Day4 Best Practices

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Best Practices inDelinquency Management

The Art of Collections

2008 SACCA CongressOctober 24, Banjul, The Gambia

by Jean Thiboutot with support from Jesus Chavez Sr.

Quality Credit Unions for EveryoneQuality Credit Unions for Everyone


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Agenda Effective Collection Program

Written Lending Policies

Written Collection Policies

Written Collection Procedures

Education of Members Selection and Training of Personnel

Identification of Delinquent Loans

The Collection Department

Methods of Managing Delinquency

Model Credit Union Guidelines on Collections


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Introduction1. The numbers and amounts of bad debts are increasing;

2. Laws are being or already passed to protect the debtor;

3. More difficult to recover collateral and overdue payments;4. The art of collections, must operate within

A complex web of statutes, regulations and judicialstandards,

While working on efficiency, organization andaggressiveness of a debt collection program.

5. A good collection department is more than one, which

complies with existing legal standards or board policy.

It collects money .


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Cooperative operations that areaffected by high delinquency:

CAPITAL

LIQUIDITY

SERVICESIMAGE

Results of High Delinquency


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RESULTS OF HIGH DELINQUENCY

Lowers liquidity resulting to credit

rationing, external credit dependence,reduced ability to provide services

that members want and need

Lowers profitability resulting to

diminishing ability to provide for

operational costs including staff

wages and slow build-up of

institutional capital


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Negative reaction from the

members, possible loss of good

members, losing credibility

affecting the image of thecooperative

No liquidity, no capital, another

lost cooperative!

RESULTS OF HIGH DELINQUENCY


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Credit is the main line of theCredit is the main line of the

coopcoops businesss business How well a coop manages itsHow well a coop manages its

loan portfolio depends on howloan portfolio depends on howefficient the analysis isefficient the analysis is

Why the need to analyze loans?Why the need to analyze loans?


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Loans in the coop are part ofLoans in the coop are part of

the financial statementthe financial statementclassified asclassified as EARNINGEARNING

ASSETSASSETS..Since loans should be repaidSince loans should be repaid

and considered earningand considered earningloans should remain as such.loans should remain as such.


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An ideal PEARLS financialAn ideal PEARLS financial

structure ofstructure of

-- 95% productive assets95% productive assets

composed of loans (70composed of loans (70--80%)80%)

and liquid investmentsand liquid investments

-- 5% unproductive assets5% unproductive assets

WOCCU promotes:WOCCU promotes:


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product performanceproduct performance

profitabilityprofitability riskrisk

policy effectivenesspolicy effectiveness market preferencesmarket preferences

Loan Portfolio Analysis measures:Loan Portfolio Analysis measures:


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A sample tool and its indicatorsA sample tool and its indicators::

Amount Current Non-Del . 1 Day-1 Mo. 1-3 Months 3-6 Months 6-12 Months >12 Months

Granted Balance AA A B C D E

Totals 0 0 0 0 0 0 0 0

0% 0% 0% 0% 0% 0%

0

0%

0% 0% 0% 0% 0%

0 0 0 0 0

0% 0% 0% 0% 0%0

50.00

LOAN PORTFOLIO ANALYSIS

Percent of Allowances Required

Amount of Allowances by Range

Percent of Allowances by Range

REQUIRED LOAN LOSS ALLOWANCES

PERCENTAGE OF DELINQUENT LOAN PORTFOLIO

DELINQUENCY CATEGORIES

EXCHANGE RATE

Total Delinquent Loan Portfolio

TOTAL REQUIRED LOAN LOSS ALLOWANCES

Coop Name

Distribution of Current Balance


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Loan Portfolio Analysis ToolLoan Portfolio Analysis Tool

provides a summary of:provides a summary of: granted loan amountgranted loan amount

current loan balancecurrent loan balance nonnon--delinquent anddelinquent and

delinquent portfolio bydelinquent portfolio byrangerange

required provisionsrequired provisions


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Importance of Loan Portfolio Analysis:Importance of Loan Portfolio Analysis:

determines risk exposure anddetermines risk exposure and

measures profitabilitymeasures profitability

HighHigh

CollectionCollection

RateRate

LowLow

DelinquencyDelinquency

RatioRatio

HighHigh

ProfitabilityProfitability

RatioRatio==

Loan Volume is Too LowLoan Volume is Too Low Loan Volume is Too HighLoan Volume is Too High

