The Collectors

Nailing fathers who ignore court orders to pay child support is a difficult job.James Jones, founder of Child Support Services, thinks he can succeed where the government has largely failed

It was the first case we collected on," says child Support Services' chief executive, James Jones, with a slight Virginia drawl. "They had been married for 15 years. She had three kids. The last time she had received a check from him was nine years earlier. She'd hired a private investigator to track him down, unsuccessfully. She paid an attorney $2,600, and he hired a PI. Nothing. She had used the state of Virginia for about six years but only got an intercepted income-tax return.

"The guy had skipped and moved to North Carolina. He used a post-office box. The bills were in his new wife's name; he had no credit history. We tracked him down through information obtained from a utility. When I got him on the phone, I put the words on him real strong. He Fed-Exed us $600 toward the current support of the kids. He owes her something like $86,000, and she needs the money bad. He drove a Mercedes and had even inherited money."

Meanwhile, says Jones, "he hired an attorney to get me off his back. Finally, he set up payment terms. Then he disconnected his phone and moved again. We tracked him down again; he paid again. So," concludes Jones, "if we really stay on his butt, he'll pay, but it's a constant battle; nothing's set in stone. He's a worm, a typical deadbeat dad. He has the ability to pay, but he's a hard nut to crack."

Sure, there is legislative and legal machinery in place to prosecute those who fail to pay child support. Already, in a number of states, failing to pay child support isn't just a civil offense, it's a felony punishable with jail time. All states have automatic wage withholding to collect support, and most have laws to bring out-of-state offenders to justice. But the problem, as always, is enforcement. The states' offices, often understaffed, have neither the time nor the skills to get all the deadbeat dads (more than 90% of nonpaying parents are male) on the phone and ultimately paying. The national caseload is 14 million plus and climbing by about 10% a year. In the meantime, the courts are backlogged with "more pressing" crimes.

Too many parents discover that if they don't want to pay child support, no one will make them.

The Idea
If ever a public problem was destined for the private sector, this is it. There are billions of dollars at stake. For 15 years the government has tried to collect overdue child support, but by 1990 delinquent payments totaled $23.8 billion. The states collected just 23% of that. As for arrearages (the years and years of past-due support), in 1990 the states recovered $1.2 billion, only 8% of the amount due.

In stalks Jim Jones. Standing about six feet one inch, he has an imposing physical presence that's softened by casual attire (polo shirt, Dockers pants, and loafers without socks). "I'm not afraid to see someone go to jail for failing to pay child support," he says flatly, "but I try to be positive and reason with them -- 'If you're out of a job, get one. Don't take it out on the kids because you're in a fight with your ex.' "

The adopted son of a lifelong Ford Motor electrician, Jones worked for several collection agencies before starting his own, Management Services and Collections, in Norfolk, Va., in 1982. It later merged with another local agency, Credit Service, and in 1989 he became the new Credit Service's president and CEO. Credit Service expects to net about $400,000 in revenues in 1992, above average for the industry. Credit Service's customers, largely physicians and utilities, pay an average fee of 32% on whatever the agency recovers.

The leap from bill collection to child-support collection came naturally. "I heard so many custodial parents say, 'I can't pay my electric bill because I'm not getting my child support,' " he says. "Even five years ago I saw it as a legitimate excuse, but I didn't really put two and two together until articles started coming out about the scope of the problem."

The market research was all around him. "You go to a party and almost everyone has first- or secondhand knowledge of this," relates Jones, a 40-year-old divorcÉ. A small group of friends fighting for child support acted as his sounding board. He presented them with several scenarios. "What if a private company charged you $50 up front and took one-third of what it collected?" Too high, they said, but they indicated they'd probably be willing to pay a $35 application fee and a 25% contingency fee if he could do what they and the state could not.

Jones was game. He coughed up $25,000 in seed money and persuaded two "venture-capital friends" to kick in $75,000 (in the form of a three-year balloon loan at 10.5%, on which he pays $1,000 in interest monthly). After clearing the red tape with a number of state offices, he began operating his new venture as a division of Credit Service in July 1991. (On his lawyer's advice, Jones later made the operation a separate entity, known as Child Support Ser-vices, but the wall between the new company and its parent remains flimsy.) Jones received his first case that September and collected his first payment on October 4. At Credit Service, the average bill he goes after is about $200. In the child-support game, debts start at about $2,000. "I see this becoming much bigger than Credit Service," he says.

He figured if he could apply the techniques and efficiencies of Credit Service to Child Support Services, he'd also have a nicely profitable venture. His original projections saw the business doubling in 1993, to about $1 million in net revenues, with about a 50% increase in expenses. Jones has since scaled back his expectations (see Financials, page 6 of this document) and accounted for higher expenses, but pretax margins close to 40% still appear attainable over time, he says. Unlike the state, he can pick and choose his cases and begin working on each case much quicker than civil servants can.