Breaking the Collections Cycle: Why the Status Quo Isn’t Working

In many credit unions, collections has become a routine exercise—automated notices, scheduled phone calls, and predefined scripts that haven’t evolved in years. It’s a system designed for consistency, not flexibility. But in today’s financial landscape, where economic pressures are shifting, member expectations are rising, and digital engagement is the norm, this status quo isn’t just outdated—it’s quietly working against us.

Rising delinquency rates aren’t just a blip. They’re a signal. Members are experiencing financial stress more frequently, but the way we respond hasn’t kept pace. Traditional collections models are reactive, one-size-fits-all, and often tone-deaf to individual circumstances. A member who’s late because of an unexpected expense is treated the same as one chronically in default. There’s little room for nuance—and even less for trust.

This approach doesn’t just harm relationships; it undermines results. Members feel pressured instead of supported. Teams spend hours chasing repayments manually, often with limited insight into what’s actually driving the delinquency. And leadership is left wondering why recovery rates aren’t improving despite mounting effort.

It’s a cycle we’ve seen play out again and again: inefficiency fuels frustration, which in turn fuels disengagement—from both members and staff. Collections becomes a box-checking function, not a meaningful part of the member journey. Worse, the more labor-intensive and impersonal the system becomes, the more members avoid it. Silence replaces dialogue. Resentment replaces loyalty.

Breaking this cycle means changing the question. It’s no longer, “How do we get members to pay?” The better question is, “How do we help members succeed—even when they fall behind?” That shift requires rethinking collections as a point of support, not punishment. And it requires more than swapping in new tech or automating old habits. It demands a new mindset.

Credit unions that are leading this shift are doing a few things differently:

• They personalize outreach based on real-time data, engaging members with context and care.

• They offer modern self-service tools that empower members to resolve issues on their terms.

• They design communications that build trust, not pressure—focusing on clarity, tone, and timing.

• They view collections as a long-term relationship touchpoint, not just a short-term risk event.

  
  

And perhaps most importantly, they’re aligning their internal mindset to see collections not as a last resort, but as a moment of member service.

Success, then, becomes about more than just dollars recovered. It’s about how many members stay with the credit union after a difficult moment. It’s about the experience they had when they needed help—and how that experience shaped their perception of the institution. When members feel respected and supported during hardship, they don’t just pay. They come back. They trust. They refer.

The status quo feels safe because it’s familiar. But familiarity isn’t a strategy—it’s a stall. As the landscape changes, credit unions that cling to outdated collections practices will find themselves not only behind, but disconnected. Breaking the cycle takes effort, but staying in it costs more.

Now is the time to ask hard questions, challenge long-standing norms, and build a collections strategy that reflects the values credit unions stand for: service, empathy, and people over process.