Earning Potential isEarning Potential is

not Maximizednot Maximized

Liquidity isLiquidity is

Potentially LowPotentially Low

==


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Effective Collection Program

Must have 3 fundamental goals:

1. The reduction of losses due to delinquency.

2. The reduction of losses due to bankruptcy (insolvency)of the member.

3. The protection of the credit union from undueexposure to liability.


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1. Has an effective written collection policy andprocedures.

2. Low delinquency are one of the best means of sustaininga sound financial condition.

3. Provides quality of member services.

4. This applies to any size credit union, whether it is staffedby volunteers or a paid professional staff.


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Benefits of Effective Collections:

Procedures include:

1. Cash flow and funds provided to make additional loans

and to improve member services.

2. A high level of interest income will be maintained.3. Improved financial condition of your credit union -

reserves and earnings will not be drained to offset

collection problem loans.


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Essential Elements Of delinquency Control

1. Written lending policies,

2. Written collection policies and procedures,

3. Education of members,

4. Selection and training of personnel,

5. Identification of delinquent loans (adequate and timelymanagement information system),

6. Correct computation of delinquency,7. Schedule (report) of delinquent loans to be reported to the

board of directors,

8. Documentation, documentation, documentation.

9. Controlling delinquency.

10. Knowledgeable collectors in the laws and regulations andauthority to enforce credit union policy and procedures.


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11. Constant and consistent collection actions.12. All collection information should be in one place.

13. Knowledgeable collectors of collections available outsideof the credit union.

14. Collection activity should continue after a loan has beencharged off.

15. Loan protection and disability insurance can improve theamount collected.

Loan protection pays the loan should the borrower dieand disability insurance makes the loan payments if amember is disabled due to an accident.

Essential Elements Of Delinquency Control


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Written Lending Policies Principles ofsafety andsoundness require that the

board of directors establish written policies for loans

and lines-of-credit consistent with the relevant bylaws,and other applicable laws (rules) and regulations of the

applicable country.

Credit committees and loan officers with strict lending

policies, can discourage all but a select few fromapplying for loans,

Few delinquencies is preferred occasionally while

serving the members.

Lending policies should establish criteria for conditions

where collateral is required.


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Written Lending Policies

1. The types of loans to be granted;

2. The maximum amount to be loaned on eachtype of loan to an individual or regarding a

specific loan category in the aggregate;

3. The maturity limits on each type of loan;4. The collateral requirements on each type of

secured loan;

5. Market based interest rates


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5 Cs imbedded in Credit policy

1. CAPACITY to repay2. CHARACTER (members reputation)

3. CAPITAL (steady Asset & Savings Growth)

4. CONDITIONS (economy)

5. COLLATERAL It is a means of gaining

control over some of the borrowers assets or

capital


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Written Collection Policies The principles ofsafety andsoundness require the

board of directors to establish and supervise aneffective loan collection program.

The collection policy should define the

following:The objectives,

Personnel involved,

Procedures, and.

The means of measuring and controlling

delinquency.


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Written Collection PoliciesThe collection policy should define the following:

1. Who is responsible for collecting the loans? Are

they the same people who make loans?2. When a loan is considered delinquent (normally

7 to 10 days of the 1st missed payment.

3. Frequency of a delinquency report to the board(monthly).

4. What information is contained in the delinquency

report?5. When the delinquent borrower will be contacted

after a missed payment and the types of contactused (letters, personal contact, phone calls).


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6. Documenting the collection efforts of the

collector.

