W’W

 

REDEFINITION OF SELF IN A SOCIAL LABELING SITUATION:
A SOCIAL PSYCHOLOGICAL INVESTIGATION INTO THE
WORLD OF DEFAULT DEBTORS

By

Jay Jacquelyn Bass

A DISSERTATION

Submitted to
Michigan State University'
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Sociology

1977

l l
./ ‘

ABSTRACT

REDEFINITION OF SELF IN A SOCIAL LABELING SITUATION:
A SOCIAL PSYCHOLOGICAL INVESTIGATION INTO THE
WORLD OF DEFAULT DEBTORS

By
Jay Jacquelyn Bass

This study investigates social and psychological aspects of
consumer credit and personal debt default; it employs the methodo-
logy of qualitative field research and treats the substantive prob-
lem within a theoretical framework of symbolic interactionism and
the deviance labeling approach. The work is organized into three
phases, each addressing issues of consumer indebtedness and debt
default from the focal point of a different social level. The
social-economic environment of consumer credit is of concern in
part one. It describes the supply and use of personal credit and
traces the development of consumer credit and credit institutions
in America, showing how they grew in response to the needs and atti-
tudes of a changing society. In the second phase of study, which
focuses On operations of credit-debt organizations within this
larger social context, attention is centered on indebtedness and
its regulation. A descriptive analysis of debt collection is pre-
sented, documented by observational data derived from the author's

occupational experience as a bill collector. Debt collection is

Jay Jacquelyn Bass

portrayed as a social control system containing a deviance labeling
mechanism: debtor typifications developed by creditors and col-
lectors to organize their sanctioning efforts impart a career-like
structure to debt enforcement; debtors, propelled through this
career, are labeled and treated as "increasingly deviant." The
progress of the debtor through the enforcement process is outlined
to show how deviance labeling results from societal reaction to debt
default.

The third phase examines the research problem from the per-
spective of the debtor. Using data obtained through interviews
with debtors in default, it describes the experience of indebted-
ness. The main phases of a subjectively structured career, and the
turning points delineating them, are described in terms of debtors'
perceptions and interpretations of events in their lives. Defaulters
responses to sanctioning and labeling by control agents are examined,
with particular attention to changing self definitions occurring at
junctures in the career where secondary deviance would be likely to
emerge. Turning points are revealed as contingencies, places where
debtors' definition of self and the situation are revised as new
meanings are attached to events in the unfolding indebtedness exper-
ience. The data indicate that while redefinitions of self at these
points can signal deviant self-identification and escalating devi-
ance, they may also mark entrance to a new career associated with
rejection of the deviant label.

This investigation lends support to critics of labeling

theory who claim that misconceptions of the societal reactions

Jay Jacquelyn Bass

explanation in much of deviance literature have tended to give it a
deterministic cast by portraying the labelee as passively accepting
control agents' imputations of him as deviant. The defaulters under
study in this work were found to have resisted the labeling attempt;
they protected their self image by providing “accounts" for their
behavior which attributed blame for over-indebtedness to outside
forces. When faced with the necessity of taking action to solve
their debt problem, they saw themselves as persons whose conduct
conformed with social expectations. Hence, they resolved the dilemma
by seeking the help of debt counselors and continuing their efforts.
to pay; they rejected the alternative, resigning the will to pay and
filing backruptcy. This outcome, which suggests that they had not
adopted a deviant self image that would have led to a deviant role,
presents a challenge to labeling theory, for it calls into question
presumptions that secondary deviance is an inevitable consequence

of societal reaction and coercive social control and it casts doubt
on labeling theorists' conception of career as a series of objective
events marking inexorable progress toward adoption of a deviant self
and role. Based on evidence in the form of debtors' own descrip-
tions of their subjective experience, the results of this study
point up the interactional aspects of deviance labeling and the
importance of labelees' interpretations of events which mark progress
in a deviant career. The most significant contribution of this
research lies in these findings which suggest needed refinements of

the labeling perspective.

PREFACE

Almost universal use of credit for the purchase of consumer
goods and services has become an outstanding and highly significant
characteristic of the American way of life. In no other country is
consumer credit so liberally granted and so extensively used; in
no other country is it so essential an element in the nation's
financial structure and economy; in no other country does it so
intimately touch and so vitally affect family and social life.

Once a privilege of only the well-to-do, credit buying has brought
the ownership and enjoyment of a wealth of goods and services within
reach of Americans of all walks of life. But the affluent and com-
fortable Credit Society also has its financial victims and outcasts.
With the proliferation of goods and services that can be had with
credit, with the almost total acceptance of the practice of buying
against future earnings, and the increasingly liberal policies of
credit-granting institutions, too much debt becomes a serious prob-
lem for a growing number of American consumers. True, only about
one credit user in twenty is plunged over his head in debt, but for
those who find themselves in debt entanglement it can be a debili-
tating and shattering experience, a problem that intrudes upon many
facets of his personal and social life. Contrary to conventional
wisdom, only a handful of defaulters are deliberately fraudulent or

dishonest; as Caplovitz' recent research shows, only about 1%

ii

(l6 out of the l,320 debtors he interviewed) fit the stereotype of
the classic deadbeat. Nor is the problem of over indebtedness
limited to consumers of low income. Bankruptcy studies are in agree-
ment that bankruptcy is more of a middle-class phenomenon; the
"typical bankrupt" earns over $100 a week, but many have incomes of
two to five times that amount. Default is most often the result of
an accumulation of an overwhelming load of debt and is usually a
gradual process; for most troubled debtors financial difficulty is
an insidious problem, one that creeps up on them without their
realizing that it is happening. And almost anyone is vulnerable;

it takes only a bit of financial carelessness or miscalculation--
unrealized expectations, yielding to the temptation to overspend,
taking on too many "easy payments"--to put even the seemingly secure
consumer over the line to default. This study represents an effort
to look into the lives of persons who have become burdened by a debt
problem and to see their situation as they see it. It explores the
everyday world of the troubled debtor, attempting to describe the
social context of his drift to financial difficulty, and to lay bare
the experience of indebtedness as it is known to the consumer in
default.

Because this investigation has as its goal the understand-
ing of the debtor and his social world, it employs the methodology
of participant observation, a mode of scientific study which permits
and requires the researcher's firsthand involvement with the empiri-
cal world. By participant observation I mean to imply more than a
particular set of techniques of data collection; it is also a role

iii

and a methodological stance by which human behavior in its natural
context is made known to the investigator through his personal par-
ticipation in the social sphere of life under study. The merit of a
naturalistic approach of this kind is that it respects and stays
close to the empirical domain, but the complexity and flexibility

of this mode of study puts special demands on the investigator.

It must be a disciplined endeavor, with each step of the work car-
ried out in a detailed, organized, and painstaking manner. The
quality of field research depends a great deal on the sense of
craftsmanship the investigator brings to the work--he must be
insightful, imaginative, and resourceful in the intellectual task

of bringing together theory, method, and research, as well as in the
work of locating, gathering, and analyzing his data. Most important,
throughout every phase of his study, the participant observer must
remain acutely aware that he is not merely a chronicler or journalist
but a social scientist, and it is essential that this be reflected

in the reporting of his research. No less than his counterpart who
works with statistical data and procedures, the participant observer
is responsible for providing an adequate presentation of his research
operations and conclusions and the evidence for them. However,
because of the nature of this form of research--its use of quali-
tative data and descriptive analysis, its independence of accepted
procedures of conventional scientific inquiry, and its reliance on
the personal involvement of the researcher--scientifically adequate
reporting of a naturalistic investigation is not an easy task. It

is nonetheless the responsibility of the participant observer, as

iv

with any other social scientist, to make every effort to see that
the reader is given an opportunity to follow the details of the
several stages of the research, to enable him to see how the con-
clusions were reached and to make his own judgment as to the ade-
quacy of the evidence.

I have endeavored to live up to this responsibility; adequate
documentation of my conclusions and explanations of my research
procedures are, I believe, contained within the text of this dis-
sertation. I have not, however, explicated the way in which the
research problem was arrived at or how it evolved as a substantive
focus to be treated within a particular theoretical framework. This,
too, should be made known to the reader, for it is in this phase of
a naturalistic sociological study that the researcher's personal
involvement makes a most significant contribution to his work. The
substantive area in which he takes interest, the aspects of the
tapic he identifies as a sociological problem, and the approach he
takes in addressing it as a subject for research are all in some way
a reflection of his past experience, his training in the discipline,
his own view of the world, and the unique bent of his imagination--
and all this is a part of the sociological imagination that goes into
his intellectual productions. I wish, therefore, to append a brief
prefatory statement outlining how I came to the problem with which
this dissertation is concerned, how the conceptualization of it
developed as it did, and how the objectives of the study were brought

into focus.

