Wednesday, June 29, 2005

Another rant about my last job (skip if you want)

I’ve been at this job for six months now, and compared to the last place this is heaven. The work is consistent, things are well laid out, and management is pretty good. My project manager is the best PM I’ve ever worked for.

But some things came up this week that have made me think about my last place of employment. I don’t like to remember that place. But somebody found some notes on one of the last owners on a discussion site and emailed me with questions, which led me to think about those guys. He googled some key words and found an old posting here. Imagine that.

Let me first explain how that business worked. (Boy, you guys are spoiling me – I started this blog as a photo op to show my day, now I am not taking many pictures but really just putting down words.)

The basic customer is a person with very bad credit – they buy names of people that default on credit cards, have bankruptcies, and generally are not doing well. These people are then sent a letter telling them that they now have $8,500 credit, just phone this number to activate their account. Most people think this is pretty good – they phone in and are read a long legal script, and basically talked into signing up. All the phone reps have a complicated script to read, with options for just about any question or objection a caller might have. (I worked on programming the scripts, so I know how complicated they are inside). The Federal Trade Commission approves the scripts. Reps are monitored and regularly fired for not reading the script exactly. No warning, just get out. Really employee friendly place (see my old posts about that topic).

The basic offer is for a ‘merchant’ card, not a ‘credit’ card. The distinction is that the credit is only for our products, not for general use. Kind of like a store credit card, only good for stuff inside that store, or a gas credit card only good for gas from that company. This is a very common type of credit offer used by lots of companies. Customers can only use the credit to buy stuff from our catalog. It’s not a bad list of items, kind of like a small Sears catalog. There is a department that puts it together, reprinting every quarter with monthly special flyers. It’s about an inch thick, with several thousand items.

People are offered this card as a way to buy things on credit that they cannot afford, and as a way to improve their credit rating by showing they have an account that they can handle. All sounds good. Except.

People are offered this fantastic deal for the low price of a $199 membership activation fee and a $99 annual membership fee. They are also offered a theft protection option for $99 annually and a continuation option (payments delayed on job loss or injury) for an additional $99 annually. So they are talked into a $496 package. They can only sign up if they have a checking account and authorize us to make account withdrawals. They can send in a money order for the amount and get on that way, but none of our customers (or very few) have money sitting around, or else they would not be having such credit problems.

After phoning in people are sent an information packet, with lots of legal documents and a sample of the catalog (not the whole catalog, just a small assortment of pages). They have two weeks to phone back and cancel the deal if they change their mind. I worked on the script that the phone people use to talk them into keeping the membership, again, answers about every objection, approved by the FTC, and people are fired for not reading off of the screen. And people are fired for having too many cancellations, so they are motivated to talk people into keeping the deal.

The reason for Federal Trade Commission script approval – they have so many complaints about our company (sorry, floating in the past, THAT company) that they (the FTC) are continually investigating it. I think there are thirteen states they cannot do business in because of complaints and lawsuits from assorted state attorney generals. The QA department handles complaints, from legal agencies and the Better Business Bureau, which often number in the hundreds each month. It was one of my jobs to pull up the audio recordings (they recorded every phone conversation) clean them up and make CDs to mail out to state agencies or lawyers.

So people read the deal, talk to somebody about it to sign up, then have the chance to phone in and cancel (or send a fax or letter to cancel). So I can’t feel too sorry for the customer. But after listening to a lot of phone calls, I realize that the average customer is about as sharp as a bag of hammers. (Is that still a valid phrase?) It is hard to understand how most of those people function in the real world, holding a job, paying rent and electric bills, just surviving. I didn’t realize how many people are mentally not very adept. Which is one reason that they have such poor credit, and end up being our customer.

Most people realize what they signed up for when their checks start bouncing because we went and sucked $199 from their account. I’ve heard the phone calls – ‘I’m getting kicked out of my apartment ‘cause I don’t have the rent’, ‘I can’t feed the kids because I don’t have any money’, ‘I can’t buy my medicine’ . . . . And if our withdrawal attempt is refused because of insufficient funds we wait a while and hit their account again. Get this part – by law we can only try three times to collect the amount. Most people are hit with a $35 bank fee each time, same as a bounced check charge. But our contract says that if they don’t get the ‘premium’ membership we will automatically issue a ‘special’ membership, and if that fails a ‘regular’ membership. Each type of membership is considered a different sale, so we thus can hit their bank accounts nine times trying to collect. With them having their bank assess them the NSF fee each time. For most people that is $35, for a total of $315 in bank fees before we stop. I don’t know the exact figures, but one of our owners is a financial wizard and had detailed statistics on everything. I think once an attempt bounced (our first time good statistic was around 20%) the second time we got only 5% of those attempted, dropping off to under 1% for the ninth try. Not very good, but when you are hitting thousands of accounts a month it does add up to a lot of money. But it does amount to a lot of bank fees for those customers without much money to begin with. After we get the initial $199 we then start hitting them up for the $99 stuff every following month.