7. When the borrower should be contacted again if

there is no response and what should be done in

this situation.

8. When the co-maker will be contacted (normally

after the 1st missed payment).

9. The need for all collection information, contacts,

promises to pay, etc., to be placed in writing.

10. When collateral will be repossessed.


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11. How collateral will be sold after repossession and the documentation

of the bids and the sale required.

12. When loans can be extended or refinanced.

a. Loan extensions are an extension of the payment date and are to be

used for unexpected emergencies such as: death in the family,

hospitalization, family crisis, payroll problems, etc.

b. Refinanced loans should be granted based on the 5 Cs credit,

collateral, character, conditions of the loan, capacity to repay).

c. If the loan is co-made, the co-maker must sign the extension form.

d. Under no circumstances, are refinances used to reduce delinquency


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Written Collection Policies

13. When loans will be charged-off and recoveriesaccounted for.

14. Who will analyze delinquent loans and how often

15. Delinquency fees and when to stop accruing intereston delinquent loans (after 2 months delinquent).

16. Do collectors receive a commission for loans

collected? If yes, how is commission paid andmonitored. Who is going to pay?

17. 3 ways to remove a loan from a delinquency list:

a. Pay the loan current.

b. Charge the loan off, or

c. Change the terms with a loan, or refinance.


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Written Collection Procedures should include the following:

1. The objectives making the recovery in cash, not the

collateral, establishing the reason for the delinquency, and

a repayment plan.2. Who is responsible for working the delinquent loans on a

daily basis?

3. How often a delinquency report is produced (weekly).

4. What type of contact (letters, phone calls, personal

contacts) will be used and when.

5. When the 1st, 2nd, and 3rdcontacts are to be made after the

missed payment(s). Combination of phone calls &personal contacts.


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Written Collection Procedures

6. Establish a collection card for the delinquent borrower

when the 1

st

contact is made which includes all actionstaken to collect the loan (documenting the collection

efforts).

a. The documenting process is in case someone else

(volunteer, new employee, board member) assistsin collections, the history of the member is known

on one collection card. (A sample of a collection

card next!)


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Written Collection Procedures7. How the collection card system is to be organized (by day of

the month). The best collection programs follow-up daily.

8. What is done and what type of contact is used when there isno response after the contact(s).

9. Immediate follow up after a missed promise to pay or a

collection letter in which the borrower did not respond.

Constant and consistent follow up is the key the squeaky

wheel gets the grease.

a. The member will always pay the institution that asks for

their payments rather than the one that never requestspayment.


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Written Collection Procedures10. Co-signer to receive all the contacts, calls,

and collection notices that the borrower

receives.

11. Collection procedures will have specifics for

making loan extensions, loan refinances and

repossessing collateral.

12. Collection staff must be allowed to collect

after-hours and on weekend.

a. Collections should not only be performed

during the workday but also after working

hours and on weekends.


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Education Of Members

1. The collection of a loan begin prior to the

member obtaining the loan proceeds.2. If the credit union attempts to advise the

member of their responsibilities on the

repayment of the loan, after they have obtainedthe proceeds of the loan, it is too late.

3. All of the specifics and responsibilities need to

be spelled out in person to the memberprior tothe loan proceeds being advanced.


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Education Of Members

When loan is granted, the member and co-maker

reminded of the following:

1. Their obligation is to repay the loan in accordance with

terms of the note, and

2. The money they are borrowing belongs to the members;

3. Members are to notify credit union if their financial

situation changes or if the member has problems meetingthe repayment schedule.

4. If loan is repaid by payroll deduction, members

instructed that the credit union is accepting repayment ofthe loan by payroll deduction for their benefit, but it is

still their responsibility to ensure that payments are made

on time.


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Selection And Training Of Personnel

Collectors must:

1. Must be given the necessary authority so thatthey can collect the loans.

2. Receive and review the delinquency report on aweekly basis.

3. Start collection procedures - send collection

letters, make phone calls, and/or personalcontacts 7 to 10 days after the missed payment.

