[00:00:00] Atty. James Sorenson: Hello listening audience, and welcome to the Banking on Credit Unions podcast. I am Jim Sorensen, your host, and this week we’re going to be discussing the importance of a collection audit and best practices review. Joining me on the show today is Blair. Blair is a partner here at the law firm, at Sorensen Van Leuven Law Firm.
[00:00:20] He heads up our bankruptcy area at the law firm. Blair also works with me on providing audit services. Blair, welcome to the show.
[00:00:28] Atty. Blair Boyd: Thanks, Jim. Always great to be here.
[00:00:30] Atty. James Sorenson: We often get questions from clients, and I think this is kind of how this comes up most often. We get the questions from clients, how often should our collection letters be reviewed?
[00:00:45] Sometimes they ask about policies and procedures, but I think a lot of times it’s more, they think about the collection letters. They think of the letters that are going to the debtors.
[00:00:54] Atty. Blair Boyd: Yep.
[00:00:54] Atty. James Sorenson: And of course, we suggest that at a minimum, this be done every [00:01:00] two years. There are times where changes in the law would require that more often.
[00:01:06] But as a normal case, maybe your, you know, normal times, we would say every two years. However, I think what’s important or what clients fail to realize is that it’s not just important to have your letters reviewed or maybe have a policy looked at. The real question is not just what does your letter say, what do your policy say, but what actually is happening in your collection department, what are your employees doing? Are they following the policies and procedures?
[00:01:43] Atty. Blair Boyd: Yep, that’s the big one.
[00:01:44] Atty. James Sorenson: Are they using the letters correctly? Are they sending them out at the right time in the right situation? So, you know, can you give the audience an overview of, you know, how we work with clients to address these issues through our audit services and best [00:02:00] practices review?
[00:02:00] Atty. Blair Boyd: Sure, of course. In conducting an audit, what we do, we review the policies and procedures that are in place, that are written and in place with the credit union. We look at all the letters, all the forms that you have that are sent out. Then we actually look at actual cases that are handled in the departments, reviewing the collection notes, looking at the files, listening to collection calls, just to see how the actual collectors are taking those policies and procedure and implementing them in the real world.
[00:02:28] So, and we’re looking at internal quality control programs as well, just to kind of get an overview of the you know, collection department as a whole.
[00:02:35] Atty. James Sorenson: And I think it’s important, you know, some of the stuff we do in the audit. Obviously can be done in house at the credit union. The question is, does management have the time in the place to do it?
[00:02:48] And sometimes it’s just helpful to have a second set of eyes look at that. So, you know, when we look at reviewing policies and procedures and letters, you know, can [00:03:00] you kind of expound on, you know, what we do? Are we simply marking them up and saying, you know, this isn’t correct. This is out of compliance.
[00:03:08] How do we actually come alongside our clients and help them in that regard?
[00:03:12] Atty. Blair Boyd: Yeah, most certainly, you know, we do go through all of the letters and make sure they are up to date. They are they follow the letter of the law. And so you’re not sending out letters that get you in trouble for violating.
[00:03:22] You know, FDCPA, you know, or any of those big regulations and then also, you know, best practices and ensuring that the credit union is getting the most out of its policies and procedures.
[00:03:34] Atty. James Sorenson: And, you know, when we review a letter and it’s wrong, I mean, are we going to make suggestions of how to approve it? Or if a policy misstates the law, are we going to make suggestions on how to.
[00:03:46] Atty. Blair Boyd: Yeah, most certainly. We’ll get that back. We’ll get edits in place. And we’ll work with the department as well to try to say this is what we think is the best go back and forth. But yes, edits and all that will be to be given.
[00:03:55] Atty. James Sorenson: How long does our typical audit take? You know, kind of the audit [00:04:00] process itself. Can you kind of expound upon that? If someone was interested in this looking into this, what does that entail?
[00:04:07] Atty. Blair Boyd: It’s usually you know, we’re on site for three or four days, you know, some of that’s depending on the size of the staff and what’s ask of us to go in and take a look at and handle within the department.
