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#120894 - 10/07/03 10:15 PM Collection Department
Anonymous
Unregistered

Need some advice. Our collections department has always received raves on their low past due figures. It turns out that they consistently accept short payments and then bump the due date, reverse escrow and late payments to complete the P&I portion and then bump the date, bump due dates based on a customer's promise to pay tomorrow, etc. I have no collection experience so I'm confused as to whether this is the "norm" for a collection dept.

Any ideas/advice?

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Audit
#120895 - 10/08/03 02:07 AM Re: Collection Department
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
This is an absolute no-no. The collectors should not have "ANY" access to the loan system that allows them to manipulate due dates, process payments,etc. If that is not the case, then not only would I stop this practice, but I would also instigate a detailed audit looking specifically for fraud, including mailing confirmation letters to customers that recently had their payment due dates bumped. I.E., collector receives cash, collector bumps due date, collector skips after 100s of payments, angry customers come out of the woodwork as they approach loan pay-off. And don't say we don't have to worry about that, I've seen it happen too many times at every size bank. I would rank this as a serious breakdown in internal controls. There has to be some sort of separation of duties. Additionally, you need to analyze if you now have loans that are not classified according to regulatory guidance due to the fact that the past due dates have been manipulated.
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#120896 - 10/08/03 11:49 AM Re: Collection Department
DebNP Offline
100 Club
DebNP
Joined: Oct 2001
Posts: 179
Eastern PA and NJ
I agree this a no-no. Don't know if your bank is OCC or not. You may want to review the Uniform Retail Credit Classification Guidance, which details the proper classification of delinquent accounts, among other things. If you are FDIC, OTS, I believe they have similar guidance.

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#120897 - 10/08/03 02:26 PM Re: Collection Department
Neytiri Offline
Platinum Poster
Neytiri
Joined: Jul 2002
Posts: 645
Pandora
So your collection department has no supervisor, no procedures? They can change fields in your system without officer approval? Where are the internal controls for this department? Your books don't adequately reflect past due staus, and this may only be a tip of the iceberg. I would recommend sending audit confirmations.

Only a full payment changes our due date; no maintenances are accepted unless there is a problem and even then officer approval is required and the reason documented. Discuss this with officer in charge of collection department, and if you get no satisfaction go to audit committee. Even if they don't want to change this practice YOU need to document the findings and management response to CYA.

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#120898 - 10/08/03 04:35 PM Re: Collection Department
renniks Offline
Diamond Poster
renniks
Joined: Sep 2003
Posts: 2,162
New England
I have encountered this same practice at two banks that I worked for. As soon as I discovered what the collector's were up to, I put a stop to it immediately. The collectors involved did not have transactional access to the servicing system, but they would bring the "short payment" to a servicing clerk and give them posting instructions to advance the due date, etc. If your loans are sold on the secondary market, you might want to take a good look at the monthly reconciliations, sometimes you can uncover due date and short payment problems that way.

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#120899 - 10/08/03 04:42 PM Re: Collection Department
Anonymous
Unregistered

This sounds to me like a very serious internal control problem. In addition to the steps listed by other posters you might want to consider looking at the wording on your notes and comparing it to how your computer processing system handles the payment stream. Our old computer system had been set-up to process interest first and not interest and principal in the order of the way payments are due. Thus if you were 90 days past due for principal and interest and you made one payment, the interest buckets would be filled for 30, 60, and 90 days with the rest going to principal. In one case I know a customer made over $5,000 in oayments on a loan but since they were never current according to the system they never had a principal reduction in over a year. The consequence is your past due statistics are also incorrect not to mention the possibility of legal action by the customer since you never reduced the principal.

Get together with your legal counsel and bank systems guru and determine that the system is processing payments in accordance with the terms of the note...good luck......

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#120900 - 10/08/03 05:35 PM Re: Collection Department
renniks Offline
Diamond Poster
renniks
Joined: Sep 2003
Posts: 2,162
New England
It is always a good idea to check the way the payments are spread on your servicing system. One bank that I worked for had the payment spread set up as escrow, interest, principal. When I questioned their reasoning I was told that they took escrow first because it was cash out of the bank's pocket when it came time to pay taxes if the escrow was short! What a mess. It took months to get everyone back in sync. Oddly enough, the servicing manager who set this up was previously the collections manager!

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