Mastering Borrower Communication During Troubled Times: AVANA CUSO’s Strategic Approach

During times of financial stress, communication can be either the most valuable asset or the biggest liability for credit union leaders like you. You can convert an expensive write-off into a successful workout by focusing on how and when to communicate with borrowers.

AVANA CUSO, as one of the most credible credit union service organizations (CUSOs), believes that communication with borrowers and guarantors is crucial for credit union leaders, and they must handle this with professionalism and care.

Your credit unions must keep in place a firm and structured communication process to maximize recovery and safeguard the balance sheet while maintaining legal integrity and professional balance. In this blog, we discuss why effective borrower communication is crucial for your credit unions and how you can build a structured communication process based on the webinar “Borrower and Guarantor Communication”.

Why Communication is the First Line of Defense?

When a borrower defaults on a loan, he/she operates in an environment of stress and uncertainty. The fear of losing their property or business often makes them react emotionally. Their actions, like denial and avoidance, are usually driven by the survival instinct instead of strategic thinking. In such situations, clear and consistent communication from credit unions makes a huge difference.

As credit union leaders, your primary responsibility is to protect the institution’s assets. Hence, you need to initiate the recovery efforts early and progress methodically while remaining legally defensible. However, your borrower communication and recovery efforts require discipline, not aggression. That is why it becomes essential to balance empathy and enforcement without compromising leverage by following these strategic steps.

Step 1: Early Collection Efforts

Based on our experience in managing loan lifecycles end-to-end, we understand delinquency does not start with disaster. It usually starts when credit unions remain silent and do not react proactively to missed payments, delayed responses, and similar minor issues.

Your loan servicing team must gather information and reengage with the borrower with a soft touch. They must communicate with the borrower early by making friendly phone calls and sending clear emails. But you must escalate the situation to a problem loan officer once the 25-day delinquency mark is crossed without resolution.

Your problem loan officer must switch from the soft collection approach to a firm action plan. He/she will prevent the warning signs from spiraling into long-term defaults using a firmer tone and following structured communication protocols.

Step 2: Handling Difficult Conversations

Not all borrowers respond similarly to firm reminders. A borrower can become evasive, defensive, or combative after receiving firm reminders. Your team must handle the varying responses effectively by remaining firm but respectful.

Your loan officers must remember that their goal is to protect your institution’s position and not debate the borrower’s circumstances. Hence, they should keep the communication direct, clear, and professional without being antagonistic. It is also crucial for them to control the communication by sticking to key facts – what’s owed, what’s been promised, and what happens next.

Step 3: Set Clear Expectations

The team at AVANA CUSO understands that effective communication is about tone as well as clarity. When interacting with a defaulting borrower or guarantor, they ensure that the borrower knows clearly what comes next. They maintain the borrower communication approach transparent and sequential by following a three-tiered strategy.

The strategy focuses on raising the issue through verbal communication, following the discussion by sending a confirmation email, and initiating the consequences by sending a notice of default letter. The framework keeps the process professional and legally enforceable, while conveying the next step to the borrower.

When Legal Counsel Gets Involved

Borrowers usually involve legal counsel in the process as a strategy to delay, negotiate, or approach the issue from a new angle. Instead of communicating with the lender directly, they pass everything through an attorney. In such scenarios, you must not communicate with the attorney directly. Instead, you should drive the communication through your legal counsel. The experienced legal counsel will strengthen your position by keeping the communication strategically aligned, legally defensible, and formally documented. Also, he/she will preserve your rights and maximize leverage by avoiding missteps.

The Pressure of Financial Penalties

You should use financial pressure as an effective tactic when a borrower is behind on payments. You need to ensure that the borrower is aware of all extra charges like the default interest rate, collection fees, and NSF fees that come into play once the loan becomes delinquent. However, you should use the financial penalties to drive accountability instead of punishing the borrower. The financial penalties will bring the borrower to the table by creating a sense of urgency. However, your credit union must consider waiving the default interest and other fees when the borrower brings the loan current by making past due payments.

When Silence Isn’t Golden: Dealing with Non-Responsive Borrowers

Sometimes the borrower avoids lending institutions by using a form of evasion called ghosting. You must identify the non-responsiveness early based on triggers like missed phone calls, ignored emails, and returned notices. You must not remain silent when the borrower ignores communication of various forms. Instead, you must trigger the escalation protocol by treating the non-responsiveness as an immediate red flag. It is important to initiate legal actions, such as starting the foreclosure procedure or sending notice of legal action through your legal counsel.

Asset Oversight: The Role of Property Inspections

When managing troubled loans backed by real estate, you must not rely on financial statements and updates shared by the borrower. It is always crucial to get the real picture by inspecting the collateral. You can even consider assessing the property’s condition through a third-party inspection company. The independent inspection will help you assess the collateral accurately based on key elements, like roofing, HVAC systems, plumbing, electrical, fire safety, structural integrity, environmental hazards, and overall occupancy. The early and accurate inspection will ensure that the value of the property is not impacted due to poor condition in the event of liquidation.

Conclusion

Your credit unions must not focus exclusively on recovering dollars when managing troubled loans. Instead, your troubled loan management strategy should maintain control, credibility, and compliance in high-stakes situations. AVANA CUSO, as a prominent and seasoned credit union lending organization, believes in making disciplined borrower and guarantor communication the cornerstone of the distressed asset management strategy. Our team helps your credit union minimize write-offs through proactive communication, legally sound practices, and detailed documentation. We ensure that your credit union handles the most challenging borrower scenarios confidently and effectively by mastering borrower and guarantor communication.

Need specialized support to minimize delinquency? Contact our team today.