4. Review the collection card file daily 1st thingeach morning.

a. Find the members that have promised to makepayments and follow up to ensure thatpayments have been made.

b. If not follow-up with a personal phone call tofind out why the payment was not made.


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5. IMMEDIATELY, contact all delinquent borrowers in

which no payment or arrangement has been made.

Constant and consistent follow up is key to successful

collections.

6. Have as objectives

a. To be repaid in cash,b. establish the reason for delinquency

c. A realistic repayment schedule that takes the

borrowers cash flow in mind, the value and life ofthe collateral, and the impact on the credit union.


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7. With personal contacts ask: how and who will make thepayment, when will the payment be made, and for how

much.

8. Place all collection information on the collection cards,which have been organized by the day of the month:letters and date sent, promises to pay, information aboutco-signers, etc. All information should be in one place,on this collection card.

9. Contact the co-signer every time the borrower iscontacted. Use them to assist with the collections ofthe loan.


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10. If the borrower is unwilling to work with the credit

union, use other available alternatives such as:

collection agencies, lawyers, bailiffs, and repossession.11. Follow through on any actions that are disclosed to the

borrower. Do not make idle threats.

12. Collect loans not only during working hours, but also

after work and on weekends.

13. Start collections on the most recent delinquent accounts

and large balance accounts.

a. When a loan becomes delinquent an immediateresponse can make the difference between collecting

and not collecting.


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14. Below are the percentages that show the longer the loan

becomes delinquent and the probability on collecting

becomes less.

Past due in Days Recovery Rate

30 days 95%

60 days 89%

90 days 80%120 days 70%

240 days 50%

360 days 10%

15. Collectors through their actions establish the

culture and the members attitude towards timely

loan repayment!


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Management And Officials Must:

1. Use collectors and lawyers instead of volunteercollection committees.

2. Give collectors the authority needed to collect

loans.3. Ensure that the workload is distributed fairly

among collectors and that collectors have the

necessary transportation to make collectioncontacts.

4. Analyze the causes of delinquency, and makechanges in the lending process as needed.

5. Approve all loan extensions and refinances.Under no circumstances are these to be used toreduce delinquency.

M t A d Offi i l M t


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6. Increase collection staff immediately if there is a

rapid increase in delinquency!

7. Charge off all loans when they are determined tobe uncollectible. They are no longer assets of

the credit union. However, collections should

continue on these loans.

8. Adequately fund the Allowance for Loan Loss

for all potential and current loan losses.

a. For any delinquent loan that has beenrefinanced and becomes late again (> 1

month), they should be provided for in the

Allowance for Loan Loss account.

A Offi i


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Make Collections easier by:

1. Obtaining all necessary information on the loanapplications (how the member can be foundpersonaland credit references, street address, telephone numbers,place of employment, supervisors name, etc.)

2. Determine borrower creditworthiness.3. Verify the income, debt and credit references.

4. Establish a credit bureau or informal system with otherlocal credit unions.

5. Loan interviews should be conducted for all loans thatpose a risk to the credit union.

Management And Officials M st


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Make Collections easier by:

6. Do not over lend on collateralask for

additional security or co-borrower.

7. All co-signers should have a financial position

that is stronger than the borrower. The same

information obtained for the primary borrower

should be obtained for the co-signer.

8. Loan terms should not exceed the useful life of

the collateral.

9. All delinquent borrowers should be contacted

early and often. The borrower must understand

you are serious about collecting.


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Successful Lenders:1. Know their borrowers,

2. Maintain close contact with borrowers (frequentpayments, visit businesses, through other services

offered),

3. Provide appropriate credit products,

4. Offer competitive rates and terms.

5. Are fanatical about collecting on delinquent loans.


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Identification Of Delinquent Loans

1. The first step in any collection program is thecomputation of delinquency and identificationof the delinquent borrowers.

