voluntary Surrenders are to be encouraged in every case where the member has acted in good faith. Any repossession where the member is willing to sign a voluntary release of the collateral and there is no third part collection effort will be considered and shown as a Voluntary Surrender Policy revised November 2015 13 REPOSSESSIONS AND LIQUIDATION – PAGE 2 Voluntary Surrender through Forced Repossession This method involves a third party repossessor which is to be bonded and carry liability insurance at a minimum of $1,000,000.00. For repossessions out of the area, call a credit union in that immediate area to obtain a repossession agency that handles their repossessions. The repossessor takes possession of the collateral with little or no notice to the member. Usually the agent will wait until the member is on some property with public access and enter the car through whatever means is necessary to drive or even wrecker the collateral away. This method of repossession is initiated normally when a member has been uncooperative or has evaded contact. It has proven to be very effective in cases where the member has tried to hide the collateral in as much as most repossessor’s are trained to locate collateral under extreme circumstances. Even though this method is quite effective it has numerous drawbacks. It can be very expensive ($175 to $700) depending on the difficulties experienced by the agent in taking the collateral. It usually generates ill will between credit union and the member because of the nature of the action and makes collection of any deficiency balance after sale very difficult. The collector should make every effort to minimize the charges incurred by this method by being able to give as much information as possible to help in the repossession. Further, the collector should attempt to find a credit union in the member's local area to provide not only the name of a reputable agent but also a free or low cost storage (some states require the collateral to be kept within the state boundaries for 10 or more days). The collector must have prior approval from the Collections Manager before initiating repossession. Forced Repossession This is the "when all else fails" method of taking collateral from a delinquent member. It is time consuming and can be very expensive. It is not always effective because of the time required in litigation the foreclosure. The court ordered repossession is carried out by an officer of the court (sheriff) who may or may not be enthused about this part of his job and some will even delay the action. The more positive aspect of this method is the member is forced to bring the situation to conclusion or face other more serious charges from the court. Policy revised November 2015 14 REPOSSESSIONS AND LIQUIDATION – PAGE 3 A certified letter must be sent to the member informing him/her of their right to demand a public sale in writing within 10 days of the letter. In addition, this letter informs the member of the amount necessary to redeem the collateral to include interest, unpaid principle, late fees and other fees incurred. If the member does not redeem or pay the vehicle in full a. evaluate the vehicle for sale b. have vehicle detailed (if warranted) c. set price The Liquidation Process If the member fails to redeem the collateral, the credit union will open the collateral for sale to the general public. In most cases, the collateral to be sold will be located at a credit union office advertised and at a fixed price. (Price will be determined by averaging the “Black” book retail and trade-in values and condition, less adjustments for physical or mechanical damage.) In most cases, collateral with physical or mechanical damage will be sold without repairs and any monies received from insurance claims will be applied to the principle balance. The credit union will then attempt to sell the item for the suggested price. The credit union will, however, take bids from any party not wanting to pay the full purchase price. An ad in the local paper is also an option. Every effort will be made to get the most money for any collateral being liquidated. The collateral may be sold at a public or dealer auction or may be sold to the highest of three bids. All efforts should be made to liquidate collateral within 60 days after repossession. A. Redemption of repossessed property other than complete satisfaction of debt plus costs shall occur only with the expressed authorization of Collections Manager . B. Credit Union employees may not in any way use the repossessed collateral for their own personal use, or credit union business. C. All expenses such as repossession costs, repairs, detailing will be added to the loan balance D. The member must be notified by certified mail of all personal items found in the vehicle. E. The collateral will be disposed of by any legal means available or sent to an auction, invite auto dealers to bid on vehicles or sell to a salvage company. F. Vehicles will be sold without warranty or guarantee. Vehicles will be sold “as in” condition. G. The Collections Manager must approve all sales, however in his/her absence the President/CEO will have the authority to approve the sale. Policy revised November 2015 15 REPOSSESSIONS AND LIQUIDATION – PAGE 4 H. Vehicles should be sold within 60 days of repossession. I. Proceeds from the sale shall be applied to the principle of the balance. J. Once the collateral has been sold and all charges are applied to the account, a deficiency balance letter advising the member of the remaining unpaid