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Changes in the way we communicate with borrowers may be making it harder to apply the C’s of Credit to loan origination decisions and ongoing monitoring. Bear with me, I am not going against the tide of digital and online communications. With my last rental refinance, I loved the streamlined process. But hear me out.

Bankers and Auditors have a lot in common.

What got me thinking is an article on ‘How the Evolution of Language affects Fraud Risk‘ in the August 2018 publication of the Journal of Accountancy. As a former auditor and examiner, I am well aware of the challenges auditors face in ferreting out fraud. Same with the lending and credit professionals.

In the article by D. Kip Holderness Jr, Andi McNeal, Richard Riley and Joseph Wells, they shared significant ways that the changing communication landscape makes it harder to spot fraud.

Short and sweet

With the increase in text messages, tweets and short comments on social media, some of your borrowers may have developed a short-hand that makes complete sense to them, but not to you. Add to that acronyms and other industry-related slang, and you may need to ask for a translation. Don’t be shy. Assuming you know what your borrower is communicating when you do not is a recipe for misinterpretation which can impact your impression, or even your calculations, in understanding the strength (or weakness) of the borrower and determining ability to service debt.

Online vs in person

In auditing and in lending, a large part of uncovering deteriorating conditions or fraud requires picking up clues during interviews and discussions with your borrower. Body language is not readable in a text or email. And in fact, if there is any confusion or conflict, the tone of an email or text can be misleading.

Some of the clues to stress that might be caused by fraudulent behavior or other information the borrower hopes you do not learn about include voice modulations, pauses before answering, stammering or starting answers over. All of that can be masked when the borrower has the opportunity to carefully craft an email.

Even a shift from in-person to video calls may erode your ability to detect anomalies or misleading statements.

Online vs in writing

I realize that you can ‘write’ online, but do we do as good a job capturing and returning to that written information? If you suspect fraud, one technique to uncover the fraud is to compare what is in written explanations to what the borrower is communicating verbally, what you can find on their website, or what you can determine from their tax returns and financial statements. When someone lies, they need to remember the lie to make it consistent in all forms of communication. Reducing your communication to shorter, online connections removes an important tool in your fraud-detection arsenal.

The sequential vortex of online communications

As younger and less experienced credit professionals use more and more electronic channels for communication, with which many are very comfortable, they exercise those in-person interview skills less often. Is it possible that we actually are losing the very conversational skills that are needed in a challenging lender-borrower communication?

Much ado about nothing?

If I could add another C to the ones you learned in your first years of banking (Character, Capacity/Cashflow, Collateral, Capital, Conditions and, perhaps, Coverage), it would be Conversations. Admittedly it is more a ‘how’ than a ‘what’. But the conversations are essential to assessing the borrower and their business, identifying what they really need to deepen the relationship and better serve them, and when the chips are down, to understand what trouble they are in and how you can help. Decide for yourself, and perhaps for your direct reports, how much and how often to sit down face-to-face to get the information you need to say ‘yes’ to more good loans.

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Linda Keith, CPA

Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis.
She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans.
Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.