A radio broadcast in l969, which featured an interview with
a Spokesman for Credit Counseling Centers of Michigan, was the
source of my idea to do a study of people in debt. The counseling
agency representative was describing the general problem of personal
indebtedness--how the amount of consumer debt had grown into the
billions of dollars and how personal bankruptcy rates had soared
to record heights in recent years. He spoke of the problems of
individual debtors--garnishments, the incidence of families broken
by desertion and divorce. And he told how the CCC had been formed
with the support of private industry to help and rehabilitate
troubled debtors. The case load of the agency, he explained, was
not made up only of low-income people having trouble with debt;
their clients came from all walks of life and many of them had good
jobs and substantial earnings. Citing aggregate figures based on
cases in CCC files, he drew a profile of the "average” agency
client, describing him in terms of age, sex, family size, income,
debt load, and so forth. This program initiated my interest in
consumer indebtedness by calling to attention its problematic aspects
that had not entered my thinking before. I had not been aware that
personal debt was a widespread problem of broad social-economic
concern, taking it to be simply an occasional event that had some-
thing to do with being poor or disreputable; I now saw that over-
indebtedness was a serious difficulty affecting the lives of a
wide variety of American consumers. Recognizing as "sociological
variables" the characteristics by which the Speaker had described

an average agency client (age, education, family size, etc.), I

vi

now realized that "out there" was to be found a social category of
debt-trouble peOple and that could be a legitimate concern for
sociological research.

The focus of the study took shape over the next several
years. Sensitized to the problem, I began collecting materials that
appeared in the media about consumer debt, talking informally with
people whose work was connected with lending or credit and collecting
and the like; especially, I took notice of my own attitudes and
experiences as a credit user. (It was about this time that bank
cards came into use and were being issued, unrequested, to qualified
consumers, and I was struck by the paradox of this effort to encourage
credit use in the face of the well-publicized problem of rising bank-
ruptcy rates.)

The next step, an organized search of the existing literature
on consumer indebtedness, soon disclosed the lack of sociological
interest in this area; with a few exceptions, such as Caplovitz'study
of consumer practices of low-income families, most of the writings
came out of business and consumer economics, and bankruptcy in its
various aspects was the most frequent research concern. Reflecting
on what I had learned thus far I concluded that consumer debt, as
it had been variously examined from different perspectives-and
disciplines, constituted a problem to be differently viewed from
several social levels. Economics, for example, looked at outstand-
ing consumer credit volume and consequences of bankruptcies at the
macro social-economic level, while students of business and family

life were most concerned with the production and use of credit and

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with the effects of large indebtedness at the level of social organi-
zations. This general pattern in the existing research suggested to
me the possibility of a sociological study which would take into
account each of these perspectives, but would consider as well the
personal problems of indebtedness and default. Such a study would
look first at the overall picture, describing the growth of consumer
credit and proliferation of Opportunities for its use and its place
in the nation's economy. It would focus next on the institutions
and structures within this context, to show how they had developed
in response to consumers' needs and attitudes in a changing society,
and then examine the Operations of contemporary credit-debt organi-
zations, emphasizing the interaction taking place between organi-
zations and individual consumer debtors. Since I envisioned the
work as a social psychological investigation, however, its main
thrust would be directed to the problem of consumer debt at the
individual level; from this point of view I was interested in learn-
ing how the individual in the role of consumer fit within the gen-
eral structural context, and I wanted most of all to understand what
"debt trouble" meant to the individual debtor as a person.

It was at this point that the research problem emerged as
one appropriate for examination within the theoretical framework
of symbolic interactionism, for it would have as its concern both
the social organizational processes comprising the context of human
behavior and the individuals engaged in on-going meaningful action
in everyday life. I felt that the Meadian "image" of man and society

best fitted the conception of the nature of human behavior and social

viii

structure that I had in mind; because much of the work would be
focused on interaction taking place among individuals and organi-
zations as acting units of society and on the on-going processes of
interpretation and typification by which human social interaction is
made possible, my study needed to be cast in terms of a perspec-
tive that emphasized such notions as emergent meanings, self-
definitions, and situated aspects of behavior. The fact that this
was to be an investigation into the "world" of default debtors, a
Study that would look at the interaction between credit-debt organi-
zational processes and individual consumer debtors and at the actions
BNd subjective experience of defaulters as well, brought to the fore
one of the main objectives of this work: it was to present an
empirical instance of processes described abstractly in symbolic
interactionist theory and illuminate specifically the distinguish-
ing feature of Meadian social psychology--its position that social
Str'll<:ture, viewed as processual in nature, is impacted, shaped, and
“Hired by the behavior of individuals, even as individual conduct
I5 Trifluenced or limited by its social structural context.

Putting together the ideas I now had, particularly those
acquired in my readings on bankruptcy and the procedures creditors
use? in managing their accounts and trying to prevent debt losses,
it Seemed that the study might best be organized around the activi-
ties and procedures of debt collection; it would display the work-
1“95: of creditors and collection agencies and then attempt to
deScribe these activities from the debtor's perspective, showing

how he perceives and responds to them and how they affect his life.

ix

I had already begun looking for ways to obtain specific information
on credit granting and collecting, hopeful that his might also lead
to discovery of some means of getting access to data on people in
debt. My preliminary talks with credit counselors proved to be only
generally helpful, as did an interview with the head of the credit
bureau; I did, however, receive the latter's permission to attend a
credit seminar for credit management personnel and it was through
this experience that I first gained insight into the way in which
defaulters are viewed and tneated by creditors. Coming to it as an
outsider, I was quite surprised to hear the lecturer speak in terms
such as "working the account" and "going after the tough ones,“ and
lr"fiferring to certain debtors as "deadbeats." This revealed to me
the negative identifications creditors attach to delinquent debtors;
I saw that defaulter and bankrupt might be treated as stigmatizing
SOCl'al roles and it occurred to me that debtors were assigned a
deviant status by the peOple to whom they were owing. These ideas
19d the to consider the possibility of using deviance and deviance
labeling as an analytic approach for examining debt collecting and
debtors' responses to creditors' actions. Just as I had begun to
deVelop this line of thought, Paul Rock's work, a labeling theory
aniilysis of the English debt-collection system, became available.
HIS study, depicting debt collection as a process by which deviant
labels are originated and applied to debtors through the methods
arki procedures of collectors, complemented what I wanted to do and
sUggested a direction to take in attempting to examine the two
Sides of debt-related organizational processes. Adopting Rock's

X

general societal reaction-labeling framework, I went on to develOp
my examination along those lines; guided by Rock's conceptualiza-
tion of the collection process as a mechanism by which deviant
labels are generated and applied to debtors, I decided to look for
evidence to show that the American collection system functioned in a
similar fashion, after which I hoped to discover how debtors respond
to being labeled and treated as deviants.

When the research project had reached this stage in the
planning, I decided that a naturalistic approach to the study was
Called for. The rationale for this decision was based primarily on
my acceptance of Blumer's views, his explication of the fundamental
assumptions of Meadian social psychology, and the recommendations
he had set forth in outlining the methodological position of
SWIbOTic interactionism. I had already develOped a general idea, a
set of images, about the sphere of life to be examined and estab-
HSDEd the main questions and problems that were to give direction
I” "Ev inquiry. This research outline, loosely formulated in terms
0f '“sensitizing concepts," and the theoretical orientation that I
had adopted as its guiding framework, required a mode of study which
"OLFId yield a close personal understanding of the processes and
behaviors under examination. I was beginning my study as an out-
sider; the general images I had developed about collectors and
debtors and how they acted and responded to one another were use-

'fiiI in locating the events to be looked at and in directing the

 

IDItial steps in my exploration, but if I was to understand the
behavior of debtors and the procedures of credit-debt organizations,

xi

it was essential that I find means by which to gain intimate famili-
arity with them through firsthand involvement and by direct observa-
tion as a participant in the events I wished to explain.
Consistent with this commitment to a "naturalistic stance,"

the descriptive analysis of the collection process (contained in

the third chapter of this work) was grounded in evidence derived
through my personal experience in a collection agency, actually
doing the work of a bill collector and taking part in agency pro-
cedures. The kind of data I needed to describe the feelings and
actions of debtors in response to the processing of credit-debt
Organizations, and the way in which it had to be gathered and
analyzed, were also dictated by my decision (to pursue a naturalistic
investigation. As the study evolved, and its aims were tightened
and clarified, the phase directed to exploration of individual
debtor- behavior came to be focused on the responses of defaulters
as Iabelees to whom deviance is imputed by collectors in the per-
f0"TTIaInce of debt regulation. The form of data that would directly
”Veal the feelings of debtors, enabling me to explain the nature
01: indebtedness as a subjective experience and to describe the
per‘Smnal responses of persons ascribed a deviant identity, had to
be obtained through unstructured, in-depth interviews. The source
of such information, I felt, must be debtors presently undergoing
the experience of default-being subjected to the coercive treatment
0T debt enforcement agents. This decision was based on my use of
s‘Etzondary deviance as the key concept linking debt collection as a