balance. The letter also defines a specific time period for the member to contact the credit union with payment arrangement. Sale of Repossessed Collateral to Credit Union Employees or Officials Repossessed Collateral may be offered for sale to Marshland Community Federal Credit Union employees and officials (Board & Supervisory Committee members) at the fixed price indicated in the above Liquidation Process. To insure that all sales are "arms length transactions", no reduction in price will be negotiated. In the event the collateral has not been sold after 60 days, employees and or officials may submit bids and purchase the collateral provided their bid exceeds the next highest bid by at least $100.00. The President/CEO must approve sales to employees. Sales to senior management and officials require executive committee approval. Insurance Refunds or Claims Any repossessed or voluntary surrendered collateral should be reviewed for possible refunds on A. credit life/disability policies paid on any Indirect Loans B. mechanical breakdown policies C. warranty policy D. any claims against physical damage from the member’s insurance company, if applicable. Policy revised November 2015 16 POLICY 1411 MORTGAGE FORECLOSURES From time to time we are unable to save a mortgage after every effort has been made. Every effort will be made to work out a payment plan to save the loan. The credit union may obtain the property through the bankruptcy court or just non-payment of the mortgage. The following are some guidelines to follow; - If two payments are missed without a payment plan, notification in writing must be sent giving the member 10 days to bring the account current to avoid foreclosure. - If the 10 day letter does not get a positive response from the member, it will then be necessary for the credit union’s attorney to send a notice of foreclosure. - The Credit Union attorney will handle foreclosures. - The dwelling needs to be insured if not already covered. CUNA Mutual will cover all foreclosed dwellings - If the member does not pay the mortgage in full, the credit union will purchase the property as outlined by state law. - The loan should be transferred to REO (GL 79800) when the credit union takes title to the property in with GAAP - All expenses must be paid from the REO Collection (GL 28201) - The credit union will make every effort to find a buyer for the property upon setting a price. - If the credit union is unable to sell the property within a reasonable time, the property will be given to a Real Estate agent. - When the value of the home is less than the balance of the loan the difference will be recommended for charge off. As a general rule 80% of Market Value less estimated repairs will be used as the established value for this purpose. Policy revised November 2015 17 POLICY 1412 SKIP TRACING The overall collection effort is dependent on the ability of the credit union collector to communicate with the delinquent member. When the lines of communication are broken the collection effort comes to a halt. The indicators of lost communication are returned notices or letters, disconnected telephone numbers, or a call to the last known place of employment to discover the member no longer works there. This type account is known in the collection industry as a "Skip" account. There are two types of skip accounts; (1) the Intentional Skip; (2) the Casual Skip. The Intentional Skip account is just that, intentional. This is the member who has tried to avoid any contact to or from the credit union because he feels he can get by without paying, can avoid the debt long enough to accumulate enough money to pay the past due amount, or he could be hiding for some reason not related to the credit union debt. Regardless of the reason for not being available he must be contacted. The Casual Skip is usually a member who is just plain irresponsible and has not notified the credit union of a change of address, telephone number, or new employment. Most casual skips are not difficult to locate because they are not hiding, they are just waiting for the collector to catch up to them. Skip tracing is the systematic approach to locating the lost member. It amounts to simple detective work that should challenge the collector to follow all the clues and look at all the evidence. As in any detective work the more time passes the colder the trail becomes. The following steps are suggested as guidelines for the investigative effort but the collector should always follow the hot leads to locate the member the quickest way possible. Step 1. Call all telephone numbers until you reach the member or someone who knows the member and can give you a current address or new employment. Use discretion when discussing the member with a third party. Step 2. If numbers listed on the account fail to produce, then develop a set of numbers for all references, relatives, and creditors. Call these numbers as they are obtained and seek results. If the party you reach does not know the exact address, maybe they know someone who does? Make good use of each contact. If the contact is a former employer, where did he mail the member's last W-2 form? Step 3. If no leads are developed in the earlier steps the collector must develop other sources. The credit bureau can be the first step. Obtain an in file report to determine if additional information can be found. Be sure to list the member as a skip account so any future inquiries by other creditors will be alerted and the credit bureau will inform the credit union of any new information. If