2. Data processing systems and some accountingmachines automatically calculate delinquencyand generate reports, which provide an agedhistory of delinquent accounts. All other credit

unions must compute the amount ofdelinquency and prepare a schedule manually.

3. How to Compute Delinquency - There areseveral methods available for computing

delinquent loans. The discussions on thecomputation of delinquency that follow fall intotwo broad categories.


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Delinquency Calculations:

This method is used by credit unions that have a manualaccounting system and calculate the interest owed and

collected and maintain the information on IndividualShare and Loan Ledgers.

This method can be utilized for both level payment andnon-level payment loans.


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Delinquency Calculations:

The following procedures should be followed:

1. Run an amortization on the loan with the loan, interestrate, maturity and payments.

a. Sight-check to compare the unpaid balance of theloan with the balance shown on the amortizationschedule.

2. Determine the amount in arrears. Subtract the amountfor the specified date from the unpaid balance of theloan.

3. Count number of delinquent payments. The arrears

divided by the amount of the scheduled monthlypayment - determine number of installments missed.

a. A part of an installment missed is considered to be awhole installment missed.


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Identification of Delinquent Loans

Delinquent Loan Report

A report is prepared monthly and given to the board ofdirectors, this report is called - Schedule of

Delinquent Loans

It should provide sufficient information to classify

delinquent loans on a monthly basisA copy of the monthly schedule should be kept on file.


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Delinquent Loan ReportAt a minimum the delinquency report include :1. Members account number,

2. Name of the borrower,3. The date the loan was made,

4. The original amount of the loan,

5. The current loan balance of each delinquent loan,which indicates the age of the delinquency (theamount shown should be the unpaid balance ofeach loan is the total unpaid principal,

6. How delinquent the loan is,7. The date of last payment (excluding savings

transfers) should be entered in the designatedcolumns for each delinquent loan.

Delinquent Loan Report


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q pFRM3C SUMMARY

DELINQUENT UNPAID

CATEGORIES NUMBER BALANCES

SAVINGS AND CREDIT COOPERATIVE INC. del < 2 mos 0.0% -$

2 < 3 MOS 35.0% $

3 < 6 MOS 35.0% $

SCHEDULE OF DELINQUENT LOANS 6 < 12 MOS 35.0% $12 MOS & OVER 100.0% $

AS OF: TOTALS $

ORIGINAL Loan UNPAID BALANCES OF LOANS DELINQUENT DATE OF

ACCOUNT NAME OF BORROWER DATE OF AMOUNT Refin anced 1 MOS TO 2 TO LESS 3 TO LESS 6 TO LESS 12 MONTHS LAST

NUMBER LOAN OF LOAN (yes/no) < 2 MOS THAN 3 MONTHS THAN 6 MONTHS THAN 12 MONTHS AND OVER PAYMENT

TOTAL UPAID BALANCES OF DELINQUENT LOANS $0.00 $0.00 $0.00 $0.00

TOTAL NUMBER OF DELINQUENT LOANS 0 0 0 0

Amt in Allow.

Loan Loss

Amt i n All ow.

Loan Loss

COMMENTSSHAREBALANCE


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Analysis Of Delinquency Report

The delinquency report should be analyzed with thefollowing in mind:

1. The trend of the number and the total loan amount ineach category.

2. The total number of delinquent loans,

3. The original date of when the loan was granted.

4. Who granted the delinquent loans? (Perhaps the creditcommittee or loan officers are granting a lot ofdelinquent loans).

5. Are there enough collectors in the office and in the fieldto handle the level of delinquency?

6. Are lawyers and collections agencies being usedappropriately?


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1. A good collection department must be the right

mix of procedures, policy and people;

2. The procedures must be effective (and legal);

3. The policy must be realistic and humane, and

4. The people performing the collections must be

special.

Th C ll ti D t t


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A good collection officer is a master of time, self-controland persistence. They must know the following:

1. When to push (and when not to) and.2. How to pursue their quarry without personal anger,

3. How to negotiate a fair repayment arrangement, and.

4. How to recognize a loss when they see one so thatvaluable time will not be wasted before the account isturned over to an attorney.