SOcial control process with the subjective indebtedness career known

xii

to defaulters. This phase of exploration was directed by the "sensi-
tizing hypothesis," drawn from labeling theory, that societal
reaction to situational deviance, particularly coercive enforcement
and negative labeling by social control agents, would likely bring
about an escalation of the deviance by leading to secondary devia-
tion, i.e., to the labelee's identification of himself as deviant
and to his adoption of a deviant role style. To find suggestions
helpful in applying this idea to debtors and debt collection I
looked to the research literature on other forms of deviance that
utilized the secondary deviance concept; my search revealed that
findings in this area were most often based on retrospective data
and I quickly came to the conclusion that more could be discovered
about labelees' reSponses to social control, particularly as con-
cerned with secondary deviance, if data could be gathered from per-
sons actually involved in an on-going process of labeling. This
"want; that defaulters identified by public records (as with debtors
who liave filed bankruptcy) would not provide the kind of informa-
tion I wanted. It was for this reason that I sought the help of
CourIseling agencies; through them I succeeded in gaining access to
peoDle who were presently caught up in debt trouble and engaged in
on‘Qoing interaction with credit-debt organizations and agents of
s°C=ial control. In this way I could learn about the labeling pro-
Cess through the descriptions of this experience provided by
1abelees themselves, and it enabled me to discover something of
the conditions under which secondary deviance would be more or less

likely to occur.

xiii

Through my efforts to apply labeling theory to the activi-
ties and circumstances of debt default, certain difficulties and
ambiguities in the labeling perspective were brought to light, and
these are elaborated in my concluding chapter. I regard the dis-
covery of weaknesses and misconceptions in the societal reactions
approach to deviance as a main contribution of this study, one which
came about as a result of two features that were incorporated into
the work: first, its attempt to examine as "deviance" a form of
behavior not commonly regarded as deviant exposed labeling theory
to a more critical test of its explanatory power. Further, by
employing a naturalistic mode of examination, this investigation
has better able to reveal and explain the subjective responses of
lVldividuals labeled as deviant by social processes, thereby helping
tOclarify one of the most troublesome aspects of the labeling per-
SPeCtive.

Whatever the value of the contributions this study may make
to the literature on consumer indebtedness, or to the theoretical
deVETOpment of the symbolic interactionist and labeling approach,
mUCh of the credit for it must go to those who aided me in carrying
It (out. I want to express my appreciation to Dr. Peter Manning,

who served as my dissertation advisor, and to the members of my
g'Viduate committee, Dr. Donald Olmsted, Dr. Denton Morrison,

Dr‘- William Ewens, and Dr. Barrie Thorne. To each of them I extend

"D! sincere thanks for their careful and critical reading of the
manuscript and for offering insightful and constructive comments on
the work. I am especially grateful to Dr. Manning for his assistance

xiv

in the planning and organizing of this study. His observations and
suggestions contributed greatly to clarifying my ideas; and his
knowledgeable guidance was of immeasurable value to me in develop-
ing the theoretical directions of the research. My indebtedness to
the persons on my committee goes far beyond the part they had in the
production of this dissertation, however. For their scholarly
guidance over the years of my graduate training, for the profound
influence they have had in my intellectual and professional develOp-
ment, and for the opportunity to learn from them and to know them
as colleagues and friends, I am deeply grateful.

Although they cannot be named, I also acknowledge my
indebtedness to the many people who helped me to learn about credit
Practices and debt collection and who made it possible for me to
Obtaiii the data essential to this work. Particularly, I thank the
counseling agency managers for their helpful suggestions and for
“mg the work of putting my interview request in the hands of
theile clients. I am most sincerely grateful to each of those
anollymous persons who responded to my inquiry and I especially
thalik those whom I interviewed for giving so freely of their time
anti for talking with me, frankly and openly, about themselves and
their personal feelings and experiences as debtors.

While it falls short of expressing my true gratitude to him,
I Would like to add this special word of thanks to my husband for

the unfailing encouragement and support he has given me in this

e‘ndeavor.

XV

TABLE OF CONTENTS

LIST OF TABLES .......................
LIST OF FIGURES ......................
Chapter

1. INTRODUCTION ....................

Problem Statement and Literature Review ......
Theoretical Framework and Conceptualization

of the Problem .................

Methods of Inquiry ................

The Research Setting ..............

Participant Observation: Access and Setting . . . .
Gathering of Questionnaire and Interview Data . . .

2. THE SOCIAL STRUCTURAL CONTEXT OF INDEBTEDNESS . . . .

The World of the Consumer Debtor: An Overview . . . .
Consumer Credit and Credit Granters ........
Consumer Credit Defined .............
Major Forms and Sources of Consumer Credit . . . .
Instalment Financing of Consumer Goods .....
Consumer Cash Lending ..............
Noninstalment Consumer Credit ..........

Development of Consumer Credit as a Social

Institution ...................
Social Forces in a Dynamic Credit System . . . .

Consumer Credit Transformed by the Industrial

Revolution ..................

The Beginnings of Cash Lending Institutions . . . .
The DevelOpment of Retail Goods Financing . . . .
Contemporary Consumer Credit Organizations . . . .
Introduction ..................

Organization, Practices, and Customers of

Finance Companies ...............

Consumer Credit Activity by Commercial Banks

Conclusion . .. .................

xvi

Page
xviii

xix

Chapter

3. THE ORGANIZATIONAL ENVIRONMENT OF INDEBTEDNESS
CAREERS . . ......................

The Nature of the Consumer Debt Problem .......
Consumer Debt as an Individual Problem .......
Structuring the Indebtedness Career .........
Perspectives for Viewing the Enforcement Process .
Enforcement by Credit Granters ...........
Entry to the Indebtedness Career .........
Defining Debt as Delinquent ............
The Creditor's Collection System .........
Creditors' Collection Devices ...........
Some Variations on the Basic Collection System .
Organizational Processing of Defaulters .......
Collection Agency Strategies and Procedures . .
Pre-Legal Phase Collection Devices ........
The Collector's Work ...............
Advanced Stage Enforcement by Collectors .....
Default Debtor Alternatives .............
Conclusion .....................

4. THE EXPERIENCE OF INDEBTEDNESS ............

Introduction ....................

The Consumer Debtor in Changing Situations .....
Phase l: The Drift to Financial Trouble ......
Turning Point: Defining Indebtedness as a Problem .
Phase 2: Meeting the World as a Default Debtor
The Debtor's Response to Deviance Labeling .
Resolving the Dilemma ...............
Phase 3: The Debtor in the Help-Seeker Role . . .

The Counselee's Interpretation of His Situational

Deviance .....................
5. CONCLUSION ......................
Summary Remarks ...................
Discussion ................

Some Reflections and Suggestions for Further Study
APPENDIX ...........................
LIST OF REFERENCES ......................

xvii

Page

145

I45
I47
l59
159
l7l
l7l
I79

l88
205
216
2l7

233
242
261
289

306

306
3l4

3T9
325
333
340
35l
356
380
380
388
407
424

427

LIST OF TABLES

Table Page

l. Personal Credit Outstanding December 3l, l974, by
Major Type ..................... 77

2. Percent of Finance Company Loans by Occupation of
Borrower, 1974 ................... 126

3. Distribution of Scores on Scale Measuring Attitude
of Responsibility Toward Debt Repayment ...... 350

4. Proportions of Bankrupt and Counselee Respondents
Scoring High/Low on Blame Orientation Scale . . . . 365

xviii

LIST OF FIGURES

Figure Page

l. Schema Depicting Social Structural Context of
Organizations Relevant to the Consumer Debtor . . . . 58

2. Advertisement Suggesting Range of Activities by
Finance Subsidiaries ................ l2l

3. Commercial Bank and Finance Company Shares of
Consumer Instalment Credit Markets, 1965 and 1974 . . I37

4. Examples of Impersonal Routine Stage Reminders . . . . l89
5. Example of Impersonal Appeals Stage Reminder ..... 193

6. Example of Collection Device Implying Threat Against
Credit Record .................... l96

xix

CHAPTER I
INTRODUCTION

Problem Statement and Literature Review

This study has to do with people in debt and with the debt-
collection process as it identifies and deals with them and permits
them to be labeled as defaulters, but it is neither an analysis of

indebtedness nor a treatise on labeling. It is concerned with these

matters only insofar as they bear on the develOpment of the principal

theme which is an attempt to analyze and understand an important

aspect of Meadian social psychology: the process of self-redefinition,

changes in identity, or self-conception within the context of social
structure.