[00:04:18] But once we do that, and that’s reviewing all the forms, all the letters, once we’re in there and do the in person review it could take a, between a month or 2 to produce the actual report with all of our edits, with all of our suggestions, with all of our findings on the policies and procedures and all of the things that we’ve seen the collectors do themselves.
[00:04:38] Atty. James Sorenson: Yeah, and I think it’s important, you know, kind of this total process when we usually have a client reach out to us to do the audit, in this best practices review, you know, we start off by obviously engaging in a entering into an engagement letter for this service. We normally do this on a flat fee basis.
[00:04:59] And [00:05:00] so once that agreement is signed, you know, the first step is to set the date for the onsite.
[00:05:06] Atty. Blair Boyd: We’re always have busy schedules, trying to get that worked out.
[00:05:10] Atty. James Sorenson: So those three or four days, and then we ask, obviously there’s a list of information that we need ahead of that onsite. And you know, of course, like you mentioned, we’re the complexity of departments can vary greatly depending on obviously the size of the credit union, but it also varies on the functions that are actually within a collection department.
[00:05:30] Atty. Blair Boyd: Yep.
[00:05:31] Atty. James Sorenson: Some handle things besides what we would typically include or think of in the collection realm. They’re going to be related services, related practices or processes that they manage that may expand the scope of the audit report.
[00:05:48] Atty. Blair Boyd: It’s true.
[00:05:49] Atty. James Sorenson: You know, at the end of the audit. What do we produce for the client? Kind of what’s the deliverable at the end?
[00:05:55] Atty. Blair Boyd: Yep. What is produced is a written audit report on paper. We [00:06:00] email to you. In that report, we have all of our recommendations on revisions to policies, procedures, and the letters. You know, we give our insight on any type of potential compliant risks and how to align with best practices in the industry.
[00:06:13] And then advice on how to improve the efficiencies and results of the collection department.
[00:06:18] Atty. James Sorenson: Yeah. So what we want this to be is not just a report card, how you’re doing, but recommendations on how to improve the process. And so, you know, we work with the clients to obviously walk through and clean things up.
[00:06:34] So, you know, a lot of times there’s changes made to a policy, there’s changes made to a procedure. The new revised policy or procedure is sent back to us for a second look, a second review. There may be issues with regards that things we see that employees are doing that aren’t correct, that may lead to some additional training that needs to be done. So you know it does obviously depend on the [00:07:00] circumstances.
[00:07:00] What is unique or what is important about having a lawyer do these audits and best practices review?
[00:07:08] Atty. Blair Boyd: Yep. And one big benefit, and we’re not even talking about the, decades of experience that we have at our firm. You know, in the credit union industry is the attorney client privilege, you know, that protects the report from outside interest.
[00:07:22] You know, people in a discovery, if there was a lawsuit filed against the credit union, they’d love to see a list of all mistakes that have been found in the collection department. So this is one of the big differences in hiring us from an accountant or some other type of consultant.
[00:07:35] Atty. James Sorenson: Yeah, I think that’s important to remember. I think A lot of times the, you know, people will look at, there’s other accountants, other consultants that can do this work, or even internally you can do this work, as we mentioned. You’ve got the time or the the time or ability to do it. You can do it in house.
[00:07:54] The problem is that any reports that are produced, any information that’s gathered, all of that is discoverable [00:08:00] in a lawsuit. So, you have to credit you or sued for some practice that the audit covered or maybe not even a practice, the audit covered, but something we don’t want in the hands of a lawyer that can be troublesome.
[00:08:12] So I do think that’s something that sometimes people forget or don’t fully understand. And I want to make sure they do understand that. And you know, and I think the other part of this and this is just, you know, given our long years of doing this in the industry, working with our clients is we have worked with a lot of clients over the years.
[00:08:36] And we know that, sometimes these audits can upset certain people because it changes the way things are done, you know, you’re maybe pointing out people who’ve been doing things wrong and, you know, we try to approach that in a way it’s a team building approach.
[00:08:50] We’re not trying to get anybody in trouble. We’re in as preventative maintenance, and so, we try to work real close to not point blame at anybody but to [00:09:00] work to solve the problems and get everything up to par in terms of compliance with the law and following best practices.