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The internal, administrative policies of a collection

department play an important role in shaping and

improving staff performance.

Punctuality,

Organization - strict procedures for handling

files,

Weekly meetings to iron out problems, talk off

frustrations and express gripes, and.

Periodic review of staff performance can, when

taken together, create an atmosphere of

professionalism conducive to good results.

Methods of Collecting Delinquent


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Loans

Setting Up and Handling of FilesWhen a collection

file is opened, all of the relevant information must be in

it, including the following:

1. Copies of the note,

2. Security agreement, if any,

3. Previous correspondence to or from the debtor inconnection with the delinquent indebtedness,

4. And any special information that may aid collection

effort (such as a comment from a board member thatthe debtor is ill, unemployed, etc.).



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Loans The collection officer should verify accuracy of the

balance, the amount in arrears, and the payment record.

File arranged for ease of reference, with documents andcorrespondence chronologically arranged on one side, anda running diary or contact information sheet on the other.

Everything that occurs in the course of the collection

effort should be noted in the file, dated and initialed.

M th d Of C ll ti D li t L


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Methods Of Collecting Delinquent Loans

Collectors Approach to Borrowers Explorethe circumstances of the debtor.

1. Try to determine the reasons for nonpaymentwithout making negative assumptions about thedebtor.

2. Chances are great that the debtors problem isreal, and that the debtor is not attempting toevade payment.

3. Once you know the reason for nonpayment,

consider alternativesoffer the debtor, such asrefinancing, reduced payments, creditcounseling, etc. Let the debtor know that their

dilemma is resolvable, and that you will help.



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Initial Contact

Whether your initial contact is by letter, telephoneor in person, remember, never resort to personal

insult, threats or angry tirades.

First of all, such conduct would expose to thecredit union to unnecessary liability.

Secondly, the first impression the debtor receives

will often shape the entire relationship. If you turn the debtor off immediately, that is what

he will do to you.


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Let the debtor know:

1. You are a professional.

2. You are willing to help.

3. You are taking action and will take any andall measures possible to collect the debt.

Methods Of Collecting Delinquent


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g q

Loans

1. Impressions must be made simultaneously, in your

attitude, in the tone of your message, in the

suggestions you make.

2. Start off with an expression of concern, state the

problem frankly, get right to the point, and express

your willingness to help.



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g q

Subsequent ContactsEscalate your message quickly if adebtor fails to satisfactorily respond, be sure to wait nolonger than that to send a second message.

1. Consistency and following through on what yousay is an important part of the overall message youwant to convey.

2. In your second letter, say only what you mean.

Mean everything you say.3. Continue to avoid threats and insults. Make a

concrete suggestion for resolving the problem.

Methods Of Collecting Delinquent Loans If the debtor fails to answer


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g q If the debtor fails to answer,do what you said,

when you said you would, do it.

If you think its too early to bring suit, or recovering

collateral, phrase the letter differently, and If it is not answered, direct your attorney to send a letter

on his stationery giving the debtor a final opportunity to

contact the credit union. Many debtors respond at

this point.



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g q

1. Partial Payments may be an effective

means of assisting a debtor in bringing up

an arrearage.2. Some debtors fall behind in the transition

from one job to another, or in times of

illness or other time-limited hardship.

3. Partial or reduced payments take the

pressure off the debtor while allowing thecredit union to continue collecting

something.



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g q

4. Partial payment arrangement, be surein

writingto make it clear that the

arrangement is not a precedent and that itis being extended purely because of the

temporary hardship faced by the debtor.

5. Include in the letter the date beyond which

payments shall resume in their full

amount.

The Decision For Legal Collection


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ga C

Criteria to take legal collection action. Factors include:

1. Have effective in-house techniques been exhausted?

2. Can the debtor be found or be served?3. Are there sufficient assets to satisfy the judgment?

4. If the loan is secured, is the collateral worthretrieving?

5. Can attorneys fees and costs be recovered from thedebtor?

6. Are any defenses available to the debtor?

Methods Of Managing Delinquency


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1. Accept that most delinquency is caused not by

bad borrowers but by credit institutions that have

not implemented an effective methodology.

