Disclaimer
This sample policy provides a guide or a place to begin. Credit union policies should always be structured to meet
the specific needs of the credit union and its membership. Efforts are made to update the material to reflect
applicable changes in the law. This sample should not be considered legal advice nor relied upon as a substitute for
professional services. Credit unions are encouraged to contact legal counsel for legal advice. The Kansas Credit
Union Association will not be liable for any direct, indirect or consequential damages resulting from the use of this
policy.
Collection and Charge Off Policy
PURPOSE
The purpose of this policy is to set general guidelines pertaining to the collection efforts,
collateral repossession, and charge-off of accounts to the allowance for loan losses.
POLICY STATEMENT
When attempting to collect delinquent loans, the credit union’s special accounts staff will treat
each delinquent member equally regardless of ethnicity, gender, race, age, or religion. At no
time will any of these factors be used to identify that a loan may eventually go bad and become
a collection problem. Each member, regardless of the status of an account or loan, will be
treated at all times in a courteous and professional manner.
Collection efforts will be conducted in a professional, ethical and empathetic manner. Losses
will be recognized and handled as such in order to accurately state the assets of the credit
union.
AUTHORIZED ACTIVITY
Any staff, but especially tellers and member service staff, who encounter a member with a
delinquent loan should give the member a friendly reminder that a payment is past its due date.
The best time to reduce delinquency is as it begins to occur. Concentrate on the 30-day
delinquent loans and stress to the member that the credit union takes late payments seriously
and that it is more difficult to catch up payments as they become more delinquent.
The following activities are permitted in the collection process:
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First contact is generally made via a computer generated late notice mailed to the
delinquent member.
Subsequent member contact may be made by telephone, letter, and personal visit.
The member’s employer may be contacted only for employment verification. Under no
circumstances will the reasons for requesting the employment verification be revealed.
The issue of late payments is sensitive and confidential. Collection calls should be
made to the member’s home phone first then to the work phone. Confidentiality
mandates that phone messages should not mention the reason for the call. Special
accounts representatives should only leave their name, organization, and a return phone
number.
The special accounts staff is authorized to work with the member to set up an alternative
repayment schedule if payment in full is not possible at the time the loan becomes
delinquent.
The credit union believes in consumer credit counseling organizations, but feels that our
rates, services, and focus on our members do not provide the income level to fully
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support them financially. When working with a consumer credit counseling organization
loan payments will not be contributed beyond an amount that would reduce the loan
yield below 5.00%.
All contacts with delinquent members are to be documented with the date and method of
contact, along with a full explanation of agreements reached. Any follow-up contacts will also
be fully documented. Collection comments are formal credit union records and must meet a
high standard for quality, accuracy, and integrity. Only accurate and factual information is to be
included in the collection comments. Language used in collection comments will not include
derogatory comments or staff opinions regarding the member’s condition, health, or state of
mind. Statements regarding the member’s martial status may be included if the comments are
relative to the repayment of the obligation.
Collection is made on the entire amount owed including principal, interest, late fees, overdraft
fees, and collection costs. If an offer to settle for less than the amount owed is made, a
decision to accept or reject the offer will be made within the following guidelines:
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Generally for any loan charged-off the credit union will settle for the principal and
collection costs and forgive interest and late fees.
Generally for an overdraft, the credit union will settle for the amount of the overdraft
plus one-half of the overdraft fees.
If an offer to settle for less than the amount described above is received all relative information
will be submitted to the credit committee for a decision.
PROHIBITED ACTIVITY
Recognizing that all members are shareholders in the credit union and that collection activities
benefit all shareholders, all collection attempts will be conducted professionally, and all
members identified for collection actions will be treated equally. The following activities are
prohibited during the collection process:
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The use of unprofessional statements referring to the debtor’s race, age, or ethnicity.
Contacting an employer of the delinquent member regarding the debt. Levy of wages is
excluded from this prohibition.
Threatening the debtor with a lawsuit if not prepared to proceed in that direction.
Sending letters discussing the debt by fax or postcard to a debtor’s place of
employment.
Harassment of the debtor, such as making excessive phone calls at odd times of the
day or night and excessive mailings.
