Debtor Dearest

THE MUZAK SOUNDTRACK starts up. A well-coiffed woman appears on screen, seated in a wing-back chair with the standard infomercial props behind her--a potted plant, a set of elegantly bound books, a telephone within easy reach. She is on a five-minute videotaped mission from Norwest Card Services to clean up your credit mess. She wants to cooperate with you, the deadbeat debtor. She wants to help.

"As you know, we've been trying to contact you about your account," says her soothing voice. "We realize that being past due must be very difficult for you, and that's why we've sent you this video." One Easy Step is all it takes: Send in that payment. Do it today--"you'll feel so much better because you've taken control and done something positive."

For the first time last year, the number of American households filing for bankruptcy broke the million mark, up 35 percent from 1995 and tripling the total in 1981. In Minnesota alone, more than 18,000 bankruptcies were filed in court last year, most in the Twin Cities; of those, over half fell under Chapter 7 rules, which zero out nearly all debts except child support. Not so long ago, such a move was regarded as a last resort; personal bankruptcy can ruin one's credit rating for years. But that's changing, into a tardy borrower's safe haven and the collection industry's nightmare.

"Bottom line is, we want to steer debtors away from bankruptcy at all costs," says Al Trebelhorn, president of Professional Credit Consultants, a Minneapolis agency that runs a high-tech collection outfit complete with computerized dialing. To that end, PCC and the other 20 collection agencies in Minnesota, like Norwest, have started moving away from the grind-'em-down, strong-arming tactics that have dirtied the industry's reputation in the past. The new word on the street (and in the mail, over the phone, on the video) is cooperation, delivered with the promise that, as one pitch puts it, "if we can cooperate today, you'll sleep better tonight."

Mortgage loans, car loans, student loans, credit card loans--in all, Americans have racked up a total consumer debt of more than $1 trillion. What's most disturbing about that figure, says Trebelhorn, is where a growing percentage of that credit comes from. "A big share of the folks who get turned over to us are, to put it bluntly, suckers. What we're seeing is a lucrative new market for lenders--sub-prime loans. With these, creditors target people who are bad risks, who can't get loans anywhere else because their ratings are a wreck. They've got a mortgage, medical bills, maxed plastic, a stack of overdue bills. They're panicked, enough so that they'll pay exorbitant interest on these sub-prime loans just to get a short-term fix and pay for groceries." On his desk are letters from TransAmerica Financial Services and other state lenders, offering a $75 reward for the name of each defaulted debtor PCC deals with--prime candidates for sub-prime lending, especially those who've recently declared Chapter 7 bankruptcy, since it's illegal to file again for six years in Minnesota and in the meantime a borrower is debt-free.

In the scheme of things, sub-prime lenders are now giving more-traditional creditors a run for their customer base's money. Why bother to clear up your account with the likes of Norwest when you can still get credit elsewhere in the market? Bankruptcy, ironically enough, may pay off and keep the dogs at bay; it may even get you a fresh line of credit. The 1977 Fair Debt Collection Practices Act helps too, in that it bars third-party collection agencies from harassing debtors at work and at home.

All of which has turned the language of debt collection sweet and inviting--a way to lure delinquents away from the brink and back to the bargaining table. "I can't give you exact numbers, but this come-in-from-the-cold approach is definitely more effective than a repo man-type line," says Deborah Mattson of the American Collectors Association, an umbrella trade group for collection agencies in Minnesota. When the heat's on and you're getting a dozen calls a day for money, Mattson says, "an offer of empathy and salvation can sound like music to the ears. And, as we're seeing, it works."

Meaning debts get paid off, though by low-end estimates only 20 percent of them--but enough to keep the credit industry calling. It also means that debtors stay out of court and within reach of a friendly voice. "When a customer calls into Norwest," the account rep on screen is saying, "they can expect a smile on the phone."

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