Why should credit unions sell their debt?
Credit Unions are a unique institution in the American landscape. They often provide better and more personalized service to their members than larger banks because they're member-based institutions that tend to be localized, but there's one area where Credit Unions could best large banks: Charged-off loans. While it would seem natural for them not sell these charged off loans like big businesses do, many just haven't considered it yet! Here are some reasons why you should always think about selling your delinquent receivables...
Credit unions offer an alternative option when people cannot afford or don’t want traditional banking services from Wall Street firms who have been known for shady practices such as discrimination and predatory lending schemes.
First and foremost is revenue:
Debt sales provide instant cash which can be put to use, rather than bad debt sitting on the books hurting ratios. Usually, charged-off loans at smaller financial institutions become an afterthought and can sit for far too long, and become completely uncollectible. If they are sold, space and time are gained as well as a burst in cash flow.
Second is a relief for employees:
Often at smaller financial institutions, loan officers perform several different duties, but their primary duty is making loans and managing customers, not collecting charged-off receivables. Selling the receivables allows loan officers to continue to provide customers with the service they need, rather than distracting loan officers from the more productive activities.
Third is member responsibility:
Credit unions are far more customer-based than the large banks and have a closer responsibility to their members to maintain good business practices. Selling delinquent receivables allows a credit union to take an active role in handling all aspects of member services.
Credit Unions have an excellent opportunity in the current market, as prices of delinquent debt are relatively high. For a quick cash boost, relief from loan officer overload, and complete member service selling off charged-off debts could be a good strategy to consider.
In conclusion, credit unions offer many benefits such as better rates and more personalized service compared to larger banks. However, one area where they may struggle is in the sale of delinquent receivables. Holding onto delinquent accounts can affect a credit union's ability to generate new loans and decrease revenue through decreased interest income. Selling these delinquent accounts can provide a source of immediate cash while also maintaining a clean balance sheet for future borrowers. This may not be a traditional strategy, but as the credit union landscape changes, it is important to consider all options to improve financial stability.