Although their experience with personal indebtedness is
known to have profound effects upon the lives of individuals in
modern society, this has been almost totally neglected by social

Psychologists as an area of investigation. The substantively rele-

vant literature has, with few exceptions, taken the form of fact-
finding surveys and applied research efforts directed toward solu-
tions to business-economic problems. Starting around 1950 with the
ending of wartime consumer goods shortages, a phenomenal growth in
cOnsumer credit occurred in this country and with it came alarming
Increases in personal bankruptcy rates. By the late 19605 consumer

cY‘edit had expanded to more than five times its 1945 volume and

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personal bankruptcy filings, numbering 8,566 in 1946, had leaped to
a record 191,729 in 1967. These events spawned an outpouring of
studies produced mostly by students of business-finance and family
economics whose main interests were identifying the causes of
bankruptcy and finding ways to bring soaring bankruptcy rates under

control.1

The work of sociologists in this area reflects an equally
limited concern. Between 1960 and 1970, a series of programmatic
studies in behavioral economics was conducted at the University of
Michigan Institute for Social Research under the direction of
psychologist George Katona. These monographs report findings
obtained in periodic interview surveys using representative samples
of Americans as "spending units." They were financed primarily
by private business and contain factual data as would be of use to
the business community--on consumer finance (distributions of
irusome, expenditures, assets, and debts) and on consumer sentiment
(arttitudes, expectations, and inclination to buy). As such they

are a valuable information source but do not represent a contribu-
titan to a line of theoretically informed social research.

David Caplovitz is quite alone in his concern with problems
(If Personal indebtedness among American consumers. His work how-
ever, although sociologically oriented, deals with debt entangle-
Inent and relations of consumer debtors with credit-debt institutions
as toPics for social action research; the Caplovitz studies are not

cOncerned primarily with develOpment or verification of sociologi-

cal theory. but concentrated on exposing unfair and exploitative

credit and collection practices and suggesting guidelines for reform.
The Poor Pay More (1963) reports the results of a survey conducted
by the Bureau of Applied Social Research to identify the financial
problems of consumers in low-income urban areas of New York City

and the types of families most vulnerable to these problems; its
purpose was to provide a factual basis for developing programs of

action in this area. Consumers in Trouble (1974), which describes

 

the experiences of consumer debtors who defaulted on their obli-
gations, is based on interviews with debtors in four American cities;
the interview sample was drawn from court docket books, i.e.,
respondents were all debtors who had been sued by their creditors.
Research interest in this study was directed to answering two basic
questions-~why debtors default on their obligations and what happens
to them when they do. In reporting his findings in these studies,
Caplovitz takes the role of advocate for the poor and unprivileged;
‘theW'are presented as empirical support for the claims that debtors
are victims of our consumer credit system, that consumers—~especially
the urban poor--are exploited by credit granters, that consumer
debtors do not receive fair treatment in the courts which operate
favoring creditors' interests. The central theme of his most

recent book, as described by Caplovitz, is "the injustice that has
evolved in this impersonal world of consumer credit."2 Despite our
‘Shared interest in consumer indebtedness as a general substantive
PVOblem area, the Caplovitz studies have somewhat less relevance

for the particular research issues of concern in this thesis than

has that of Rock; while Caplovitz' survey findings and conclusions

 

 

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have important corroborative value for the present, more limited
research, his work does not share the same general theoretical per-
spective as does Rock's examination of debt, which is set in a
deviance theory framework.

The work of sociologist Paul Rock (1968, 1973) dealing with
the debt-collection system in England represents the only investi-
gation in the area of personal indebtedness that is grounded in and
contributes to interactionist theoretical social psychology.
Symbolic interactionism serves as its general organizing perspective,
although the problem is conceptualized in terms of the societal
reaction theory of deviance, i.e., "labeling theory." While Rock
characterizes his study as "a piece of descriptive sociology which
attempts to lay bare the structure of the English debt collection
process," it is more than simply a descriptive account of the work-
ings of a particular segment of social organization. This is a

systematic analysis of personal indebtedness which focused primarily
or: the structural side of consumer credit-debt phenomena. The
various organizations involved in lending and collecting are
depicted as serially linked, forming an integrated system of social
(nontrol designed to manage the unique problem of debt default. The
agency practices and legal processes which comprise the debt
EHforcement system are shown to be centered about a fundamental
Concern with the actual and potential impact of this social control
on the debtor. Debt regulation thus becomes a system of artful
cOntrol structured by interpretive processes Operating in a

I‘ECiprocal structure-person interaction. Emphasizing the dynamic

aspects of this relationship, Rock shows that the construction and
application of collection procedures involve careful impression
management; the increasingly severe enforcement sanctions that
effectively induce defaulters to pay must stop short of coercive
efforts that would lead to the develOpment of a negative self-image.
The analysis reveals the impact of individual behavior upon social
structure: the organization of the collecting process, centering
as it does around a concern for the defaulter's subjective responses
to its sanctions, is itself shaped by individual debtors whose overt
behavior it is designed to control. It is its unique sensitivity
to debtor responses that gives the debt collection process its
particular structural form, described by Rock as "a bureaucratically
ordered career analytically divisible into stages with increasingly
harsh sanctions available to social control agents at each stage."
'Thus it is the collection process which imposes deviance upon the
defaulter as he is propelled through its successive phases of
sanctioning efforts. On the basis of this general argument, the
ivivestigation is cast in terms of deviance theory although it is
nque an organizational study of debt collection than an examina-
‘tlcniof individual deviant behavior. Since it is the most signifi-
<:ant Piece of sociological literature in this area and more impor-
‘tantly, because his descriptive analysis of the social structure
Of’debt collection augments and provides a foil for the present
investigation of debtors' self-images, further elaboration on

Rock's work is appropriate.

In Rock's analysis the debt collection process, conceptual-
ized as a social control system, imposes deviance upon the person
who defaults in payment of his debts while at the same time the
experience of the debtor is crucial in determining the methods used
by social control agents in the debt enforcement process.

At each phase of the collection career, new influences
appear and are transformed in systematic fashion. For the
defaulter passing through the phases, these influences become
the materials for the construction of an emerging self.

Social control is not taken to be a mere context of devia-
tion; instead it defines, shapes and infuses rule-breaking.
Control plays an unusually critical role in the regulation of
debtors' identities because there is relatively little autono-
mous development within default itself. The debtor's deviance
resides in his refusal or inability to perform desired acts.
Process is imposed on default by the career which is organized
for the debtor. A defaulter who does not repay a debt is made
to undergo a series of forced changes of experience. The
moral career of the debtor is so arranged that his passivity
is interpreted as "becoming." Without the effort of debt
collecting institutions there would be no process.3

Centering the analysis on the intensive interaction taking place
between debtors and the various groups concerned with coercing them
irrto paying debts brought to light certain features (status-
karcing, bench-marks, a developmental character) which suggested
trust the collection process could be regarded as a "career." Each
Of’ its successive phases involves a change of status and a differ-
errt pattern of action directed against the debtor. The social
(Kantrol agents--creditors, debt collectors, attorneys, prison
0ff'icers--have increasingly harsh sanctions that may be applied to
dEbtors in their related roles. Each change of name symbolizes a

dlfferent stage in the collection process and a forced status

change for the debtor who is serially a credit applicant, a debtor,
a defaulter, a defendant, and a prisoner.4
Treating debt default conceptually as deviance, the analy-
sis 'is develOped within the labeling perspective by which deviance
is Iregarded as a label successfully applied by one group to another,
not as an intrinsic quality of behavior. However Rock makes it
clear that debt default differs from rule-breaking behavior which
is so unambiguously outside the boundaries of acceptable activity
that it is commonly regarded as deviant. The deviance of indebted-
ness is not inmediately apparent for it lies in the debtors' failure
to act; it thus falls to social control agents who must c0pe with it
to decide who qualifies for inclusion under a deviant label and
justifies the application of social control. Rock's insightful
View of the nature of personal indebtedness and how it becomes a
form of deviance via the workings of the collection process directed
the focus of his work to the labeling process itself and understand-
ing this definitional process became a major research goal. To
this end, attention centered on the social control of indebtedness;
atastracting from observations of the actual practices of agencies
comPrising the debt enforcement system, Rock identified the main
general characteristics of the collection process to show how it
9083 about making determinations which define and shape the devia-
t1On. This focal concern with the function of the collection system
as tiefiner as well as enforcer of debt deviance led to the uncover-
1"9 of the unique quality of debt enforcement--the crucial role

