Credit-Repair Firm Buying Bank to Issue Cards

Command Credit Corp. wants to give consumers shut out of the traditional credit card market a second chance.

The year-old company issues credit cards secured by deposits to consumers with less-than-stellar credit histories. But unlike most other issuers of secured cards, Command intends to make conventional cards available to customers once they demonstrate the ability to manage credit.

Bank Has Small Card Portfolio

To that end, the Rockville Center, N.Y.-based company earlier this week announced an agreement to buy Republic National Bank of Arizona, the owner of a small MasterCard and Visa portfolio.

William Lucas, Command's president, said he will use the Phoenix-based institution to put bank cards in the hands of about 100,000 consumers -- now holders of secured cards -- by yearend.

"We're very new in the marketplace," Mr. Lucas said. "We've taken our time and now we're ready to make a big splash." His company has 22 employees and branch offices in Florida, England, and The Netherlands. Republic National has $28 million in assets, and the purchase price was not disclosed.

Command Credit is targeting a huge market segment. Mr. Lucas estimates that 70% of bank card applicants are turned down by traditional financial institutions. And as he sees it, many of these consumers are getting a bad rap.

"Who do you know that has never been late in paying one of their bills?" he asked. "Bad credit is a misnomer."

Consumers with a short credit history are often turned down for a bank card if they missed one payment two years ago on a store credit card, Mr. Lucas said. "It's not that banks have a bad attitude," he said. "It's that they rely on computers. The credit scoring has to be more sophisticated than it is."

Sophisticated Credit Analysis

According to Mr. Lucas, Command is equipped with computers that allow it to differentiate between individuals that deserve a chance at credit and those that cannot handle it. Qualified consumers can obtain a secured Command card for a minimum $400 deposit. The average annual percentage rate on the cards is 19.8%.

Command distributes its secured cards through marketing agreements with nine small banks. The company guarantees the credit of all its customers and monitors their payment patterns.

Many of these small banks shied away, however, when Command suggested an unsecured program. That prompted the Arizona bank acquisition.

Through Republic, Command will offer unsecured cards to customers that have proved to be creditworthy. To qualify, customers must have kept their Command card account current for 18 months. The company also checks its cardholders' entire credit profile for the 18-month period.

Secured Cards Seen Rising

"Within three to five years, most banks will offer secured cards," Mr. Lucas predicted. "What else are they going to do with all the people they turn down for credit cards?"

According to Mr. Lucas, approximately 15% of his current customers would qualify for an unsecured card under his new program. He would not disclose how many secured cards Command has issued.

Command expects to reap other benefits from its ownership of Republic. The company is a big user of direct mail marketing techniques, and Mr. Lucas said he is looking forward to augmenting those efforts with information from credit bureaus that Republic will be able to obtain.

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