Alan Franklin, a New Jersey entrepreneur and onetime American Express Co. strategist, is out to shake up the nation's credit counseling establishment.

Mr. Franklin has set up a counseling service in Trenton, N.J., that he says is bringing much-needed innovation to a business that many banks and other lenders view as a bulwark against consumer bankruptcies and chargeoffs.

Arguing that the existing network of lender-supported counseling centers has not kept pace with the avalanche of bankruptcies, Mr. Franklin says he can improve creditors' recoveries while preserving unsecured debtors' creditworthiness and dignity.

"We intervene before the crisis point, putting ourselves in between a debtor and his group of creditors," Mr. Franklin said in a recent interview. "We go to the lenders and provide an incentive for forebearance of interest. ill sere as trustee to guarantee repayment on the debt."

33-Month Plan

Mr. Franklin's organization, American Credit Alliance Inc., develops a payback plan that restores the overextended consumer to good standing with multiple creditors in 33 months. The debtor pays lump sums to American Credit Alliance, which distributes the funds.

The alliance takes a cut for itself - usually 15% - while charging a $15 monthly management fee to each debtor.

The program, licensed last December by the New Jersey Banking Department, is not yet operating at its start-up capacity, which Mr. Franklin estimates is 100 cases a month. He has yet to develop the flow of referrals he desires from unsecured creditors. (A bank card lender, for example, would recommend that a tardy customer call American Credit Alliance for assistance.)

But creditors have cooperated with the repayment programs, and there has been a steady stream of satisfied clients, Mr. Franklin says. He tells of their tears of relief after the ritual cutting up of their credit cards.

If American Credit Alliance succeeds, it will take a bite out of traditional debt collections. That business, Mr. Franklin says, frequently degenerates into a free-for-all in which perhaps one fast or lucky creditor in 10 will recover delinquent debt. He wants all 10 to be in on the negotiation and ultimately satisfied.

Advantage Claimed

"No one has ever approached the collection of debt comprehensively and through negotiation," he says.

He also claims an advantage over the counseling programs of the National Foundation for Consumer Credit and its constituents. They wait for troubled debtors to walk through the door, Mr. Franklin says, while he wants to be "proactive."

Like the foundation and its local and regional members, American Credit Alliance has not-for-profit status and a volunteer board. In fact, Mr. Franklin says he would like to join the national group and gain its imprimatur.

But the establishment looks askance at the upstart.

"I am a little concerned that his motivation may be more profit than anything else," said Luther Gatling, director of the Budget and Credit Counseling Service of New York City.

Mr. Franklin, who says he has high regard for Mr. Gatling, has ambitions to expand in New York's outer boroughs and suburbs - Mr. Gatling's back yard.

Mr. Gatling emphasizes the proconsumer public-spiritedness of national foundation members, and says Mr. Franklin brings a "collection-agent mentality" that will not necessarily be "consumer driven."

Mr. Franklin, 52, views his private-sector background as an asset - and exactly what the credit counseling business needs.

American Express Veteran

He spent 14 years with American Express, ending up in the late 1970s monitoring the bank credit card associations and other competitors of American Express Travel Related Services

He went on to spend a year with Visa U.S.A. in McLean. Va., then went into real estate development in Trenton and later into the debt-collection business, working for both GC Services and Integratec Inc.

Integratec had championed a "proactive" approach to recovering credit card loans, giving debtors relatively gentle nudges when still in the early stages of delinquency. Integratec gained an important endorsement this month when Equifax Inc. bought the six-year-old company for $23 million.

At Integratec, Mr. Franklin worked under co-founder A. Wayne Johnson, another credit industry entrepreneur and ex-Visa executive, who allowed Mr. Franklin to begin the seed research that sprouted into American Credit Alliance.

Mr. Johnson called the alliance idea one of "creative genius," changing the collection business from "delivering ultimatums to delivering options."

"I looked at the 52,000 bankruptcy filings by residents of New Jersey over the last three years," Mr. Franklin said. "Maybe 10% of them really should have been filed."

The sheer volume of bankruptcy filings - after 10 years of rapid rise, they have leveled off nationally at just under one million a year - has been difficult for creditors to manage.

And since bankruptcy courts have become more geared to completing legal procedures than to repaying creditors, the recovery battle is often lost before it starts, especially on small personal and card debts.

Mr. Franklin says his system has a "win-win-win" potential that ultimately unburdens debtors, creditors, and the bankruptcy system alike.

"I'm taking the consumer's side in collections, but I'm also making the intellectual case that this process is better than the way collections work now," he said.

"Of a credit card debt charged off after 180 days, 91% generally won't be recovered," Mr. Franklin said. "I'm saying that it may be collectible - if the debtor is given an incentive to repay.

"This can be done by promising that the debtor will be debt free and credit will be reestablished after 33 months following a plan that has gotten the approval of the lender."

To accusations that he deemphasizes the "social service" aspect of credit counseling, Mr. Franklin says one of his motivations to do good arose from concern about health care costs. His research showed that hospital bills - even what remains after insurance coverage - frequently drove reliable debtors into default.

Upon discharge, patients often find themselves saddled with overdue mortgage and credit card payments in addition to the hospital bill.

"It's never just one debt that has to be collected - it's the entire circumstance," Mr. Franklin said. "If he can't pay the mortgage, he also can't pay Visa."

Mr. Franklin is currently approaching hospitals, offering to intervene when patients need help developing a comprehensive payment plan. The hospital would send a distressed debtor a letter, as would a bank, suggesting a call to American Credit Alliance's toll-free number. On hospital referrals, Mr. Franklin waives his 15% commission.

Waiting for Lenders

The alliance has gotten one hospital agree to refer up to 200 accounts a month, but bank lenders have yet to do the same. Referrals also come from state agencies, word of mouth, and the telephone book.

"Alan's problem is to break the mold of the lending institutions, which are geared to the credit-counseling-center mode of operation," said Mr. Johnson. He is currently running Qualinet, an Atlanta customer-service company he founded and sold to First Data Resources Inc. last year.

Mr. Franklin believes his approach can work nationally, either independently or through the National Foundation for Consumer Credit.

"There are enough unemployed bankers that there would be no problem making this work," Mr. Franklin said. "I took out a classified ad, just to get a feel for the market, and I got 50 responses to |part-time credit counseling, banking background preferred.'"

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