[00:09:07] So, in doing the audit work, you know, you’ve done several of these I’ve done several of these. What are some of the common issues or problems that we observe, when we go into our credit unions and see them you know, kind of take a look under the hood, so to speak.
[00:09:21] Atty. Blair Boyd: Oh, certainly. You know, the policies and procedures, you know, not consistent with changes in the law.
[00:09:26] You’ve had them in place for years and it’s never been updated. They’re not consistent with how the credit union actually operates. Again, they were written years earlier and they’ve been the policy and that’s what people will follow and you haven’t taken the time to go and review and update and how these systems, the process have changed. Creditors not accurately notating the collection notes as we always say, if it’s not in the notes, it didn’t happen.
[00:09:50] Collectors not being effective in working an account, not just dialing for dollars, trying to actually get, you know, figuring out what the problem was in fixing that and getting a [00:10:00] solution to those type of delinquencies collectors failing to give proper disclosures.
[00:10:04] This is a big one regarding a call being recorded or failing to give the proper disclosure on payments by phone. The failures in doing this could subject the credit union to litigation. And then just letters violating the law, especially letters related to repossession or foreclosures, which those really, you don’t think about it when you send them out, but they could have a big effect later on down the line when you’re trying to go after them later in the court and you can’t proceed because these letters are defective and you can’t cure it at a later date.
[00:10:35] Atty. James Sorenson: Yeah, I think about some of the recent things that I’ve seen, and these are things a lot of times, you know, we have these conversations with managers, with people who are supervising a collections department. Sometimes the scary thing is not knowing what people are doing exactly.
[00:10:51] And even if you’re trying to manage and you’re have some sort of QC in place, realistically, how many calls can you listen to? How many [00:11:00] files can you look at? Usually you’re only going to know if there’s a problem if something is escalated to your desk or to your attention. So if you have a member raising cane complaining about the way they were treated and you have to get involved, you may start looking at the collection notes and you would discover, you know, Oh my, we have a problem.
[00:11:20] You know, Adam over here is really causing some problems. So, you know, I was in at a client recently and you know, listening to calls and this is not the most glamorous part of the audit process because we listen to a lot of calls that are routine and mundane and have no problems, you know, we and obviously those are great that there are calls with no problems.
[00:11:42] But occasionally we listen to a call. And there’s real concerns about the way the collector is handling that matter, handling the call, handling the member. And, you know, I recently was in a shop where you had a newer employee you know, who was for lack of a better [00:12:00] term, making things up in the collection notes.
[00:12:03] There were conversations with members, you know, again, these are recorded calls we’re listening to. So there’s conversations with a member, the member is upset. But the member is probably has a reason to be upset. There was some things, balls dropped at the credit union, some things not followed up on.
[00:12:20] Not particularly with this collector, nothing this collector had done, things other people had done. And you know, member was clearly upset. But the member was not out of control. The member did not use profane language. You know, I think he you know, might have said I’m getting screwed, something like that.
[00:12:38] And the collector changed that word into a much more negative word you know, the F word. And you know, said he repeatedly used the F word. Well, you know, I saw that in the collection notes. I’m thinking, wow, this is going to be an interesting call. And I get done listening to the call and I’m like, what did I miss?
[00:12:56] Atty. Blair Boyd: Not as advertised.
[00:12:57] Atty. James Sorenson: Yeah. And so, you know, that’s not a big [00:13:00] deal, but the problem is, you know, what’s going on with this collector? Why is this collector feel the need to embellish the stories? Part of the problem in that call as well wasn’t just that he embellished what the member said but in that call, he promised the member.
[00:13:17] That he was going to follow up with management and get back to him on his one question. The notes don’t reflect that.
[00:13:24] Atty. Blair Boyd: Yep.
[00:13:25] Atty. James Sorenson: There was no follow up with management and this caused the issue to escalate further. So so again, this is just a breakdown of training a breakdown of following the process And an opportunity to hopefully coach this collector and you know Show this person how to do it properly.
