Debt Collection for Credit Unions

Published byJohn Grant

15th June 2015

WJM's John Grant has partnered with leading accountants, Alexander Sloan, to produce a blog posting highlighting the particular challenges faced by Credit Unions in debt recovery.  The main blog post can be found here, and what follows below is a summary.

It is important to stress that there are a number of different types of arrears cases.  A uniform approach is not normally the best way to go and it is better to recognise the different natures of the member and then be guided by that.  In the event that a member of a Credit Union genuinely can’t pay the full sum or indeed any of the sum due then it is important to have a realistic assessment of this from the outset.  It may be prudent to accept low level payments rather than to achieve nothing.  It is easy to allow anger over the fact that sums are due to your Credit Union to cloud your judgement.  However, any resentment would be compounded in the event that the Credit Union is  further out of pocket.

The most difficult of people to deal with are those who can pay but are simply reluctant to do so.  Oftentimes, the most difficult thing to do is to try and get your voice heard.  It is fair to say that sometimes the person who shouts the loudest is the one who gets heard.

When negotiating with members it is important to try and ensure a consistency of approach. 

There is also a psychological as well as a financial aspect to debt recovery and this has been an increased focus in academic studies. A report by an academic of economic psychology, Professor Alan Lewis of the University of Bath, has indicated that the best approach is to be assertive without being aggressive.

Research also suggests that an effective debt collection approach is one where the debtor is treated early before becoming too “ill”. For Credit Unions, as organisations who try and support their members, this does not tend to be an issue.

There has also been a study on the psychology of debt collection.  This is based on a theory that everyone has three ego states, the parent ego state, the adult ego state and the child ego state.  The theory suggests that all three are required to be healthy, normal human beings.

The parent ego state is simultaneously nurturing but also judgemental. The child ego state is the one in which emotional responses come out. Finally, the adult ego state represents objective logical thinking.

The suggestion is that if you try and approach debt collection using the parent ego state then the member reverts to the child ego state.  This is on the basis that one party is judgemental and the other party responds by becoming emotional.  The best state to try and ensure an efficient recovery is the adult ego state.  This is where information is sorted out, decisions are made and problems are solved. 

There is also the useful suggestion that by using information gathering questions, which will be open questions, then it is likely that you would get the information that you need to solve any problems.  Again this can be useful for getting a difficult relationship back on track.