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Guidelines for Collection Practices

Goals of Collections

• Maximization of dollars recovered through smart, fair, empathic practices

• Customer retention and brand enhancement
• Full compliance

Two Shots

Two Shots is called when the Customer explicitly refuses to pay or anytime the supervisor deems
beneficial to secure payment. The idea is to change the collections approach and style by having another
collector dealing with this Customer (or the supervisor/manager), possibly creating empathy on a tough
negotiation. In a Two Shots the Collector gets a colleague to make an active collection attempt on the
account.

Solution Engineering

In order to incite a payment, the collector need to craft as many solutions as possible - tailored to the
specific situation of the Customer - after gathering information through communications with the
Customer, an updated bureau (if loan is more than three months on the books), skip tracing/reference
calls (not collection calls, please!), and web research. The information orbits around reasons for non-
payment, willingness to pay, need to reloan in the future, perceived value of our value proposition
experience with collections, personality traits and feelings such as being introvert and ashamed of being
past due, risk of legal/reputation risk and or insolvency. The strategy is comprised of a combination of
educational pressures, incentive or discount and repayment term.

Engagement, Persuasion and Call for Action

Collectors use one a multifaceted combination educational “pressure” depending on their assessment of
the Customers’ reason for delinquency and willingness to pay as a key ingredient. This may include:

Positive tone:

• We will have the right solution when you are ready – create empathy to get paid ahead
of others and not incite insolvency or augment risk (legal actions, bad impact on brand,
etc). Pushing for payment may be counterproductive for some people
• Value proposition. We care about you!
• Continued access to our products, services and advice
• Deeper relationship levels are contingent on “good behavior” as assessed by the credit
department and this opens up the possibility for better products and services
• Avoidance of the negative impacts of non-payment
Negative tone:

• Verification of employment if permissed

• Collections Interest and NSF fees
• Inability to obtain credit in the future (even if not reporting)
• Agency / 3rd party involvement
• Credit bureau impact of 3rd party involvement
• Asking co-signers to fulfill the obligations
• Legal Demand

Repayment Modes (normal collections)

• In descending order of offering (show each one in the order, unless another order is
more suitable discretionary to the Collectors’ negotiation skills):
• Payment in full
• Split payment over short period
• Payment Plan over extended period
• Settlement

Loan Restructure

Not applicable to external Debt Management Programs. Loan is re-aged.

Restructure limits:

Time since origination 9 months

Time between re-age and next modification, between modification and next-reage, or between
modifications/reages 6 months (goal is to avoid deliberate postponing of losses)

Max number of restructures = 5 in rolling 5 years

30+ DPD (and before charge-off)

Auto Reage Program

Automatically reset DPD count, bringing account to current (IFRS will still require it to be impaired) after
90% of two qualifying payment on a Loan Restructure. For modifications is required 100% of two
qualifying payments.
If no modification/restructure is reached AND customer skips one payment, account can be
automatically reaged after two successful payments. The skipped payment should stop accruing interest
/ stop incurring fees and deferred to the end of the payment schedule. No RPC required.

Modifications

After 9 months on books

Credit counseling, Modifications and Settlements up to 50% (65% on Hardship, hardcore stages, or per
management exceptions) of outstanding balances are performed approval per authority matrix.

Modifications in the terms of the contract such as repayment schedule and interest for a period of time,
normally six months (extension permitted for equal period of time), may require a new loan agreement
(Re-write) but normally in this case this will be fall under the Loan Restructure program.

Modifications, including early renewals and loss mitigation renewals should seek specialized
underwriting from a risk manager/policy.

Hardship program (NOT normal collections)

Customer face difficulties to repay because of an unforeseen hardship or change in life circumstances,
including events such as illness, car accident, income reduction (unemployment, death of spouse, etc),
or termination of a relationship.

Requirements:

60 DPD and RPC to assess the situation and honesty of the claim

Solutions:

All other solutions for normal collections (skipping a payment, settlement options, etc), subject to
different settlement thresholds (up to 75% for example)

Financial Incentives

Part of the solutions, in the interactions with the Customer we can think of the following incentives (not
involving a modification/rewrite of the loan and before entering any hardship proposal)

• Due date changes, split payments, and jumping payment (the installment goes to the
end halting accrual of fees/collections interest if this is the case). Applicable for curable
situations or on exceptions approved by Supervisor/Manager limited to a reasonable
number of times (say three)
• NSF fees waiver (partial unless paying in full)
• Discount up to 25% @ 30 DPD (front-end) offered once in the lifetime
• Discount up to 50% @ 60 DPD (mid-range) offered once in the lifetime
Communication

Collectors must actively use written communication when attempts fail to reach the RPC. Possibilities
fro templates:

• NSF Notification – informs customer of missed payment

• Escalation – illustrates a progression of collection efforts

• No Contact – stimulate inbound when no RPC

• Final Warning – warns customer of pending agency involvement

• Legal Demand – warns customer that attorney may become involved

• Pending Due In Full – warns customer that principal on renewal is at risk of due in full

• Promise to Pay – summarizes customer arrangement

• Broken Promise – informs customer of broken arrangement and illustrates escalation

• VOE – employment verification sent to employer as part of strategy where applicable

ACH

When there is no RPC and no arrangement, the strategy may involve (if there is likely benefit) setting an
ACH on customer’s pay date using the following parameters to try to recover delinquent funds.

No ACH allowed when:

 Customer bank account is invalid, closed or revoke
 There is PTP on file via any method other than ACH
 Customer is sensitive about debits and has some propensity to complain about a collections
debit
 There is no discernable source of income on a specific date

Maximum ACH and Effective Date:

 Ontario: maximum of 2 per customer by day 30; one can be day before OR day of pay date and
the other must be day of pay date
Agency Placement
Split into 2 groups (50% CONTROL – business as usual, 50% TEST - Score driven.

Control group: accounts with DPD ranging from X-119 (for example) are worked In-House. Accounts reaching 120
DPD are randomly distributed 20% In-House and 80% in Agency. All 180+ accounts are worked in Agency, and
recalled at 240 DPD.
Test group: All Unsecured accounts with DPD ranging from X-89 are worked In-House. Accounts reaching 90, 120
and 150 DPD are distributed between In-House and Agency based on their Score value. Once accounts reach 180
DPD 100% of accounts are worked in Agency and will be collected by the Agency until charge-off.

Debt Sale
When loan is charged-off for one year it may be an attractive option, depending on pricing