Played by debtors' responses to these labeling and sanctioning

activities. It was the exploration of collectors' attempts to
manage so unusual a form of deviance which revealed enforcers'
concern for the consequences of their actions and led Rock to the
rea‘lization that social control of debt was always conducted in such
a way as to allow debtors to retain a favorable conception of them-
sel ves. This point became a major theme in the work; i.e., the
remarkable feature of debt collection, represented as a deliberately
constructed moral career, is its propensity to protect debtors'
sel f-conceptions even as it relies on debtors' subjective responses
to make collection efforts effective. Rock then pushed this idea
Somewhat further and turned "protection of favorable self image”
in‘to "prevention of secondary deviance," attempting to show this
to be the guiding concern in debt enforcement. Briefly summarized,
“1 S argument on this point is developed somewhat as follows.
Default is an unusual kind of "private deviance" in that it
tends not to excite moral outrage or attract attention as a social
p"‘Ob‘lem; thus its enforcement is entrusted largely to its victims
who ‘are engaged in a complex process of sorting, filtering, and
pressuring to achieve the goal of debt enforcement which, unlike
that of most social control, is to move the passive deviant to act--
that is, to pay. Since control of indebtedness is not directed
toWard inducing a one-way trip out of wayward behavior as is that
or most other sanctioned acts, treatment of debtors must be care-
fu] 1y orchestrated so as to compel them to make restitution without
jeopardizing their participation in future credit transactions.

Debt collectors seek to provide defaulters only that route which

 

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leads to a return to the normal, moral community and he must be
allowed egress from his deviant career at whatever stage he tem-
porarily occupies if he makes good his default. Since defaulters
are regarded in this way, as potentially redeemable, default is
viewed as "conditional deviance" and it is controlled by the pru-
dent application of social pressures, increasing as necessary but
applied only to those who, remaining recalcitrant, have not found
exi 1.: from the system.

The crux of his argument lies in the concept of secondary

deviation. Rock contends that control agents must be wary of
aIDID‘I‘ying coercion or exercising symbolic control which relies on
$81 f—degradation since such measures risk arousing debtors' hos-
‘31 1 i'ty and resentment and may precipitate an altered (i.e., negative)
Se‘ f—image. In view of its counter-productive results for col-
1 e(:tzors, they cannot take the chance of escalating defaulters'
deviance by such transformation of identity; applying sanctions that
Severely antagonize or embitter the debtor might lead to his accept-
ance of himself as deviant and result in his resigning all effort
12:) Flay. Thus the collection process is itself directed through its
(:‘3'11Irol agents' apperception of an ever-present possibility of the
debtor's development of a negative self-image. The deviance of
debtors is managed to protect debtors from public degradation and
ostracism which would amplify their deviance for this is likely to
Iead to a change from "conditional" to secondary deviance.

Debt collection is a consciously conceived series of

actions and is thus a far more articulate system than that
which obtains with any other mode of enforcement. [It]

TO

must cope with a vast number of cases and procedures must be
routinized and simplified. This leads to a relative inflexi-
bility and to an automatic increasing of the pressure put
upon the debtor, coupled with an assumption of his increasing
guilt and deviance. If the debtor does not intervene he will
routinely become identified as a deviant.

If a debtor persists in his default he will pass through
an enforcement career, but payment in any of its stages will
lead to immediate cessation of coercion. Consequently the
debtor's evil is rarely dramatized since such labeling might
result in the assumption of a deviant role style Which for-
bade any payment or negotiation.b

 

In short, Rock devotes much of his work to arguing that the regula-
‘titart of default centers on the preservation of the deviance in
Primary form. The social control of indebtedness is uniquely char-
BCterized by the elaborate steps taken at every stage which are
deS‘igned to prevent the emergence of secondary deviance.
This expansion on Rock's study is intended to familiarize

‘3I1E3 t~eader with the argument he presents because certain elements
(’1: Pris assumptive framework are incorporated into this thesis, in
pa Y‘ticular his conceptualization of the social structural aspects
of “indebtedness. As should be evident from the foregoing summary,
Rt3<2k's main interest lay in the process and structure of the debt
(:01 Tection system, but a concern for the emergent self-concept of
defaulters is woven through his analysis; conversely, the immediate
concern of the present investigation is the debtor's self-concept
tDl‘Tt it gives important consideration to the larger structural set-
ting within which self-images develop and change. The complementary
"attire of these two studies is emphasized: since both address
S”I“Tilar and related issues within the conceptual framework of

55"""301ic interactionist-labeling theory, there is promise of

 

 

 

 

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fruitful theoretical develOpment in attempting to integrate the
logical arguments and substantive findings of Rock with those set
forth here. Various points of articulation presented by these
works will be considered further in the ensuing discussion which
dea‘ls with the conceptualization of the problem at hand. Suffice
to say here that the principal linking concept is that of secondary

deviation which, as a form of self-redefinition, provides a meaning-

fu‘l point of departure for the theoretical integration that is

PY‘O posed.

Theoretical Framework and Conceptualization
of the Problem

This exploration of the changes in self-concept experienced
by default debtors within a debt-relevant structural context is
grounded in the general perspective of symbolic interactionism.
This approach sees a human society as people engaged in living;
SUCh living is a process of ongoing activity in which participants
are developing lines of action in the multitudinous situations
they encounter. They are caught up in a vast process of interaction
1 n Which they have to fit their developing actions to one another.
This process of interaction consists in making indications to
Others of what to do and in interpreting the indications as made by
Others. They live in worlds of objects and are guided in their
Orientation and action by the meaning of these objects. Their
obj ects, including objects of themselves, are formed, sustained,

Weakened, and transformed in their interaction with one another.6

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12

Casting the investigation in an interactionist framework
implies a commitment to the basic assumptions of that perspective
in the selection and utilization of conceptual elements. The dis-
tinctive approach of Meadian social psychology also places an obli-

gation upon the researcher to employ methodological strategies

compatible with these assumptions and capable of dealing with its
unique theoretical components. Denzin, arguing that different lines
01’ action are implied by the perspective from which a study is
developed, identifies the central assumptions of symbolic inter-
aCtionism upon which he bases the methodological and theoretical
Conditions which must be met in designing interactionist research.
These are sumarized in the following paragraph.

The interactionist view of human behavior assumes that
hlnll'I'Ians can act toward themselves as they would toward any other
Obj ect, i.e., that human behavior is self-directed and hence
observable at two distinct levels--the symbolic and the interac-
ti Onal (or behavioral). The keys to understanding human conduct
are the range and variety of symbols and symbolic meanings which
are shared, conmunicated, and manipulated by interacting selves in
soCial situations. Society contributes two essential elements
that reflect directly on concrete interactions; the symbols or
var“ious languages provided and corrmunicated through the socializa-
tion process and the concrete behavioral settings in which behavior
O(:Clnr-s. The interactionist perspective further assumes that a

complete and meaningful analysis of human conduct will capture the

S~Y'T1bolic meanings that emerge over time in interaction. Symbols

l3

(linked with interaction in the Meadian theoretical view) are mani-
flold and complex in their variety of forms, all providing clues to
the symbolic meanings that emerge out of interaction. Given this

set of assumptions, the following methodological mandates are bind-
ing upon symbolic interactionist research:

1) Research strategies must be capable of capturing pro-
cessual elements in human interaction and methods must yield
information on both stability and change as aspects of group
life. The emergent relationship between self conceptions,
(designated meanings, and reflective interaction must be
‘recorded, analyzed, and explained. The essential fact that
liuman conduct reflects processes of the past, present and
‘future, all playing simultaneously upon man's behavior, must
lae within the grasp of the methodology.

2) Research methods must consider the "situated aspects"
(of human conduct. Since variations in behavior can arise from
such situational aspects as objects that constitute the set-
ting, definitions given the respective interacting selves, the
tneanings and definitions for action held before interaction
occurs, and the temporal sequencing of action, these aspects
Inust be taken into account as dimensions of the analysis.
Social selves constitute situated objects that reflect a
person's ongoing definitions of self in the settings at hand,
thus both the meanings attached to these situations and the
types of selves that emerge within them must be examined.

3) Because symbols, meanings and definitions are forged
into self definitions and attitudes, the methods must be
capable of capturing the reflective nature of selfhood. To
indicate how shifting definitions of self are reflected in
ongoing patterns of behavior, the investigator must view human
conduct from the perspective of those being studied. The
shifting meanings and statuses assigned to the self must be
indicated in the examination, consistent with the Meadian focus
on the self as both process and object..