[00:13:46] Yep. So, you know, that’s one example it’s not an extreme, but it’s some of the things we see, and then in other situations, I’ve seen you know, some real egregious examples where, the collector is clearly violating the law. They’re [00:14:00] misstating the law to the member They’re misstating what the credit you can or will do they’re making claims that aren’t enforceable They’re misleading all violations in Florida, violations of the Florida Consumer Collections Practices Act and the types of things that could get the credit union sued.
[00:14:18] These are things, obviously, you know, that we want to bring to management’s attention and we want to give management an opportunity to address. And correct, you know, those types of behavior. So, you know, it is listening to calls can be really boring at times, but every once in a while, it can be interesting as well.
[00:14:40] Atty. Blair Boyd: Yes, it can.
[00:14:41] Atty. James Sorenson: So I think my favorite call I ever listened to was an employee at a credit union talking to one of all my employees.
[00:14:49] Atty. Blair Boyd: Oh, wow.
[00:14:49] Atty. James Sorenson: And they were bad mouthing me and the credit union VP over the department. I got a good laugh out of that since my employee had no [00:15:00] idea that I would be listening to this call and I’m not sure what the credit union employee was thinking because they knew that I came in and listened to calls or was coming in to listen to calls.
[00:15:11] So, you know, again, obviously not a violation of the law, but maybe calls into question their professional judgment. So, that’s probably the strangest one I’ve ever had. Not saying whether or not I deserve the criticism in that call. You know, question my intelligence, which might be fair, but was funny. And I still kind of laugh, giggle about it to this day, cause it just kind of funny.
[00:15:33] Atty. Blair Boyd: That is funny.
[00:15:34] Atty. James Sorenson: Didn’t expect that either. So you never know what you’re going to, what you’re going to hear on these calls.
[00:15:38] Atty. Blair Boyd: No, you don’t.
[00:15:39] Atty. James Sorenson: So, you know, you mentioned earlier, letters violating the law.
[00:15:42] Atty. Blair Boyd: Yep.
[00:15:42] Atty. James Sorenson: You know, particularly repossession letters. You know, what are the repossession letters that have the biggest concern that we see from this sort of audit best practices review?
[00:15:54] Atty. Blair Boyd: Yep. So, I mean, the two big ones are the intent to sell letter, the 10 day letter that’s sent [00:16:00] out, and then the explanation of deficiency letters.
[00:16:02] So, in those intent to sell you know, not identifying the collateral correctly not including the required disclosure under Florida statutes or you know, even stating that the wrong type of sale that is happening for that piece of collateral, you know, those are some of the biggest things that we see and, you know, these concerns is because, you know, there are specific requirements under the statute and you know, for whatever reason over time, someone, you know, decides to modify these letters, not realizing that they are removing language or information.
[00:16:32] And since they have to be sent out on all repossessions, you know, depending on what size of shop these can be, a very large volume of letters. And so, those specific letters become prime targets for class action lawyers looking to sue the clients, you know.
[00:16:48] Atty. James Sorenson: Yeah. And, you know, in all my years I remember, you know, one client had these letters, it was the Notice of Intent to Sale letter, commonly referred to as a 10 day letter, [00:17:00] and they changed one word in that letter.
[00:17:02] When I say day someone at the credit union changed it I have no idea who. I don’t believe it was the manager at the time. I believe it was someone before them. But nevertheless someone changed one word and thought, you know, ah, this makes more sense. What’s one word? Didn’t run it by Anybody to hey, is this change going to cause a problem?
[00:17:24] Is this change compliant with the law? And they got sued class action lawsuit they’re it resulted in costs to the credit union, well in excess of 100, 000.
[00:17:37] Atty. Blair Boyd: Wow.
[00:17:37] Atty. James Sorenson: Several hundreds of thousands of dollars. I don’t remember the exact amount. And you know, and that doesn’t count, obviously, employees time and costs of dealing with the case.
[00:17:49] And so, you know, one change to a letter, that letter had been on the books at the credit union for five or six years. Had they been reviewing those letters on at least [00:18:00] every other year basis, you would have greatly reduced the size of that class action maybe even caught it in time to where the class action never gets filed.
