Nonprofit Counseling Center Helps Debtors Pay the Piper

She was in her 30s, just earning about $880 a month.

But she had been able to get a fistful of credit cards. When she turned to Consumer Credit Counselors of Orange County for help, she owed $39,000.

He was 22 and worked as a salesman in a big retail department store. Although only a year out of college, with an income that barely topped $1,200 a month, he had obtained almost a dozen bank credit cards.

In all, he owed $42,000 to 21 creditors.

These are not two of the counseling center’s success stories.

In fact, by the time they cried out for help, it was too late.

“There was nothing we could do; their debts were too high to set up any kind of a pay-back schedule,” said Carl F. Lindquist, president of the nonprofit counseling center in Santa Ana.

He doesn’t know what happened in either case because the center wasn’t able to work with the people and did not keep in contact.

But when debts far outstrip income, the end result in many cases, Lindquist said, is personal bankruptcy.

But Lindquist believes that those two examples--culled from a thick stack of debt reports on his desk--illustrate a growing problem that he says is caused in big part by the aggressive credit card marketing programs of the nation’s banks.

“There is just no question but that the deluge of credit card applications help cause these horrible problems. The people we counsel tell us that all the time,” he said.

Lindquist said he carries only one personal bank credit card, plus a gas credit card and company card from American Express.

Still, he doesn’t insist that one card is the maximum anyone should have. Some people can do fine with five or 10 cards, he said, while others would be better off if they never touched a piece of plastic.

Credit card marketers claim that the number of problem customers is minimal--that their screening procedures are finely honed and that less than 1% of the more than 125 million bank credit card accounts in the country are in default.

But those accounts are held by big spenders--they represent 4% of the nation’s total bank card debt of more than $117 billion, according to credit industry specialists.

Lindquist likens it to the mass marketing of guns, which makes it easier for suicidal people to obtain them. Likewise, he said, mass marketing credit cards “puts too much temptation in the way” of potential card abusers.

“I had a guy in here the other day who had been turned down for a Small Business Administration loan,” Lindquist recalled. “So he applied for every credit card he could and used the cash advances to start his business. He got $100,000 that way and then found out that his business wasn’t bringing in enough money for him to make all the monthly payments.”

Lindquist said that while the average client at the counseling center surrenders three credit cards, he has pulled as many as 40 from a single debtor.

Lindquist and his staff of 10 received 5,435 inquiries from credit-troubled people in 1988. About half of them filled out the forms they were sent and called in to make an appointment. And about two-thirds of those stuck with the 3-year plans that the counselors worked out for them--surrendering credit cards and setting aside a specific amount each month to repay creditors.

Last year, Lindquist said, the Orange County center--on behalf of its clients--distributed $3.5 million in payments to creditors and sent 2,300 credit cards back to the issuers. The center, one of 401 counseling operations affiliated with the National Foundation for Consumer Credit in Washington, does not charge for counseling or for working up debt repayment plans. It is supported by donations from businesses, service groups and individuals.

“Some of the banks are our biggest supporters,” said Lindquist. “It is in their best interests that we stay in business because we help them get their money back” from borrowers who might otherwise wind up in bankruptcy court.

If the center winds up administering a repayment plan for a client, however, it asks those who can afford it to pay a nominal fee--no more than $20 a month--to help offset clerical work and postage.

Under a formal repayment plant, the center figures out how much a client can afford to pay to his various creditors each month and requires the client to send a monthly check to the center for the total amount. The center then sends out checks to individual creditors.

But first, a letter is mailed to inform each creditor that the counseling center has set up a repayment program. “We tell them how much they will get each month,” Lindquist said. They generally accept the reduced payment schedules, he said, “because the alternative usually is that they won’t get anything.”

Many retail stores and banks, he said, will waive late-payment fees and monthly interest for people who use the center as an intermediary.

More than half of the people who start a repayment program plan administered by the center never finish it, Lindquist said.

In some cases, their financial situations improve and they are able to begin making regular payments on their own. But often, they simply stop sending checks and drift away.

Those who complete an administered program receive a special form that is attached to their credit records. It testifies that while they had problems, they stuck it out and paid back all they owed.

Those credit-card applications kept rolling in. Page 9.