Making false threats.
Releasing information regarding the debt to an individual or third party unless within the
legal guidelines for the release of such information.
Collections from GPCU employees should be referred to the Assistant Vice-President
Special Accounts or the appropriate Vice-President Branch Services.
Collections from employee family members should be referred to the Assistant VicePresident Special Accounts for assignment to another Special Accounts Representative.
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LOAN MODIFICATION
Loan officers may refinance loans for creditworthy members that are current. Loan officers and
special accounts staff should submit refinance and modification requests to credit committee for
delinquent members. As a general rule only one loan modification will be approved in a
calendar year. The credit union may make an exception to this guideline if it is deemed in the
best interest of the credit union. Skip-payments for qualified members will not be counted in
this context.
The following guidelines should be followed when working with a member who is experiencing
difficulty with payments.
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Securing additional collateral and suggesting canceling revolving credit accounts
should be considered.
If the member is delinquent due to a one-time incident and is not more than 90 days
delinquent then accept partial payments for up to 6-months within an agreed workout
plan. A workout plan should include an agreement on objectives and time limits with
the end result of a current loan.
If the member is delinquent because they are overextended in general and not more
than 90 days delinquent the loan may be refinanced and 1 to 3 years added to the
term. Revolving credit accounts from the credit union should be canceled.
If there is no income and no collateral the special accounts representative should
analyze the probability of future income. Forbearance (a reduction in payments to a
minimum of monthly interest or no payments for a period of up to 3 months) may be
granted with a realistic workout plan.
Acceptable performance for delinquent accounts is (1) continuing payments, (2) payments
sufficient to pay interest due and reduce the principal balance, or (3) adhering to a payment
plan that provides for incremental payments so that the loan is paid off within a reasonable
time.
TIMELINE FOR COLLECTION EFFORTS
In an effort to provide consistency in our collection and charge-off methods the credit union has
developed a collection timeline. The timeline should be followed for delinquent accounts. For
member accounts with active collection contacts and when repayment arrangements are in
process, deviation from the timeline is acceptable. The collection effort should work to the best
interest of both the member and the credit union. Good judgment and flexibility work to
preserve the assets of the credit union and allow the member to preserve their dignity and
credit standing.
DELINQUENCY RATIO
Location, regional, and local economic conditions can have an effect on delinquency, however,
GPCU will strive to maintain a delinquent loans to total loans ratio of less than 1.00%. For loan
that are 90 days or more delinquent, delinquent loans greater than $100,000, repossessed
vehicles, and foreclosed real property, a monthly summary will be provided describing the
account, actions taking, existing promises or repayment plans, and recommendations for
further action. When appropriate, critical information from these reports will be forwarded to
credit committee and to the board of directors.
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BANKRUPTCY
When a member has filed their bankruptcy petition, a temporary stay becomes effective. At this
time, all collection efforts by or on behalf of the credit union will stop. The member's account
will be flagged so that all account statements, collection calls, late notices, foreclosure
proceedings, repossession actions, etc. will stop. Exceptions include: 1) the right to offset, 2)
the right to commence or continue criminal actions, 3) the right to record security interest on
collateral when the time to record under state law has not expired, 4) claim actions and actions
to maximize creditor claims under the bankruptcy laws.
All bankrupt accounts will be so designated on the data system to allow for proper tracking and
reporting.
COLLECTION WATCH LIST
Identifying potential collection candidates will be based solely on economic factors such as:
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Payments are consistently late.
Insufficient fund checks are showing up on the member’s account.
All or most of the funds are withdrawn from the account.
The member communicates financial problems.
The credit union receives notice of attachment on an account.
Internal Revenue Service or state levies are placed on the account.
Inquiries are being received from other lenders regarding liens showing up on the
member’s property.
Abnormally large purchases and/or cash advances against credit lines are observed.
There is evidence of skip tracing by other lenders.
There are additional loan applications for debt consolidation.
Layoffs or restructuring occur at the member’s employer.
TSuch accounts should be placed on a “potential problem loans list” by the special accounts
department and monitored.