[00:18:10] But even if it does get filed, it would be much smaller. And so, you know, those are important and those are real life examples and, you know, an audit could have saved that, a letter review could have saved that. And so, that’s just one example of where credit unions need to be careful.
[00:18:27] Atty. Blair Boyd: Yep. Most certainly.
[00:18:28] Atty. James Sorenson: So, you know, as a side our audit services has given us insight and knowledge about how the industry operates. And obviously, you know, we can be a wealth of knowledge to our clients. We can help our clients as they work to improve their recovery programs as they reworked their queues, as they rework workflows and processes.
[00:18:50] Yep. You know, these are all outgrowths of this audit process. And, I think, additional benefits that we can provide to our clients that we’re happy, [00:19:00] you know, to help and these go kind of to the best practices part of it.
[00:19:03] Atty. Blair Boyd: Yeah. No, certainly no and we have a multitude of clients across all different areas of the state, you know, and so we’ve seen so many different ways that people go about these and I think that type of experience helps a lot when you go into some you go into a shop and sometimes they just they don’t know what they don’t know and they don’t know the right questions to ask and that where we come in with our experience and our knowledge and help and just try to, you know, it’s a better goal to get that collection department to run as smooth and efficiently as possible.
[00:19:37] Atty. James Sorenson: Yeah. So, you know, I’ll kind of close out today’s podcast with this, you know, our audit services are not cheap. They do cost money. It’s how we make a living.
[00:19:47] Atty. Blair Boyd: Yep.
[00:19:48] Atty. James Sorenson: But you know, if you compare them to the cost of a lawsuit, they do pay for themselves and I think you know whether the clients do a full blown audit or have us look at certain portions [00:20:00] of their processes You know, and obviously we can do either we think a full blown audit is the best bang for your buck Certainly gives you the best review, but, you know, sometimes piecemealing it may make more sense.
[00:20:13] So, you know, let’s look at letters, but then we’ll look at policies and procedures at a later date, or we’ll look at these things. You know, any of those things are things that we can do. We really enjoy, I know I do.
[00:20:26] Atty. Blair Boyd: Yep.
[00:20:27] Atty. James Sorenson: You enjoy working with clients in these regards, and helping them dot the I’s and cross the T’s and button up their operations.
[00:20:36] Atty. Blair Boyd: And also, Jim, I know it gives us an opportunity to come into the credit union and really get a chance to experience and get to know the credit union, the culture of the credit union, which I think also really helps us be able to help y’all as well. And so I personally, you know, email, all that’s great.
[00:20:52] And phone calls, but I also love getting to be able to physically see someone shake your hand, talk to you face to face. I think that in [00:21:00] and of itself is a great thing.
[00:21:00] Atty. James Sorenson: Yeah, it is. And like I said I know both of us enjoy those opportunities. So, you know, this podcast was a little bit different.
[00:21:09] You know, a lot of times we’re just giving information. Here, we wanted to give information. Let you, inform you about the audit services we can provide, give you some understanding of what the audit services cover, why it’s important you know, and I’ll close with this, even if you don’t have us do it, at least someone in management should be looking through the procedures, looking through the letters.
[00:21:35] You know, it’s amazing to me how many times we go in and see procedures that reference wrong laws, old laws, they reference old systems, old processes things that you didn’t need us necessarily to point out, but again, no one’s doing it. So, you know, if we’re able to help you and you’re interested in our audit services.
[00:21:55] Please reach out to Blair or myself. We’re happy to talk with you. If you want [00:22:00] more information, you can always go to our website, www.SVLLaw.com. While you’re there, sign up for our newsletter. We also ask one other thing of you, if you enjoyed today’s podcast, if you would like and subscribe to the podcast this has been Banking on Credit Unions Blair, thank you for joining me.
[00:22:19] Atty. Blair Boyd: Nope. Always a pleasure, Jim.
[00:22:21] Atty. James Sorenson: And until next time, listening audience, I hope you continue to work to improve your collection departments at the credit union.
