If you’ve glanced at your latest 401(k) statement, you know that the current economic climate has wreaked havoc on traditional investment portfolios. But while the blue chips falter, one alternative investment is actually earning returns during the downturn.
The market for investing in delinquent debt portfolios has never been stronger, and one Oxford company aims to help Mississippi investors get involved by attracting a national team of debt acquisition and collection experts to the state.
Security Credit Services, a subsidiary of Security Holdings, buys, sells, manages and collects delinquent accounts receivable. To keep credit flowing into the economy, banks and credit card merchant companies sell their direct deposit accounts, consumer loans and issued credit card debt to management firms like Security Credit Services.
To buy debt portfolios, Security Credit Services raises funds from individual investors and wealth management firms, rather than stockholders or venture capital firms. This one-to-one investor relationship is unique among debt portfolio management companies nationally, but dovetails perfectly with Security Credit’s Mississippi roots.
The way Security Credit earns returns on this investment in charged-off debt is really pretty simple: they collect from individual debtors. Profits from collections go back to the investor pool. Security Credit earns money only after investors have earned back their investment plus a significant return. After that, all returns are split equally for the life of the pool, which is typically four to five years.
Kaye Dreifuerst, vice president of acquisitions at Security Credit Services, said compassionate collection is the secret of success for Security Credit, which bought its first debt portfolio in 2004.
“One of the things that makes us so successful is being able to identify the individuals in the portfolio who are good people who fell on hard times,” Dreifuerst said. “We are able to locate them and work out reasonable payment arrangements. We contact individuals in a respectful way. We take $20 a month, $30 a month or $50 a month — whatever the individual can afford to pay.
“Banks don’t have that length of time to stretch out the repayment, but we do. Because of the deep discount of charged-off debt, and the availability of more time on our side, we can get consumers back on the path to repayment.”
Dreifuerst, who moved her family from Denver to Oxford three years ago to work for Security Credit Services, said most people are grateful to get back on track towards restoring their credit rating.
“It is amazing how many people will call and thank me,” Dreifuerst said. “Once we start getting payments, we update their credit report twice a month. People say, ‘Thanks for working with me to get my credit rating back on track.’ With a better credit score, they are able to obtain better interest rates because they are once again considered a better credit risk.”
Dreifuerst carefully considers which debt portfolios to purchase, weighing information about whether the debtors own a home, if they have a job and how long they made payments before becoming delinquent. Regional differences can also play a part in the success of debt collection.
“We have actually found people in the Southeast and Midwest in general terms have higher success rates in getting back on a payment schedule than people elsewhere in the country,” she said. “A lot of that is the Southeast and Midwest are less transitory areas of the country. People seem to want to clear up their credit a little quicker. “
Security Credit Services works to treat debtors with respect.
“The nature of what we do is more of a service than hard-nosed collections tactics,” said Dreifuerst, who has 18 years of experience in debt acquisitions and management. “We train our representatives and individuals to make it more like a business transaction than calling someone up demanding something. That is one reason we are more successful than some of our competitors. It makes a big difference how we treat our customers.”
Security Credit Services works to destroy negative stereotypes about the debt collection business.
“We provide solutions for people to resolve debts as opposed to using strong-arm tactics or intimidation,” said Rich Hroma, vice president of collections for the Jacob Law Group, which provides internal collections for Security Credit Services. “As a result, you get better results from them.”
Hroma said most people get behind on debts because of periods of unemployment or failure to budget properly. It is rare for people to get into debt deliberately with the idea of getting something for nothing.
“A lot of it is a misunderstanding when people open an account,” Hroma said. “They don’t understand that when they go delinquent, late charges and interest will increase.”
Debt collection can be a career path that can provide stability and career growth.
“Growing up I never thought I would be in this industry, but I’ve been in it 30 years and couldn’t be happier,” said Hroma, an attorney who moved from St. Louis, Mo., to Oxford in June to join Jacob Law Group and Security Credit. “More positive focus needs to be placed on the collection industry as a whole because there are opportunities and careers available that other businesses may be lacking, especially in today’s climate.”
There might be a perception that with the economy in turmoil, it would be harder to collect debts. But Hroma said the debt collection industry is more or less recession proof. When the economy is good, more people can pay.
“When the economy is bad, we have to look for the ones who can pay,” he said.
Jacob Law Group, as Security Credit’s partner, currently employs 25 people in its collection call center. It plans to grow the workforce to between 75 and 200.
“The Oxford area offers a strong, very dedicated work force,” Hroma said. “And we are able to offer a lot of individuals career opportunities that people are looking for these days.”
Security Credit Services is now one of the top 20 debt portfolio acquisition and collection companies in the country, with plans to become one of the top five. Security Credit grew out of Security Holdings, a company that started in the mid-90s when William Alias III and John Lewis, then Ole Miss students, founded Security Check, a check collections company. Security Check sold to a private equity company in a deal this summer, but the employees and operation remained in Oxford.
The sale freed the management team to focus on Security Credit, which they see as the future of their overall business.
A major investor in the firm has been Oxford CPA Richard DeVoe.
“Many people go an entire lifetime and never get to see a company start from scratch and make it to where we are at this point,” DeVoe said. “It will be even more enjoyable watching it from here on.”
Another investor, Oxford pathologist and entrepreneur Dr. John Fullenwider, said the idea of investing in a debt pool bought at discounted prices was new to him, so it took some time to develop a comfort level with it as an investment. But Fullenwider said he is “surprised and gratefully satisfied” with the return on his investment.
Contact MBJ contributing writer Becky Gillette at email@example.com.