4) Research directed to examination of meanings and con-
ception of self must link the symbols and meanings of research
subjects to the social circles and relationships that furnish
him those conceptions or the analysis remains largely psycho-
logical. This suggests a two-step process of investigation
into meanings at both individual and interactional levels.
This principle, while not unique to interactionism, derives
from the sociological view that the impact of broader social
structure on individuals and groups must be included in the
investigation. (Interactionism in the Meadian tradition does

14

take a distinctive view of the nature of person-structure
relationships, however, and this is made explicit in the state-
ment of position which is presented below.)

5) Symbols and interaction must be brought together before
an investigation is complete. Interactionist methodology must
permit both covert symbolic behavior and overt patterns of
interaction to be examined and related in the research. Tech-
niques which focus on symbols alone (as do attitude scales)
are not adequate for explaining human conduct, nor are strate-
gies which uncover the meanings held by a set of persons and

carried into an interaction; until the link between symbols
and interaction has been considered no examination is complete.
Because meaning shifts during interaction, studies must be
concerned with interpretational phases and with the unfolding
meaning objects take on during interactional sequences.
These theoretical-methodological principles clearly indi-
cate that the unique assumptions and fundamental concerns of symbolic

interactionism place certain demands upon the research design in
terms of the kinds of concepts and methods it employs. Blumer,
”7‘1. ting about the problem of the concept in sociological research
5"‘C1 'the gap which exists between concepts and the facts of experi-
‘3"<:£e, calls for the use of "sensitizing concepts" to achieve a more
e“"I‘Fective interrelation between thinking and empirical observation
Ei'1(1 'for research and theoretical designs that respect the empirical
exiStence of the interpretive processes by which human group life
opeY‘ates.8 In a similar vein, Denzin urges researchers to regard

methods not as atheoretical tools but as means of acting on the

environment and making that environment meaningful, mindful that

theory and methods must always go hand in hand. These ideas

reDresent the general body of thought which has been instrumental
1" (:onceptualizing the problem and developing the research strategy

by Which it is carried out. The particular methods employed will

be detailed in the section which follows; the point of emphasis

15

here is that the methodological stance of this study has been
organized to fit the symbolic interactionist theoretical perspective
which serves as its general frame of reference. Because of its dis-
tirictive view of man and society and its concern for symbols and
common meanings which link the person and social structure, this
perspective calls for concepts which reflect these features as they
are observed in the world. The observational techniques and modes
of" analysis have been selected for their capacity to capture the
qual ities of social and symbolic interaction conveyed by these
concepts and for their utility in dealing with the properties
attributed to human behavior by this perspective, particularly the
Erocessual character of social interaction and the emergent nature
01: the meanings of objects, including the definitions assigned to
the self. Finally, and on a different level, this study has also
been designedly formulated to be an exemplification of the tenet
Setting the symbolic interactionist approach apart from all other
fohns of social psychology; while its main thrust is to reveal at
What points and in what ways changes in self-concept occur in the
COUY‘se of interaction episodes and how social institutions and
structure bear upon those changes, research effort is also directed
to developing a descriptive presentation of the institutional-
st"‘uctural setting for the "situated aspects" of human experience,
and instances which show that this structural context itself con-
sists of ongoing human interaction are brought to the reader's

attention. The research design thus becomes a direct reflection of

   

 

 

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16

the following statement of position expressed by a principal
exponent of the symbolic interactionist orientation:

On the one hand, social psychology is focused upon explain-
ing the behavior of individuals as it is controlled, influ-
enced, or limited by the social environment. On the other hand,
it is concerned with the manner in which the behavior of indi-
viduals reacts upon, shapes and alters social structure.‘0

This study does not follow the procedures commonly used in

most social inquiry. It does not start with key concepts drawn
from a theoretical model and pinned down to the empirical references
at the outset; although the problem is conceived in terms of a
general theoretical orientation which represents the way in which
the empirical world is assumed to be structured and to Operate, it
does not set specific hypotheses with regard to the research prob-
lem and therefore it does not involve a conventional mode of
inquiry by which precise data are obtained and used for testing
hypotheses. Instead of stemming from the scheme of the research
incluiry, the problem this study poses, the questions it asks, the
193.213 it follows, the relationships that are envisioned, the kinds
of interpretations it strives to make, and the data it uses are
a] 1 develOped out of its basic aim--to achieve understanding through
far"? liarity with the empirical area under examination. That the
p”oblem is not formally "conceptualized" in terms of explicitly
def‘i ned concepts, that the concepts are not operationalized as
research variables prior to data collection, is not to say that
the study is not an empirical one or that it is unsystematic.

Rather, it represents a form of scientific inquiry which relies on

the procedures which Blumer speaks of as comprising a "naturalistic

l7

investigation"--an investigation that is directed to a given empiri-
cal world in its natural ongoing character, not a preset image of
it--and the procedures it requires are depiction and analysis or in
[Numer's terms, exploration and inspection.

The aim of exploration as a mode of inquiry is to develop

as comprehensive and accurate a picture of the area of study as

conditions allow. By this means an unfamiliar sphere of social life

becomes known, thus permitting the inquiry to be develOped along

unforeseen lines as the study progresses. Because the exploration

procedure has this flexibility, research can begin with a broad
focus and then, as a better grasp of the problem is gained, the
inquiry is gradually sharpened; this makes it possible to develop
ideas of what are the significant lines of relation and to evolve

conceptual tools in the light of what is going on in the area of

SOCial life under study. The descriptive information and the general

Stock of knowledge produced by exploration is of great value but
this procedure is not of itself adequate in providing the careful

(if a"ect examination of the empirical world that is required in

Scientific research. It must also involve an analytical procedure

and the companion mode of inquiry is what Blumer calls "inspec-
tion." Its aim is to move beyond descriptive accounts toward
SI"lalrpening conceptual meanings and developing generic relationships
5"‘<1 theoretical propositions. The procedure consists of intensive
examination of the empirical instances covered by the conceptual
e1ements in which the problem is cast. This must be a meticulous

Shfitting scrutiny directed at pinning down the empirical content of

l8

these analytical elements and discerning the nature of the rela-

tionships between them and it must be done in the context of the

empirical area to which they pertain.n

The particular empirical area which this study explores is

the world of the default debtor. It first depicts that world as

it is generally known, describing the network of social-economic

agencies and institutions that comprise the structural setting

of activities relating to consumer credit and indebtedness. The

individual is then placed against this background; his progression
from credit-user to defaulter is outlined to emphasize the develOp-

mental character of indebtedness as it occurs within that structural

context. The purpose of this phase of the exploration is to present

a picture of this area of social life, to set the scene sothat the
social interaction which constitutes the empirical world of default-

ers may be better understood. The research focus is then narrowed;

attention turns to the particular community which serves as the
r‘e'soearch setting and interaction between individuals and debt-
r‘eTevant structures and their agents becomes the point of concern.
:I" this phase the aim of the exploration is to acquire an insider's

View by which a more complete and accurate portrayal of the social

context can be constructed. The study takes the debtor's role into

Con sideration at this stage but interaction episodes and social

pr‘ocesses are described more from the perspective of persons who

occupy roles in these structures. It is here that articulation of

the present inquiry with that of Rock becomes apparent; as the

practices and procedures employed in the lending and collecting of

l9

money are described, the outlines of a career line begin to emerge.
The main alternatives available to the individual along the route
from credit user to defaulter are identified and the picture is
filled out by indicating the kinds of structural pressures which
influence his perceptions of alternative courses of action and his
choices among them.12 Thus we see the unfolding of the indebted-
ness career within the context of debt-relevant institutions
capable of altering the individual's "debt condition" in many ways,
moving him into indebtedness and advancing his "deviance" as well
as offering him avenues of reprieve and influencing his evaluation
of the various ways of exiting the career.

