The image of a bill collector as a person without compassion may soon fade as lenders find it pays to be nice to their bad customers.

Collectors now want to be seen as sympathetic listeners.

Their transformation is born of necessity as consumers continue to file for bankruptcy in record numbers, are increasingly late in paying bills, and are borrowing more than ever before.

As one banker put it, "If you find out what their problems are, customers are more willing to work with you."

Collections is expected to be a key growth business in coming years, according to a report by M. Kaulkin & Associates Inc., a Bethesda, Md., investment banking firm.

Consumer borrowing has been on the rise for several years and continues to grow. The latest Federal Reserve statistics show that consumer credit outstanding rose $7.7 billion in July, to $1.164 trillion. In June, consumer debt had risen $6.7 billion.

The second-largest source of consumer collection business, behind health care, is credit card debt.

Not surprisingly, some of the most sophisticated and progressive collection strategies originate within credit card operations.

Household International, which issues the popular General Motors credit card, has dubbed 1996 "the year of the collector."

Since Jan. 1, Household has added about 400 employees to its collection division, formed a prebankruptcy unit aimed at discouraging customers from filing, developed a strategy for dealing with delinquent customers, and invested in technology.

"We thought this would be a difficult year in terms of collections," said Charlie Albright, Household's chief credit officer, "so we elevated the position of collector in this company."

Mr. Albright was promoted and now reports directly to Household's chairman and chief executive, William F. Aldinger - a direct result of the importance Household puts on collections.

To motivate the rest of the staff, Household produced T-shirts and coffee mugs with the logo "Year of the Collector," and it has organized competitions to recognize its top collectors.

Recently, to show his support, Mr. Aldinger visited the night shift of Household's collections department.

One of the biggest changes at Household is the collections staff's new focus on listening to customers' problems and advising them on their options. "We are our own consumer credit counseling agency," said Mr. Albright.

Household is not alone. Other lenders are recognizing the importance of working through their customers' financial problems. "We work too hard originating those customers just to have them walk out the door," said Dave Herron, senior vice president in charge of collections at KeyCorp in Cleveland.

KeyCorp, which began overhauling its collections business in 1994, has adopted an approach similar to Household's. Early this year, KeyCorp installed $13.5 million worth of technology, including an automatic dialer system.

The dialer, not new to the industry, allows KeyCorp to call more people in a shorter period, by connecting a collector to the line only when it detects a person on the other end. The dialer makes manual dialing unnecessary, and it waits out rings and weeds out answering machines and busy signals. Mr. Herron said KeyCorp's collections department is handling 40% more calls since the dialer was installed.

KeyCorp also elevated the status of its collections department, which now reports directly to the company's chief operating officer. But unlike Household, KeyCorp downsized, consolidating its collection efforts at 11 sites in three and eliminating many middle-management jobs.

"The information is less filtered," said Mr. Herron. "We are able to get information to the top faster."

American Express Co. believes smaller is better too.

"You don't need more people if you can make the same contact with technology," said Vijay Parekh, American Express' chief credit officer. "We have been investing so heavily in technology that we can predict who will call back when we leave a message."

Assisting many lenders in their collections efforts are data specialists like First Data Infosource of Omaha, a business unit of First Data Corp.

Infosource, which has a data base of 106 million households, verifies identifying information about delinquent consumers, enabling lenders to locate them quickly. Infosource also sets priorities for which accounts lenders should address first.

Michael Geppert, vice president of marketing for Infosource, said more lenders are contacting delinquent customers earlier, within two to five days of a missed payment rather than the standard 30 days.

Once lenders deplete their own collection resources and charge off a debt, they typically hand off their bad accounts to an outside collection agency.

Michael Ginsberg, vice president of Kaulkin & Associates, the investment firm, said more banks are turning to outside agencies earlier in the delinquency process. "It used to be after 180 days, but now it could be as early as 45 to 90 days," he said. One theory is that, since consumers may owe several banks, lenders are anxious to start the collection process earlier to get paid first.

Jeffrey L. Dodge, senior vice president of risk management at Equifax, said three years ago it handled primarily charged-off accounts but now gets more prechargeoff business, which is growing faster than chargeoff business.

Industry experts have also noticed in the last year an increased appetite for charged-off receivables. Driving this demand are banks that have suffered high delinquency rates and are eager to free their balance sheets of bad debt.

Lee M. Narwold, vice president of asset protection at People's Bank, Bridgeport, Conn., said he gets calls at least once a week from agencies seeking to buy People's charged-off receivables.

Mr. Dodge of Equifax said he believes that lenders are mostly experimenting now to test combinations of technologies and collection strategies.

For example, Equifax has agreed to compete against some of its clients' internal collection efforts. The lender and Equifax each take a slice of a delinquent portfolio to see who is more effective in recovering debt - and why.

"We have exhausted a lot of the traditional techniques," said Mr. Dodge.

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