Jeff Judy

Jeff's Thoughts - September 24, 2014

What Does "Monitoring" Mean at Your Institution?

I'll bet that sometime in the last two weeks you heard one of those car alarms going off. You know what I mean, you're in a parking lot, or maybe in your living room, when all of a sudden a steady honk, honk, honk starts up.

Did you leap into action, rushing to the vehicle to save it from being stolen or damaged?

Or did you assume it was a false alarm, and just grumble about the noise until the owner turned off the alarm?

I'm not sure how much good those alarms do, since there are so many false alarms that just about all of us ignore them when we hear them. We know that they are automatic, that they are technology-driven. No human started that horn honking. Most likely it was an error, often committed by the owners themselves, sometimes a reaction to some environmental event that is anything but a gang of car thieves.

In these cars, we have turned the detection of this "threat" over to technology, and the technology enthusiastically warns us of a host of (imaginary) events. But no one takes action, except to plug their ears or yell out the window to turn it off.

When it comes to credit monitoring, keeping track of the borrower's behavior and results, our industry is turning more and more of that over to technology. Information is logged as it comes in, routine ratios may be calculated, and flags may pop up if something looks amiss.

Unfortunately, those first few flags, the ones that are supposed to give us an opportunity to respond early to borrower problems, often flap in the breeze without attracting even as much attention as those annoying car alarms. Instead of benefiting from early detection, we wait until enough incidents have been flagged to make it impossible to ignore them any longer.

Part of this is human nature. Somewhat ironically, the more we work to build true relationships with our customers, the harder it becomes to take action. We want to give them "the benefit of the doubt", we want to "wait and see" if the first flag is "just a blip".

Indeed, the whole point of writing clear monitoring guidelines into the loan agreement -- guidelines derived from strong credit policy -- is to overcome human nature. Like the car alarm, these automatic flags are supposed to make potential problems harder to ignore.

But detection is only the first step. It needs to happen in a culture of rapid response to threats, a culture of accountability and action. In many ways, a detected problem that draws no response is worse than one that was never detected in the first place, as it establishes a pattern of behavior that can lead to significant repayment problems down the road.

Go ahead, set up your thresholds and triggers and other technological wonders. But if you haven't thought about how to make sure that the information your technology spits out consistently leads to action, the time, effort, and money invested in these monitoring tools is going to waste.