Collector Arranges Credit Cards for Delinquent Debtors

Let them have credit cards.

Rather than harass debtors who owe banks and other companies substantial amounts, a California collection agency is encouraging customers to pay off their debt using secured credit cards. No more fist-at-the-throat collections, it says, just gentlemanly monthly payments.

West Capital Financial Services Inc. is offering the cards through Surety Capital Corp., a small lending company in Hurst, Tex.

Raising Credit Ratings

"We're trying to get people's credit ratings up," said C. Jack Bean, chairman of Surety Capital. "Today, if you don't have a driver's license and a credit card, you might as well jump off a bridge."

Under West Capital's program, delinquent consumers are issued a secured Visa card to help pay down their debt. The catch? They must deposit an amount equal to, or slightly more than, what they owe in a savings account at Texas Bank, a Surety Capital subsidiary.

The savings account serves as collateral for the credit card balance. And the cardholder is required to make a small monthly payment to West Capital using the high-interest Visa card.

"This deal is twice as good as anything you can get from another collector," said Surety Capital's Mr. Bean, noting that consumers get a chance to rebuild their credit standings. "It leaves people with a sweet taste in their mouths."

A Costly Benefit

Consumers, however, pay dearly for that taste.

The Visa card carries an annual percentage rate of 21% on unpaid balances and a $35 annual fee. Deposits in the bank, on the other hand, currently earn 4% on accounts of less than $1,000 and 5% on balances exceeding $1,000.

Texas Bank and West Capital are the latest examples of a surge in the secured credit card business. Though designed for consumers who have short or less-than-stellar credit histories, secured cards are now being offered or investigated by banks that once disdained such borrowers. They are driven by a saturated and slow-growing card market.

Citicorp, for example, has begun a test campaign to determine whether it should offer a secured card.

Affinity groups also are offering the cards. Last month, Command Credit Corp. said it would begin issuing secured cards to members of the Kings County Republican Party in Brooklyn, N.Y.

Surety Capital, which specializes in lending money to small companies and individuals to pay insurance premiums, is gearing up for a landslide of secured card business, it says. Its Texas Bank unit, which has $12 million in assets, recently sold a small unsecured credit card portfolio so it could focus on the secured card market.

"You can't be in both," Mr. said. "The two have no . . . similarity."

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