When a fairly complete picture of debt-related social
structure has been drawn, and filled in with an account of its
workings vis-a-vis indebted individuals which reflects the per-
spective of the social agents who carry them out, the default
debtor is made the focal point. This phase of exploration is the

"‘Ost important because it deals directly with the main research
i3Saline; its aim is to understand the experience of being in serious
Financial difficulty and to describe that experience from the point
or view of persons who are going through it. This description
beg ins from the assumption that individuals in the default debtor
r01 e are not intrinsically different from other members of society
and that they have not come to occupy that role by committing a
d“ Screte act which is commonly regarded as unacceptable social
behavior.13 Here again untilizing ideas developed by Rock, the

TNVestigation traces the career line of the defaulter to show that

 

 

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20

he enters this process gradually in the course of everyday life,
starting with his participation in activities which touch the lives
of virtually every person in America who plays the role of con-

sumer. To gain an intimate knowledge of what it is to be a default

debtor now becomes the goal of the exploration procedure; it

attempts to probe the personal feelings and emotions of debtors and

to disclose the meanings this experience has for him. An under-

standing of the subjective aspects of indebtedness, coupled with the

knowledge and insights developed in earlier phases of the study,

makes a complete picture. From it can be extracted a theoretically

relevant grasp of what occupancy of the social role of default
debtor brings to the person in terms of his attitude toward himself
arud which aspects of the debt career experience are most strongly
'liriked with changes in his self-definition.
The analytical elements employed in conceptualizing the

research problem reflect the assumptions of the theoretical frame-
‘V<>Yfl< which grounds it; they provide a general sense of reference and
9L”dance in approaching empirical instances, but the concepts are
"c’lt precisely defined in terms of specific attributes or dimensions
as the inquiry Opens. The concepts employed are cast in differing
(1E3S3i~ees of generality and address different aspects of social

Organization-acme have to do with structure, some with process,
and others with the self. The key items in the analysis include

Categorical terms fundamental to symbolic interactionism: structure,

p"‘Ocess, interaction, self, role; more specific conceptual elements

"e‘f‘er to career lines and their critical turning points, to

21

alternative courses of action, definition of the situation, and to

role taking, identification of self and other, and of course to

transformations of identity. The latter, a generic analytical item,

covers the concept of self-redefinition which is at the heart of

this study. It directs the investigation to empirical instances of

individual debtors experiencing self-definitional changes as they

go through indebtedness careers. This phase of analysis calls for

a set of concepts generally related under the rubric of labeling
theory because it is cast in terms of social deviance; debt-related
structure is regarded as a social control system which imposes a
deviant career upon defaulters as they are propelled through the

integrated stages of collection efforts constituting the process of

debt enforcement.M Thus the relevant conceptual components include

the notion of deviance, societal reaction to deviant behavior,
SOCial control, secondary deviation, stigmatization, and the social
Tabeling process itself. Analysis of identity changes in the light
(’1: 'labeling theory also involves neutralization techniques, a notion

Conceived by Matza and Sykes which is germane to the labeling view

but not specific to it.15 The use of this idea as an analytical

too] suggests the introduction of several other related concepts
which are not by any means unique to symbolic interactionism but
are given a distinctive meaning in that frame of reference. These
Cohcepts, all used in a way that links them to one another and to
the idea of situated definitions in general as well as to neutrali-

zati on techniques, include rationalization, "accounts" as explana-

11“ Ons for behavior, and motives.16

 

 

 

22

The importance given to the labeling perspective in formu-
lating and conceptualizing the research problem makes it necessary
to explain briefly how labeling theory is regarded in this work.
Meadian symbolic interactionism is generally recognized as the
social psychology which infuses this perspective as seen, for
example, in Schur's remarks:

Without doubt the most significant theoretical strand
present in labeling theory derives from the symbolic inter-
actionist tradition of the Chicago school, for the approach is
heavily grounded in the interactionist social psychology
developed by such writers as Cooley, Mead, and Thomas. The
emphasis on process and sequential analysis, the focus on self
conceptions, and even the concepts relating to ”career," all
are drawn more or less directly from the work of this school.
Indeed, the central notion that the societal reaction "pro-
duces" deviance is, in a way, simply a reworking of Thomas'
well known dictum that "if men define situations as real they
are real in their consequences."17

The following phrase, written by Howard S. Becker, has been most
vviciely used to express the gist of labeling theory: "The deviant

1'3 one to whom that label has successfully been applied; deviant

18

behavior is behavior that persons so label." While it doubtlessly

captures the essence of the labeling view, the statement was not
inltended to be taken out of its symbolic interactionist context and
"15‘<1E2 the basis of a divergent theory. This opinion finds agreement
in the observations of Lindesmith and Strauss:

The emergence in sociological literature of what has come

to be known as the "labeling theory of deviance" provides a
curious example of the casual almost accidental way in which
schools of thought are sometimes created. Howard S. Becker

is regarded as the originator of the theory; in his writing,
following some leads of Edwin Lemert, Everett Hughes, and

other symbolic interactionists, he happened to use the terms
"label" or "labeling" in a sentence or two in the course of
describing the processes that lead to people being publicly
viewed and defining themselves as deviants. Other sociologists

 

 

 

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7....-.

23

picked up these words and they became popular "labels” for what
often is taken to be a new theoretical system to explain deviant

behavior.

The labeling idea is actually an aspect of the naming
process. . . . It also involves the idea of the self, the idea
that individuals are both actors and observers of their own
actions, and that they develop attitudes toward themselves
from their interactions with others. These ideas have a long
history in the literature of symbolic interaction. . . .

What Becker was doing was not proposing a new theory but trac-
ing out in specific detail the implications of his general
orientation, which was essentially like ours and which is
embodied in the general theoretical tradition of symbolic
interactionist thought. To speak of the labeling "approach,"
"theory," or "school" does a disservice to the idea involved
by separating it from the broader context of ideas in which

it is embedded and to the image of man from which it stems.19

In utilizing the labeling approach as a guiding orientation
in this work it has been regarded as an extension or elaboration on
aspects of symbolic interactionist thought which address social
deviance. However, this study as a whole may be considered an

effort toward integrating labeling theory and symbolic interaction-

ism since its line of attack, that of a naturalistic investigation,
”is directed toward improvement of the concepts and refinement of
the analytical scheme it employs. A major purpose in undertaking
this research is to attempt to identify and clarify some of the
amb1'guities and conceptual weaknesses in labeling theory where it
tou(Ines on issues having to do with changes in self-concept. As
one means of achieving that aim, a "grey area" of deviance was
5‘91 ected for study with the expectation that by presenting a
stV‘Onger challenge to labeling explanations it may expose anomalies
Eir‘ci logical inconsistencies seldom brought to light in studies of

20

straightforward" deviant behavior. It also draws upon other

p1.eces of research that deal with different forms of deviance but

 

 

 

 

   

'...
u. ‘

v0.

 

 

 

 

 

24

appear to be addressing the same set of issues. Incorporating the
findings and explanations of compatible studies into this ongoing
investigation makes possible a more comprehensive analysis. At
the same time this integrating effort encourages the reconvergence

of labeling theory and the Meadian perspective from which it

evol ved .

Methods of Inquiry
The general methodological stance of this study which was
discussed earlier derived from the theoretical assumptions of
Meadian social psychology. It should be noted that there are dif-
fement methodological approaches to symbolic interactionism repre-
sented by the several divergent views which share this common
iritellectual heritage. The two major variants are those of the
Ciiicago school and the Iowa school. The latter perspective as
developed by the late Manford Kuhn embodies modifications on sym-
boTic interactionism so extensive that it has generally relinquished
the conventional name of that orientation in favor of "self theory."
IFI‘GE Chicago school, whose foremost exponent is Herbert Blumer, con-
t‘i hues in the classical Meadian tradition and it is this repre-
Se"tation of symbolic interactionist thought which has been adOpted
i n the present research. The most fundamental point of divergence
in these views is that of methodology. Kuhn's view calls for the
oDerational definition of concepts and for a standardized and
()teciective process of measuring variables toward development of a

5Set: of predictive testable generalizations; in general this view

25

seeks to "empiricize" the ideas found in Mead's writings. Blumer

argues for a distinctive methodology in the study of human conduct
characterized by a phenomenological as against an operational
approach, the use of sensitizing concepts rather than the utiliza-
tion of variables, and the importance of observation techniques
whiczh are appropriate to symbolic interactionist assumptions and

whi¢:h permit the investigator to know the inner world of those being

stuctied by bringing him into close association with them. The

flexible nature of the exploratory form of inquiry he advocates is
not [)inned down to any particular set of techniques; its guiding
maXim is to use any ethically allowable procedure likely to provide
a C1 earer picture of what is going on in a given area of social
ITfe.2]

Participant observation is the principal method employed in

this study but it is regarded as a multiple-method research strategy

as Denzin has defined it:

Participant observation shall be defined as a field strategy
that simultaneously combines document analysis, respondent
and informant interviewing, direct participation and observa-
tion, and introspection.

In participant observation, interviews are typically open
ended; census data, when analyzed, are usually not a central
portion of the research process but are used only to describe
the characteristics of the population under study; and obser-
vation of ongoing events is typically less concerned with
recording the frequency and distribution of events than it is
with linking interaction patterns with the symbols and mean-

ings believed to underlie that behavior. The method, when
appropriately employed, entails a continuous movement between
emerging conceptualizations of reality and empirical obser-
vations.

Participant observation is one of the few methods cur-

rently available to the sociologist that is well-suiggd to
an analysis of complex form of symbolic interaction.

