The collapse last year of Commercial Financial Services Inc. threw the burgeoning market for charged-off credit card debt into turmoil.

But at least there is a market.

Before CFS filed for bankruptcy in December, it had routinely purchased most of the available bad debt in this category. It paid high prices that other companies tried to match, and its apparent success spawned copycats.

Bankers today describe a return to normalcy, saying other companies have stepped up to pay the kinds of prices CFS did. But those doing the purchasing tell a different story.

Former competitors of CFS estimate that banks are getting 35% less than they used to for charged-off portfolios, and the declining prices are forcing some tough decisions. Some banks are weighing whether to send this debt to collection agencies-as was customary before CFS came along-or take a stab at collecting it themselves.

"It depends on who you talk to and the message each one wants to give you," said Dennis Hammond, executive director of the Debt Buyers' Association in Santa Fe, Calif. "Creditors want to make it appear that the prices are high" while debt buyers' interest is in keeping the prices lower, Mr. Hammond said.

Reliable statistics are hard to come by in this shadowy corner of the consumer lending business, where deals are privately negotiated and credit card banks disclose little beyond chargeoff and delinquency rates as a percentage of loans.

Most observers agree that the bad-debt market is shrouded in uncertainty and that it will take another three to six months to comprehend the full impact of the rise and decline of Commercial Financial Services.

"It is going to be very interesting to see how banks respond to the fact that their model for going into this business has blown up," said Irving J. Levin, chief executive officer of Renaissance Holdings Inc., a subprime credit card specialist in Beaverton, Ore.

Tulsa, Okla.-based CFS filed for bankruptcy two months after its charismatic founder and CEO, William R. Bartmann, stepped down. The resignation and an internal company investigation came after an anonymous letter alleging that CFS falsified its data was sent to credit rating agencies.

CFS, now on the selling block, has agreed to stop purchasing portfolios until May. It recently sold its European subsidiary to Cabot Square Capital of London.

CFS' focused its activities in the "fresh paper" market-receivables that have just been charged off by banks, typically after 180 days of nonpayment. CFS controlled about 90% of that market, according to Mitchell J. Bonilla, vice president of ContiAsset Receivables Management of San Diego, a CFS competitor.

Last year CFS purchased $5.5 billion of receivables, said Sharon Price, a CFS spokeswoman. The company does not disclose how much it paid for this debt, but others place the price tag at about $600 million.

By contrast, one of CFS' competitors, Creditrust Corp. of Baltimore, spent $60 million for $2.5 billion of receivables in 1998.

One consequence of CFS' absence has been a grab by others for market share. New entrants see an opportunity to dive in. And many banks are pondering a return to the traditional collections approach that predated the CFS phenomenon.

People in the industry believe CFS paid 10 cents to 13 cents for each dollar of bad debt. Some debt buyers are still at those levels but Creditrust CEO Joseph Rensin said "fresh paper" prices have come down to about 7 cents or 8 cents on the dollar. He said Creditrust is paying that to banks that had previously done business with CFS.

"There is no question that CFS has left an opening, and other players are stepping up," Mr. Rensin said. "But ultimately you have to pay a fair price."

"Newer players coming into this industry with a lack of sophistication are helping to keep the prices up," said Walt Collins, president of the Debt Buyers' Association and president of Collins Financial Services Inc. in Austin, Tex. "Until we have a few horror stories, prices may not come down for a while."

Performance Capital Management of Newport Beach, Calif., another purchaser of bad credit card debt, filed for bankruptcy in December after an investigation into fraud was launched.

Bankers say such companies need to be more responsible in evaluating what they are buying.

Thomas Oliver, vice president and manager of Bank of America's recovery management center in Rea, Calif., said, "We need to make sure that the deals make sense for everyone, but it is mainly up to the buyers to understand what they are buying."

Another executive-whose bank sold debt to CFS and who asked to remain anonymous-said banks were "selling to CFS at prices they knew were inflated."

This banker said some of the bigger debt buyers have gotten more cautious, "asking questions that CFS never asked about how accounts performed before they were charged off."

Mr. Oliver contended that CFS' collapse has not had an effect on the market yet. But he said, "In the future, each credit card operation has a decision to make." Banks have a choice of finding other companies to pay the prices CFS paid, accepting lower prices, or turning toward traditional collections.

Now companies like Narex Ltd., which helps lenders evaluate their bad debt and place it with the appropriate collection agency, are finding banks more interested in the collections route.

"There are many lenders building up in-house recovery capabilities" and placing receivables with outside agencies, said Bernhard Nann, the president of Narex in Lakewood, Colo.

Recovery units are part of collections departments, but they focus on charged-off receivables.

At a recent Debt Buyers' Association conference in Las Vegas, Alex Mogielnicki, senior vice president of Chase Manhattan Bank, titled his presentation, "After the Fall"-referring to CFS.

He predicted slower growth and greater conservatism among investors in debt. He said collection agencies "will benefit from creditor strategy changes."

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