the member has school age children contact the area schools to see if they will tell you where the student's transcript was mailed. Call former landlords. They may have a forwarding address. Policy revised November 2015 18 SKIP TRACING- PAGE 2 The “Freedom of Information Act” covers federal agencies. This means you can get an address or perhaps event a place of business for our skip by writing to a federal agency such as the Post Office of an address for a small fee. Sample web sites that are key for collectors: www.accurint.com www.gsccca.org www.reversephonedirectory.com www.melissadata.com www.alliedfinanceadjusters.com www.town.usa.com The skip tracing process can be very time consuming and should have done on a day to day basis. The collector should allot only a certain amount of time on each account. To do nothing but skip tracing may allow other accounts to go unworked. If all efforts fail and it is determined by management that further efforts would be futile, the account should be then considered uncollectible and presented to the board of directors for charge off. Policy revised November 2015 19 POLICY 1413 THIRD PARTY COLLECTIONS Use of an Attorney When the collector has exhausted all possible avenues set aside in this manual for the collection of a delinquent account, a third party collection effort may be required. Attorneys that specialize in collections can be effective third party collectors as most delinquent members realize that legal action can result in additional cost and in some cases loss of property as the result of judgments. The credit union uses a two phase approach to the use of the attorney for collection purposes. The first phase is the "attorney ultimatum" letter, sent by the credit union in order to let the member know that if the account is not brought current, legal action may result. This letter is to be sent via certified mail and notated on the collection work card. The second phase is designed to be in compliance with Georgia law in the form of a certified notice to the member on the intention of an attorney to act on behalf of the credit union in legal proceedings. This is done when the account and all supporting documents are mailed to the attorney. Use of a Collection Agency Collection Agencies are hard core. They specialize in locating the member and work hard with great gusto. It will be necessary to send a copy of the note and application along with any information that will be useful to get results. The agencies do not get paid unless they collection money. The normal rate these days is 50% of what is collected. All accounts that are charged-off and are not bankrupt can be sent out for collection if not worked in-house. Policy revised November 2015 20 POLICY 1414 MAGISTRATE COURT This is the only court of law in the State of Georgia that does not require attorney assistance to file suit and the credit union will be represented by one of its own staff members. This staff member should try to maintain a good relationship with the court and be capable of presenting the credit union's argument if the proceeding becomes in any way adversary. Any loan that has a balance of $15,000 or less the collection department can handle the loan account and represent the credit union in court. The minimum balance for filing suit is usually $1500.00. a. b. c. d. e. f. Prior to filing any suit, analyze for potential counterclaims. Research account to insure delinquency. Add all court costs to the balance of the loan unless charged off. All Charge Off loan expenses shall be expensed as a collection expense. (GL 28200) After receiving a judgment, the collection department shall be responsible to change data on interest rates, payment amount and the removal of the late charge field when and where applicable. After receiving a judgment, the payments will be applied as a regular payment of interest and principle or to GL 71901 Allowance for Loan Loss on charged off loans A judgment shall not be deemed satisfied until such time that the outstanding balance, all of the interest due to date, and the cost of all legal fees, if any allowed by the court have been paid by the member/defendant, unless a settlement is approved by the Board of Directors. The typical loan presented in small claims is $15,000 or less, but larger balances may be reduced within reason if the situation on the account warrants this type action and is permitted by law. It may be less expensive than an attorney action because the attorney fee maybe 25% and our note allows for only 15% to be added to the balance for that purpose. This type action is very effective when the member is known to be employed and wages can be attached. It is also effective in cases where there is real or personal property to be attached. All aspects of the delinquent borrower's position must be considered, but if the collector feels that collection could be effected in the future for some reason, it may be in order to go ahead and obtain a judgment. This action is also beneficial if it known that the member has assets such as property, bank accounts, etc. The court will require in most cases two (2) copies of the signed note and security agreements. Also, the collector should have all current balance information inclusive of all interest to date plus late charges to date. This figure will be given to the court and the court will then add court cost to the figure. The cost of filing in small claims as of this writing is $68.00. This court will also issue a FIFA (garnishment action) at a small cost of $10.00. Once the