Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, December 10, 1994 TAG: 9412120002
SECTION: VIRGINIA PAGE: A7 EDITION: METRO
SOURCE: MIKE HUDSON STAFF WRITER
DATELINE: LENGTH: Long
"It's a quicker pace," says Williams, who manages the Roanoke office of Associates Financial Services. "It's high-octane, if you will."
Customers are more likely to have blemished credit records. And they often want their money faster. "Most finance companies will have a one-hour turn-around time as far as getting you an answer," Williams says.
Williams says those are two of the reasons consumer-finance companies charge their customers higher interest rates than borrowers pay at banks or credit unions.
"We may take an extra chance," Williams says. "They're willing to pay a little bit higher rate for us to take a chance."
What about critics who have accused Associates and other finance companies of taking advantage of vulnerable people who have no place else to go for credit?
"There may be a misunderstanding," Williams says. "They feel like we're gouging the customer. [But] a lot of people need our services. All we're trying to provide is a service to people who might not be able to get credit elsewhere - and let them have the opportunity that an upper-class person might have."
He says Associates' rates on smaller loans are generally 3 or 4 percentage points higher than bank loans. "It's just when you get to the larger loans that you see a big difference in interest rates," he adds. Associates frequently charges as much as 16 percent on mortgages - compared to about 8 percent for most bank mortgages.
Associates offers three types of credit: small consumer loans of up to $3,500; "revolving," credit-card-like loans of up to $5,000; and home equity loans based on the value of the borrower's house.
Consumer-finance companies generally serve customers who are less affluent than do banks. But Williams says the idea that finance companies serve only the poor and lower middle class "is just a fable. That may have been true 20 years ago," but now Associates serves many affluent customers. They may have run too high a debt from credit cards or other sources to qualify for a bank loan.
Williams says his customers generally have "middle- to lower-class" incomes.
Associates has been accused in some places - including Roanoke - of using devious methods to "pack" credit insurance onto its loans, and using questionable home-improvement contractors to ensnare unsuspecting borrowers.
Williams says credit insurance "is purely optional" and customers aren't pressured to buy it. This insurance is supposed to pay the loan if the borrower gets sick or injured or dies.
Consumer advocates charge that credit insurance often is overpriced and difficult to collect on. Williams concedes that it may not be right for everyone. But if somebody is the main breadwinner and has no other insurance, "I would say this is a good buy. I would say that they should take it."
As for other customers, it may be "easier to sleep knowing that if something happens, then this loan will be paid and they don't have to worry about it."
He says about 40 percent of his customers buy credit insurance.
Associates often works through appliance and furniture dealers and home-repair contractors to bring in loan business. These companies arrange for Associates to finance their sales.
"That feeds us business," Williams says. It allows Associates to expand its base of customers and "offer them more credit and more services."
Williams says the lender checks these businesses with the Better Business Bureau and runs credit checks on the owners. If someone complains about a retailer or contractor who is arranging loans for Associates, the lender sits down with the business and discusses the problem, he says. "If he doesn't want to listen," Williams says, Associates will stop doing business with the company.
Thomas Lloyd, a Roanoke lawyer who represents the company, says, "I've worked for Associates for a long, long time and I think we've made a couple of mistakes that were pretty quickly fixed, if it was possible. My experience with them - at least the local people - is that I'm not aware of any wrongdoing."
Even though many of Associates' customers are greater credit risks than the typical bank borrower, Williams says, its losses from unpaid loans are low.
"We don't just throw the credit out there and hope it comes back to us. You have to stay on customers - we don't badger them. As long as there's good follow-ups and phone work, we don't have any higher default rate than banks, as far as dollar value."
Williams says his branch's delinquency rate is about 31/2 percent, and it writes off about 1 percent of its loans as losses. Both figures are a bit higher than what most banks see, he says, but the higher interest rates make up for the difference.
Williams' office on Townside Road employs six people. He believes it offers more personal service than banks because people borrow money and make payments in the same place. They like the face-to-face contact.
"They want to have that trust," Williams says. The consumer finance business is highly competitive, he says, and "the distinguishing factor is customer service."
by CNB