2. Create an image and philosophy that does not

consider late payment acceptable. Creating

disciplined borrowers is critical to the success of

the credit union.

3. Members must value the credit service. Loan

products should suit members needs, the

delivery process should be convenient, and

members should be made to feel that the

organization respects and cares about them.


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g g q y

4. There are no bad borrowers only bad loans.

a. Make sure loan sizes and terms do not make

repayment difficult. Do not base loans onprojections, or on the value of the asset, base themon the members capacity to repay.

5. Establish an incentive system that uses both financial

and non-financial incentives to encourage on timerepayments.

a. Borrower - larger loans, follow up loans, interestrebates and access to training (micro-enterprise

lending, credit consulting on consumer loans andhow to manage their money)

b. Disincentives penalty fees, no further access toloans, collection of collateral, and legal action.)



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g g q y

6. Ensure the benefits of on-time repayment andcost of late repayment far outweigh the benefits

of late repayment and cost of on-timerepayment.

7. Develop systems that provide information tocollectors/field workers that enable them to

conduct effective and timely follow-up on loansand to manage their portfolios efficiently.

8. Develop a portfolio information system thatenables management to conduct timely and

useful analysis of portfolio quality, determinetrends in the portfolio over time, and identify

possible causes of delinquency.



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9. Effective delinquency follow-up procedures extremelyimportant.

10. Develop a policy that lists the steps to take when a loan

becomes past due.a. Examples include holding frequent staff meetings to

discuss problem loans, visiting delinquentborrowers, and following-up on promised payments,

etc.

11. Establish a target level of acceptable delinquency

12. Establish prudent loan loss reserves and write off

policies.13. Ensure that income and assets are accurately reflectedin the financial statements.

COLLECTION PROGRAM CONTROLS

1 Are accurate determinations of delinquency made?

2 Does the board regularly review the monthly delinquency reports?

3 Does the board analyze the delinquency, loss ratio, liquidity and reserve position inrelation to one another?

I th All f L L t d t ?


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Analy

sisofCollection

Program

4 Is the Allowance for Loan Losses account adequate?

5 Is the allowance account adjusted regularly as required?

6 Are lending policies revised to control delinquency?

7 Are steps taken to ensure that collection is made on insured loans? (Disability,death, non-filing, etc.)

8 Are loan protection insurance claims and payments handled by a supervisor notinvolved with approving, disbursing, or collecting loans?

9 Is a register of loan protection claims maintained?

10 Are in-house collection personnel trained and experienced in proper collection

procedures?11 Does management allocate sufficient time for collectors to properly function?

12 Is the collection department staffed for after-hours and weekend contacts?

13 Are persons who approve or disburse loans denied work in the collectiondepartment?

14 Are collectors denied access to cash?

15 Are collectors required to use pre-numbered cash received vouchers?

16 Are formal policies in place to determine when legal action, repossession,

professional placement and charge-off will occur?17 Does management periodically review the workload/performance of the collection

department?

18 Are timely initial and follow-up contacts made?

19 Are collection cards established for delinquent accounts?

20 Are follow-ups made on all promises for payment?

21 Are skip traces checked with all possible sources?

22 Do tellers have "want lists" of delinquent borrowers?

23 Are debts to be discharged in a bankruptcy checked against those listed by theborrower?

24 Are legal actions, including repossessions, taken on a timely basis?

25 Are cosigners contacted early in the collection process?

26 Are terminating employees provided with exit interviews and payment couponbooks?

27 Is counseling routinely offered and provided to borrowers who are responsive, yetcontinually delinquent?

28 Are extensions and refinancing policies designed to avoid future delinquency?


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Thank you for your attention!

Documents

Day4 Best Practices