judgment, if any, is rendered by the court the collection staff should maintain an effort to use this new leverage to effect collection. No additional interest can be collected unless the court allows for accrued interest payments so it is important to record the amount of the judgment. Policy revised November 2015 21 POLICY 1415 BANKRUPTCIES Congress recently passed the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”.The credit union will be concerned with the Bankruptcy Act in two areas, Chapter 7 straight bankruptcy and Chapter 13 or the Wage Earner Plan. The Act amends the previous law in eight (8) main areas of concern to credit unions. CHAPTER 7 1. A debtor must now quality to be eligible to file and receive a discharge. If a debtor earns above a certain income threshold and can pay at least $100.00 per month to unsecured creditors over a 60 month period, they will be forced into a Chapter 13 2. Extensive new disclosures are required on reaffirmation agreements. 3. The debtor must now redeem, reaffirm or surrender collateral within 45 days of the 341 meeting of creditors or the automatic stay will be terminated without the need to file a motion and the credit union will be able to repossess our collateral pursuant to its right under the loan agreement and state law. CHAPTER 13 4. When a vehicle is purchased within 910 days (2 ½ yrs) of the debtor filing bankruptcy, the debtor must pay the full amount owned to a creditor not simply the fair market value of the collateral. 5. Debtors may no longer discharge debts under C-13 through fraud or misrepresentation. The Act now only provides for discharge of debts incurred by honest debtors where their debts were incurred in good faith. CHAPTER 7 & CHAPTER 13 6. Repeated bankruptcies will be limited under the Act. A debtor may not receive a discharge in a C-13 case if the debtor received a discharge in a C-7 case within the four (4) years preceding the filing of their C-13 case. 7. Debtors’ cases are now subject to automatic dismissal if they do not provide a certificate of credit counseling, pay stubs within 45 days of filing for bankruptcy protection. 8. Debtors’ attorneys must now make “reasonable inquiry” to ensure that the information stated on the bankruptcy schedule is accurate. Failure to do so can now result in sanctions against the attorney personally if otherwise verifiable information on bankruptcy filings is later found to be false or misleading. Policy revised November 2015 22 BANKRUPTCY CONT’D PAGE 2 Upon receipt of the Notice of Bankruptcy Proceeding and Order of the Court from the federal bankruptcy court all collection activity is ordered to cease (NO CONTACT of any kind is allowed, except through the member’s attorney). The credit union is represented at the first meeting by the credit union’s attorney and all other court meetings. The attorney works closely with the Collections Manager . Immediately retrieve from the internet www.pacer.gov the debtor's petition listing all creditors (this list is to be compared to the member's last loan application to detect fraudulent statements of indebtedness). PACER charges $.08 per page for the petition. Presently we are saving the information but not printing unless the credit union detects a problem. Access to the schedules shall be emailed to the CEO on any loans over $1,500.00. The credit union requires our members to reaffirm all debts owed to the credit union under Chapter 7. For example, the member has a car loan, motorcycle loan and unsecured loan, and the member only wants to reaffirm the car- the credit union will require all the debts reaffirmed or the car and motor cycle must be surrendered. Extension Agreements may be granted to reaffirmed bankrupts by the Collections Manager to encourage a regular repayment schedule by the member. NOTE: This section of the manual is offered only as a basic introduction to the bankruptcy law. The collection staff is charged with the responsibility of being informed as to current bankruptcy laws and procedures. Chapter 13 of the Bankruptcy Act provides an alternative to the debtor by the creditors being paid through payment plan ordered by the court. The Wage Earner Plan is usually extended terms for reduced payments to creditors and prohibits any collection activity while the member is under the court's jurisdiction. The member is ordered by the court to pay a reasonable sum each month directly to the clerk of the court, the clerk in turn distributes predetermined payment amounts to the creditors. Unsecured creditors are the last and least payments. We can look at the member’s bankruptcy on the internet website www.13network.com/ to track payments, etc. The initial procedures are basically the same as Chapter 7 bankruptcies with exception of the notice formats received from the court. The Notice of Bankruptcy is usually accompanied by the “Plan” which outlines which debts and how much the debtor intends to pay and the “Proof of Claim” which must be completed and filed with the clerk of the bankruptcy court. The proof of claim must be filed by the date specified in order to share in any payment from the estate. The proof of claim must be filed by the Collections Manager in all Chapter 13 cases. An attorney should be used whenever necessary to protect the credit union’s rights under the Bankruptcy Code. Policy revised November 2015 23 BANKRUPTCY CONT’D PAGE 3 There are basically two types of plans, “extension” and “composition”. Under the “extension” plan, all creditors are paid 100% of the debt but in most cases the plan term