Credit Cards: Marketing Credit Cards to Those with Checkered Pasts

American Banker, November 13, 1998 | Go to article overview

Credit Cards: Marketing Credit Cards to Those with Checkered Pasts


By J.Peterson

Will bad debtors mend their ways, or sin again?

In a strange twist of logic, Creditrust Corp., a Baltimore-based acquirer of consumer receivables, has been persuading delinquent credit card holders to pay off their debts by offering them more credit.

Consumers have been responsive since the program's roll out in September. It's no wonder; consider the consumer debt crisis:

consumer debt now exceeds $1 trillion; a staggering 1.4 million Americans filed for bankruptcy in last year; credit card holders owe $360 billion-double the 1990 level.

But whether Creditrust's program will allow participants to crawl out of debt, as it's billed-or merely spiral anew into default-remains to be seen. riding bad debt wave

Creditrust acquires and collects delinquent loans, mostly from charged- off Visa, MasterCard and private label credit cards.

Founded in 1991 by chairman and CEO Joseph Rensin, Creditrust Corp. is the oldest purchaser of charged-off credit in the nation, and the only public company that purchases bad credit as its primary business. So far, Creditrust has purchased more than one million delinquent credit accounts from dozens of banks and other credit card issuers.

Revenues for the company's third quarter increased 69 percent to $4.3 million, compared to $2.6 million for the same period last year. Year to date, revenue has increased 150 percent to $16.1 million, compared to $6.5 million for the same period last year.

The goal of the company is to reacquaint consumers who are overwhelmed with debt with the benefits of responsible credit management. Creditrust CFO Rick Palmer says, "We buy the accounts in bulk and turn them into securities that are rated AA by Standards & Poor's, keeping 100 percent of what we collect. Then we offer customers resistant to making payments additional credit to induce them to pay off their debts."

Under the program, certain customers can reestablish credit and create a more positive credit rating while paying off their existing credit card balances.

Automatic payments

The company's portfolio analysis tool (PAT) helps the company value and price charged-off pools with a high degree of accuracy. Its proprietary software system, called "Mozart," manages the revenue on the company's $2 billion in charged-off debt.

The system contains information on the entire customer database and allows the company to make decisions on customer-payment plans, Palmer says. …

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