LOC program loans should also be closely monitored because of the higher degree of credit
risk associated with this loan program.
REPOSSESSION OF COLLATERAL
In the event a borrower becomes delinquent in the repayment of a loan secured by collateral,
the credit union may act to repossess the collateral.
SALE OF REPOSSESSED COLLATERAL
Collateral will be sold in a commercially reasonable manner as prescribed by Kansas Statutes.
USE OF COLLECTION AGENCIES OR ADDITIONAL IN-HOUSE COLLECTION ACTIVITY
After the credit union has determined that all in-house collection actions have been exhausted
and it has been at least 120 days since the last payment or promise of payment from the
member the in house collection actions will stop.
All accounts, which can be assigned for further collection actions, will be assigned to a third
party collection agency. Accounts will be assigned for a period not to exceed one year. All
assigned accounts with no activity within the last 180 days will be assigned to a new collection
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agency for second placement. Second placement accounts will be assigned for a period not to
exceed one year.
DELEGATION OF AUTHORITY TO CHARGE-OFF LOANS
The board delegates the authority to charge-off loans deemed uncollectable to the credit
committee and/or the credit union President. Charge-off guidelines below are intended to
provide guidance for the charge-off of loans:
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A non-performing loan more than 180 days past due without a payment of at least 75%
of a regular monthly installment within the past 90 days. In cases of non-performing
loans, transfers from shares and proceeds from the sale of collateral generally do not
constitute “payments.”
 A delinquent loan in the hands of an attorney or collection agency, unless there are
extenuating circumstances to indicate the credit union will collect the loan.
 A “skip” where the credit union has had no member contact for 120 days.
 An estimated loss where the credit union has foreclosed on but has not yet sold the
property securing the real estate loan at the fair value of the property. The loan balance
will be transferred into Other Real Estate Owned (OREO) account and any loan balance
in excess of the value of the property will be charged-off, less estimated selling
expenses.
 A loan in bankruptcy, within 60 days of receipt of notification of filing from the
bankruptcy court, unless the credit union can demonstrate that repayment is likely to
occur. Loans with collateral may be written down to the value of the collateral, less
estimated selling expenses. This is most common for bankrupt member loans that are
written down in value by the court.
 A fraudulent loan should be charged-off within the shorter of 90 days of discovery or
when the loss is determined.
 A loan to a deceased person when the loss is determined. Loans that have credit life
insurance should have claims filed in an appropriate and timely manner. If the member
has uninsured loans it may become necessary to contact surviving family members. In
order to be sensitive to our member’s family and the loss they are experiencing no
contact will be made to the immediate family for a period of 2 weeks following the death
unless a party from the estate contacts the credit union. At the end of the 2-week
period, contact the spouse, appropriate family member, or executor of the estate to
secure the necessary information for future special account actions.
 A loan where a deficiency balance remains after the sale of repossessed collateral and
where the credit union has received no payment and has no apparent course of action.
 A loan deemed uncollectable where additional collection efforts are non-productive
regardless of the number of days delinquent.
Exceptions and loans that may present a conflict of interest require review and approval of the
board of directors. All charged-off loans will be reported to the board at the next regularly
scheduled meeting.
SUSPENSION OF SERVICES
Suspension of services includes freezing or zeroing credit limits, canceling the use of credit
cards, hotcarding ATM cards and debit cards, and closing deposit accounts. Special accounts
staff that work with delinquent accounts and charged off accounts are responsible for
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suspending credit union services when a loan is charged off. Many of these actions will have
already occurred as the member becomes progressively more delinquent.
Any member who has caused the credit union a loss may no longer use the credit union
services and will have their membership terminated. If a member repays the loss to the credit
union then membership and access to services can be restored. If the member is repaying a
loss in installments membership may be maintained as long as installments are made in a
systematic method, as agreed, by the member and the special accounts representative.
RECORDS RETENTION
Records will be retained for a period of seven years for all accounts placed with a collection
agency and all accounts placed in judgment or where a suit has been filed by the credit union
against the debtor
REVIEW
The board of directors will review the collection and repossession policy on an annual basis.
Approve by the Board:
Date:
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