is extended beyond the present loan term which reduces the monthly payment. Under the “composition” plan, debtors are usually paid based on the type of debt. Under this plan, unsecured creditors usually receive a small percentage of their balance and in many cases, zero percent. Secured creditors usually receive an amount equal to the value of the collateral plus interest. If the value of the collateral is less than the balance owed, the difference is usually classified as unsecured and would be treated accordingly. In cases where co-makers are involved in the primary borrower's bankruptcy, they too are protected by the court from any collection activity. All co-makers should be notified, if and when the member is discharged prematurely. It is important that the collection staff be current on changes to the law with regard to bankruptcy and they should contact the credit union attorney anytime a question arises with regard to bankrupt members. It is noted that it is the responsibility of the Collections Manager to protect the legal rights of the credit union in all Bankruptcy cases. Policy revised November 2015 24 POLICY 1416 MEMBER INSURANCE RISK In addition to the delinquent loan, the collector must be able to collect other types of potential losses to the credit union. The insurance risk falls into two separate types: 1. 2. Insurance on collateral held by the Credit Union. Life and disability insurance on individual loans. COLLATERAL INSURANCE When a member uses an auto, truck, boat, mobile home, etc., to secure a loan, that member is required to carry full-coverage insurance at all times on balances over $2,500.00. Failure to do so will result in the purchase of collateral protection Insurance that protects only the credit union. This annual premium is added to the principal of the loan. It is vital that a close watch is kept, in that failure to have the proper insurance puts the credit union in a precarious position if the member has the collateral stolen or damaged in some way. If payments are not made in a timely manner careful consideration to repossess the vehicle would be in order. LIFE AND DISABILITY INSURANCE The collector must also be able to coordinate with the insurance company in the event a member is deceased or out of work due to illness or injury. The collector must be able to look at the account to see if the member has the life and/or disability coverage. If so, the collector must monitor the account to make sure that the appropriate paperwork is filled out and sent to the proper place. All care should be taken to see that the member is treated with courtesy, since the member is usually not at fault for the circumstances surrounding his/her death or disability. In the event the member is past due and we are receiving disability payments on a monthly basis, the loan should be brought up to date with the proper documentation. ACCOUNTING OF PAYMENTS The payments should be applied to interest and principle with a description of the dates covered by the insurance payment. Policy revised November 2015 25 POLICY 1417 RETURNED ITEMS The collection department is responsible for the collection of returned items returned to the credit union marked insufficient funds (NSF) or payment stopped that the accounting department passes to the collection department. The following procedures are designed to minimize credit union losses due to returned items. Returned loan payments All returned loan payments will be reversed by the accounting department and passed to the collection department for collection. Fraudulent Checks Each case will need to be worked on an individual basis. If the check was accepted by a place of first deposit without the proper identification then we must go to that place for payment of the check. We also have insurance coverage thru CUMIS Insurance Company to cover for fraudulent checks. All Returned Items Checks will automatically go thru for collection twice before it is returned to the credit union. The following procedure should be followed: A). Take funds from shares if available. B). If funds are not available, contact member by phone. If phone contact is not made, a certified letter will be sent to the member, allowing 10 days to pay the full amount plus service charges. C). If payment is not made within the allotted time, the procedure for Negative Balances be followed. Policy revised November 2015 26 NEGATIVE ACCOUNTS Occasionally, a member will overdraw his/her account at the credit union. The majority of the time, the sharedraft account is the account in question, and is usually due to NSF charges. When the member has a negative balance, the collector will create a work card on the member, and immediately contact the member for arrangements to pay the negative balance. If no phone contact is made, a letter should be sent to the member asking him/her to contact the credit union for payment arrangements. If the member does not contact the credit union, the collector will treat the account as if it were a delinquent account. 1. The balance of any account which has been overdrawn more than 90 days. (In the event that credit union fees created the overdraft, the portion of the overdraft attributed to fees will be charged back to the appropriate fee income account.) 