Jeffrey S. Bovarnick's legal experience was instrumental in shaping ARM's collection philosophy. Mr. Bovarnick developed a great understanding for the dynamics between a creditor and debtor.
On behalf of creditors, he negotiated with the debtor to obtain the best recovery. If the debtor was uncooperative then he fought aggressively to collect the debt including seizing real estate and personal property.
On behalf of debtors, he organized workouts, negotiated payment plans or he represented debtors who needed to file for bankruptcy protection. Mr. Bovarnick grew to understand each debtor's situation including the moral obligation to repay one's debts. The obligation to pay weighed against an individual's desire to care for his family and to receive a fresh start. Many debtors were forced to file bankruptcy because institutional creditors were unwilling to negotiate repayment plans that were reasonable and pragmatic for the debtor. Mr. Bovarnick learned that if creditors were more flexible and user friendly then both parties ultimately received substantial benefits.
ARM, its collection agencies and attorneys treat each debtor with respect and consideration. Historically, collection agencies have used, abused and manipulated debtors by yelling, threatening, or tricking them to pay the debt. In sharp contrast, ARM's collectors refer to themselves as pre-litigation mediators or consultants. We speak with each debtor and ascertain his or her debt and income levels and his or her asset base. In addition, we provide free credit advice including offering debtors options such as using non-profit debt counseling services, a residential home loan officer, or filing for bankruptcy. Our gentle collection methods are successful because they allow a debtor to pay off his/her debt in a dignified and professional manner.
ARM's goals are to provide the debtors with realistic repayment plans that fit within their current lifestyle. We institute incentive programs to reward debtors. In many cases, ARM agrees to stop adding future interest and late charges to outstanding balances if payments are made timely. Debtors are given a real opportunity to pay off their debt in a finite period. ARM'S other incentives include providing debt counseling and sending the debtor a "paid-in-full and release" letter after an account is paid off. Quite often, debtors send us payments with "thank you" letters, they call to receive free advice on other debts, and they tell us how easy and painless we make the repayment experience.
COLLECTION PROCEDURES:
A. Non-Litigation: Once the debt portfolio is purchased, ARM mails each debtor a demand letter together with a self-addressed return envelope. The Company starts to receive money within days after initial demand letters are mailed. Then, we follow-up with collection calls and additional letter campaigns. Some debtors pay off their accounts in a lump sum while most pay by payment plans. Approximately fifty (50%) percent of the gross revenues are collected with this process. We utilize up-to-date computer database, collection software and the Internet to maximize our profit.
Although not included in our original model, ARM began to outsource some of its non-litigation collection activities in December, 2002. There are cost savings and economies of scale when you compare the contingent fees paid to collection agencies with the cost of building and operating an in-house call center. The analysis includes tracking the agencies' liquidation rates, the time frame in which they collect, and the out-of-pocket expenses they incur to complete skip tracing and the pulling of consumer credit reports. Contingency fees range between 25% and 45% depending upon the age and type of the debt to be collected. ARM benefits from using collection agencies because it utilizes their vast experience and resources including its collectors, skip tracers, and managers, without having to front any overhead or operating expenses relating to non-litigation collections.
In order to grow aggressively, ARM will outsource its non-litigation collection to handpicked collection agencies.
B. Litigation: The remaining collections are generated through legal proceedings. Collection costs and attorneys fees will be approximately thirty-three (33%) Percent of the amounts collected from litigation. ARM may decide to resell the uncollected accounts and our court Judgments. The majority of receivables from each portfolio are collected over a two and one-half (2.5) year period. Then, the inventory generates a tail of receivables for another 1 to 3 years.