And of course if attempts are returned we report these as bad credit, along with the banks reporting the nsf, so most of the people end up getting additional derogatory items reported which continue to bring down their credit rating.

After people are members they can start buying stuff from the catalog. Policy required 30% deposit before the items were shipped, then a long payment time for the balance but at no interest. (At least we didn’t charge interest, nice part of the sales pitch.) We made sure the 30% cleared their bank before shipping. I don’t know about most items, but I did check on the computers we listed in the catalog. There was one Dell machine listed. I went on the Dell web site and was able to look up the exact model number, which we listed the same as Dell. But our sale price was over three times the Dell price. I don’t remember the exact model or price – it was something like $460 from Dell and $1599 from us. So our 30% deposit was exactly the same as the total Dell selling price, and we probably paid wholesale anyway. We covered our costs and made a profit from the deposit alone, the balance payout was really all profit. So if people went to Dell and sent them the money that we sucked away they could own the same thing free and clear instead of still owing us a bundle. I assume other items were similar.

Most of the income came from the fees. This is evident internally by looking at the number of employees. There were 120 handling the initial phone calls in, 150 handling the attempts to cancel during the ‘free trial period’, and 80 handing customer complaints from people we did get the membership fee from. There were only five people taking catalog orders. I did not handle the billing, and thus do not know those numbers, but looking at how many people take catalog orders I assume that the actual sale part of the deal was a lot smaller than the membership stuff.

Sounds like a scam? But it’s all legal. All explained to everybody numerous times. Just because people are too dumb to understand what they sign up for doesn’t mean we can’t sell it to them.

Was it profitable? I don’t know exactly. But there were two owners, and we had a number of ‘motivational’ speeches where one of them talked about his $80,000 gold watch, Rolls Royce and Lamborghini, and how he could fire us all and rent out the building and still do quite well. This was pointed out by that recent contact. One of the owners goes to a discussion board (the financial guy, not our motivational speaker), where people with money brag about their purchases. At least that’s what it seemed like when I looked. And he was discussing his new house purchase. Having a home in Vegas and one in LA, and lots of business property, he just bought a house formerly owned by Prince Jefri Bolkiah of Brunei. Not Jefri’s big place in Vegas, but the smaller property. I looked up the good prince in Google, and read a lot of articles on his billions in expenses, almost bankrupting the country. I remember Prince Jefri, his daughter wanted to get $25 million out of the country and offered me 20% if I would only send her my bank account information, in several emails. I never replied.

The Clark County assessor has a web site where you can look up properties, get aerial maps and photos, and see what things are like (link to the right). You can look it up too - 7030 Tomiyasu - parcel 17701701015. Here’s the photo –

That’s 11 acres, not really visible in the shot. The main house (main house, not including the other houses on the lot) has over 60,000 square feet under roof (around 6500 sq. meters for you non Americans). THAT’S ALMOST AN ACRE AND A HALF INSIDE THE HOUSE! Sorry to shout, but who the heck needs that much? That’s over forty times the average Vegas new home. A lot bigger than my whole lot. Inside the house! Purchase price $14,000,000 US. And he talks about it still needing $5,000,000 to finish construction. Probably why the assessor site doesn’t list the number of bedrooms or baths, because it’s not done yet. Two pools, tennis courts, big garage (for all of those Bentleys and Lamborghinis) and assorted other houses. He was complaining about his $4,200 monthly water bills. $4,200 monthly just for water. That’s a lot more than I have ever paid for a mortgage payment, more than I’ve ever taken home in a month, just for water.

I just think about all of those people bouncing checks and having a hard time making payments all giving their funds so this guy could buy a house like this. I don’t know where the other owner lives, but I am sure it is similar.

Sorry to rant like this. I try to put that place out of my mind, but when I see things like this, and read his posts, it just makes me wonder why. I’m just like most of the US, just a few paychecks away from trouble. Yet some people do things like this. I don’t know if it’s because I am too ethical, or just not in the right place at the right time, or what. Not that I would buy a 60,000 square foot home, but I would like to be able to buy one just a tenth that size. OK, able to pay cash for one just 5% of that one. That would be OK. But I am sure he didn’t pay cash, probably got loans for 120% of the value and made a profit before he even started.

OK, enough for now.


Anonymous said...

I assume the owner of this "credit business" who was also a "financial wiz" was named Eric. Correct?

Anonymous said...

I'll go one further and say that 'Eric' is actually 'Eric Petersen' and the company was Consumer Credit Services?