2. Any NSF return items older than 90 days. All charged off loans and other items will be turned over to the collections department of Marshland Community Federal Credit Union for further collection efforts, where applicable. Policy revised November 2015 27 POLICY 1419 CHARGE OFF’S Loans As a matter of proper business and record keeping, loans become classified as "Uncollectible". When this classification is done these loans must be realized as a loss. The following is a guideline to determine what and when such loans should be charged off. All loans to be charged off must be approved by the Board of Directors. 1. All loans that are 6 months in arrears and have had no payment for 120 days, (Except current repossessions, secured bankruptcies and real estate). 2. Deficiency balance accounts within two months after the sale of the collateral. 3. Chapter 13 secured bankruptcies over 12 months and no full payment received in 60 days. 4. All other bankruptcies and delinquent loans will be reviewed and submitted for charge-off on an individual basis. Exceptions to the above must be submitted to the Board of Directors. Negative Shares In addition, normal business dictates that other items must be charged off. These items include: 3. The balance of any account that has been overdrawn more than 90 days 4. Any NSF return items older than 90 days. All charged off loans and other items will be turned over to the collections department of Marshland Community Federal Credit Union for further collection efforts, where applicable. Policy revised November 2015 28 POLICY 1420 BOND CLAIMS The credit union has an insurance protection plan against fraud and forgeries. The company is: Cumis Insurance Society, Inc. PO Box 1221 Madison, WI. 53701 Contract Number 010-0167-1 The policy defines and includes some of the following insured categories: 1. Credit Union Blanket Bond Providing comprehensive protection against loss resulting from employee theft or fraud, robbery, fraudulent loans, and forgeries on checks. 2. Consumer Legislation Protects the Credit Union against losses arising from failure to comply with certain Consumer Legislation Acts. 3. Litigation Endorsement 4. Directors and Officers Liability 5. Officers and Staff Liability 6. Errors and Omissions 7. ACH Endorsement Extends forgery coverage under the Bond to include electronically initiated credits and debits. The most common use of the bond is for member fraud or forgery. Internal fraud is always handled by management, and any suspicion of such should be reported to a supervisor immediately. If an employee suspects that fraud is being committed by a member, or with a member's account, the account should be brought to the attention of a supervisor, along with supporting documentation. Any time the credit union suffers a loss on a members account please review the bond coverage manual in the Collections Manager office for possible additional coverage to fit the circumstances of a loss. Policy revised November 2015 29 POLICY 1421 REVIEWS Each collector will be reviewed periodically by the Collections Manager . The review will include the following: 1. Total number of accounts being worked by the collector. 2. The number and quality of follow-ups. 3. Thoroughness of skip tracing efforts. 4. Overall analysis of the collection effort. The review may or may not be done with the collector present. The collector will be given an overview of the review, along with recommendations where work is needed, and positive feedback for good efforts. Each employee in the collection department has goals to meet on an annual basis for a bonus. The goals will also be reviewed to insure that every opportunity is given to the employee to reach their individual and departmental goals. Training Sufficient training should be made available to all members of the collection staff as necessary to improve skills and keep abreast of changes in law that affect collections. Policy revised November 2015 30 APPENDIX The Allowance for Loan Loss Policy also effects the collection department. This policy is used to classify loans each month for funding of the allowance for loan losses. Marshland Federal Credit Union Funding Policy Allowance for Loan Loss Account The amount maintained in the Allowance for Loan Loss Account (ALL) shall be determined by the use of a formula combining both the experience and adjustment methods. The formulas shall include a calculation of the last three years loss experience applied to the current portfolio less delinquent loans, plus a classification of delinquent loans. Management shall cause a report on the adequacy of the ALL account to be presented to the Board of Directors on a monthly basis. Any excess (deficiency) shall be reviewed and provisions made when appropriate. It is noted that the funding does not mean immediate adjustments each month for the sole purpose of balancing the ALL account to the report. To provide safeguards against over-funding and under-funding the ALL account, any excess or deficiency in excess of $50,000 will require immediate adjustments. Our objective is to consider past experience and future projections when determining appropriate adjustment amounts. This policy revision was necessary to reflect current trends and projections as of September 27, 2002. Individual Loan Classification Parameters Chapter 7 Reaffirmed paying monthly 0% Chapter 7 and collateral to be returned 60% Other Chapter 7 100% Chapter 13 secured non real-estate 30% Chapter 13 secured real-estate Case by case basis Chapter 13 unsecured 100% Repossessions on hand 60% Deficiency Balance 100% Secured loans last paid < 60 days 0% Secured loans last paid > 60 days Case by case basis Secured loans in process of repossession (Exclude R/E) 60% Last paid < 60 days one full monthly payment Last paid > 60 days 100% Policy revised November 2015 0% 31