 

 

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26

The several procedures used to gather data reflect the
need for different kinds of data in each of the phases in this study.
The description of the structural context of indebtedness is docu-
mented by census-type data, educational materials develOped by the
credit industry, and facts drawn from business and law library hold-
ings; it is enriched by information obtained through informal inter-
views with lawyers and others in para-legal occupations, bank
employees and persons in various credit-granting positions, coun-
selors at credit counseling agencies, "credit specialists" inter-

ested in teaching and research in this area, and local retailers

and businessmen. Knowledge of credit-granting and collection pro-

cedures was obtained from materials prepared by national trade
associations for their member credit bureaus and for credit bureau
C] Tents, and by attendance at a credit seminar conducted by the
International Consumer Credit Association. Valuable observational
da ta were obtained during a period of full-time paid employment as
a bill collector in a collection agency. This experience made it
possible to acquire a broad stock of knowledge for understanding
the practices of agencies which comprise the social-economic
"Credit world" and to inform the interpretation of documentary and
i hterview data presented as evidence in other parts of the analysis;
i ‘13 main value was in providing the data needed to describe the
"Orkings of collection agencies and the interaction which takes
:31 ace between debtors and collectors (a matter which persons other
than debtors and collectors are likely to know very little about).

I" addition to observations as a participant in this interaction,

27

further data obtained for use in describing collection agency pro-
cedures include specimens of standard "dunning notices" sent to

debtors, written communications sent to debtors exhorting them to

pay, and responses written by debtors in return. Data on the art

and practice of bill collection were also obtained in the form of

publications and materials prepared by a national association of

credit bureaus for use by their members' collection departments

in training and guiding collectors in their work. Various other

documentary materials such as house organs, newsletters to credit
bureau clients, sample legal forms, and articles and advertisements
in local newspapers were collected; these, together with field
"etes on personal experiences as part of a collecting organization,
he") to clarify and enrich this phase of the exploration. A set of
unstructured interviews with debtors, mostly persons in serious
financial difficulty, provides the main source of data for that
phase of study which focuses on the debtors' side of the situation
EI'TS1 attempts to describe what this experience means to them. Con-
tact with these respondents was made through the help of debt
counseling agencies who forwarded the request for an interview to
their debtor clients. Those who agreed to be questioned supplied

a telephone number and in this way data in the form of interview
protocols were obtained from 44 (anonymous) default debtors. Partly
as a device to overcome their reluctance to volunteer for inter-
V1'ewing, the appeal was submitted to them in the context of a mail

SUFvey questionnaire and made to appear rather more secondary. The

QUestionnaire, which contained two attitude scales that had been

28

designed for a study of indebtedness among bankrupted debtors,

generated additional useful data: attitude measures were obtained

on 150 debtors (many of whom were later interviewed) which is com-
parable to the available response distributions on the bankrupt

cases. In addition, 38 respondents contributed voluntary commen-

taries on their personal views and experiences as debtors when

returning the questionnaires. The discussion which follows will

include more detailed descriptions of the nature of these various

sets of data, where and how they were gathered, and in what manner

they are treated in the analysis.

Masearch Setting
The research for this study was conducted in a middle-sized

City in the southern part of Michigan which shall be given the

fictitious name of Meridian.23 One of Michigan's five largest,

the city is a center of marketing and commerce for the three-county
lr‘ln‘al agricultural area surrounding it. The population of this
area (Meridian SMSA) is approximately 400,000 with about a 70"; con-
centration in the metropolitan area, but more than a third of the
Outlying area labor force finds employment in the city. Because of

the diversity of its economic base, Meridian offers exceptional

Stability and promise for its working population. It has some 200

manufacturing establishments, including several large industries
whose activities are directly related to the production of motor
Vehicles, and these manufacturers provide jobs for thousands of

‘ndustrial and white-collar workers. Another large segment of the

29

area labor force is supported by the payrolls of federal and state

government offices and institutions and a large state—supported

university located near by. The range of employment opportunities

available to the peOple who live around Meridian can be seen by

the occupational distribution of its workers. According to 1972

census data, 95% of its labor force is employed. Of these 150,000
workers, 9.1% have industrial occupations; about one-fourth in

manufacturing, 19% in wholesale and retail trade, 16% in educational
services, 5.8% in construction work, and 5.8% have business, repair,

or personal service jobs. Approximately half of the employed

workers have white-collar occupations, evenly split between sales

and clerical work and positions of a professional, technical, or

managerial nature. Government jobs account for 26.5% of the workers,

and the remaining 13% are counted as craftsmen, foremen, or kindred

workers .
0n the whole, Meridian's residents comprise a relatively

ac"Iantaged community. According to 1970 census figures, this area

r‘a'lked 27th in the nation in median family income size; over half
01: its families earned between $10,000 and $25,000, and only 13%
had incomes less than $5,000; the median family income as of 1970
was $11,211. In terms of per capita income, Meridian ranks high
am0ng American cities of similar size; comparing its per capita
i nCome with the dozen or so SMSA's which have about the same popu-
1 ation, only Bridgeport and New Haven, Connecticut, and West Palm

Beach, Florida, had higher per capita incomes; among the others

("including Harrisburg, Pennsylvania; Davenport, Iowa; Canton, Ohio;

30

Charlotte, North Carolina; Wichita, Kansas; and Tucson, Arizona)
incomes ranged as much as one-third less than the $3,343 figure for

Greater Meridian residents.
A general picture of the character of the Meridian area

population can be drawn from aggregate data reported by the U.S.

Census Bureau: 1970 figures pertaining to Meridian as a Standard

Metropolitan Statistical Area show that its inhabitants number
378,423 and its racial mix is 94.7% white, 3.6% black, and 2.2% of

Spanish heritage. About 31% of the peOple live outside the urban

area; the population is fairly young, with a median age of 23.4

.Years, and it is evenly divided by sex. Close to two-thirds of the

People over 25 have a 4-year high school education or more. There
is some indication that Meridian residents share the good life
obtainable by American consumers: of the 111,000 housing units in
the area, 70% are owner occupied and the median value of such units
Was approximately $18,000 in 1970; 94% of the homes had telephone
services, 22% were air conditioned, 33% had home food freezers, and
92% of the occupants owned at least one automobile.

Not all of the Meridian area families are so fortunate, of
Conrse. On the negative side may be cited the 6% whose income
faT ‘ls below the poverty level, and many of these 5,500 families rely
on public assistance programs to meet their essential needs.
A"other 22,000 are recipients of the ADC Program (Aid to Dependent
Chi Tdren), including some of the 5,000 families with a female as

head of the household, and these families with growing children

depend largely upon assistance checks averaging only $240 a month.

31

In addition there were, in 1970, some 5,300 persons in the urban
area labor force (closer to 8,000 if the outlying areas are
included) who were unable to find work, a problem which became more
widespread in the recession period of 1974-1975 when the unemploy-
ment rate rose above this level of 5%. On the whole, however, the
situation is not like that in Detroit; Meridian does not have per-
sistent hard-core poverty concentrated in an urban ghetto. Although
their difference in size must be considered, it is meaningful to
compare the incidence of poverty in selected areas of the two cities:
in 1970 there were 31,600 families in the Detroit inner-city and
340 in the comparable area of Meridian; at the same time Meridian
had almost 500 rural farm poverty-level families as against 300
Outside Detroit.

Since all of these figures pertain to economic aspects as
they existed in 1970, the most recent year for which extensive
census data are available, they do not reflect the income and cost
of living levels prevailing in 1974-75 when this research was under

Way- The problems of inflation were felt in Meridian as they were
across the nation and the economic slump of that period brought
ha“‘dship to a great many families. On the other hand, certain fac-
tors in Meridian's economic picture served to lessen the impact of
these conditions; for example, the union ties of many workers and
union wage contracts with employers helped to keep earnings some-
what in line with living costs and many unemployed industrial workers
We"‘e able to cope with the extended layoffs in 1975 with the help of

SUpplemental unemployment funds added to their government jobless

32

benefits. The general effect of the recession was not in fact as

severe or long-lasting in Meridian with its diversified economy as

in other Michigan cities which rely more fully upon the auto industry

payrolls. This general picture of Meridian in the recession period

is seen in a story carried by the local newspaper in February, 1975:
a staff writer, reporting interviews with several bankers, the
credit bureau manager, a debt-pooling agency counselor, and the
Sears store credit manager, wrote that "inflation and recession can
be a dangerous combination for the field of credit but the situation

in [Meridian] is 'not all that bad,’ according to the peOple who

Should know." The reporter's informants had noted some slowing in

debt repayment and savings, but they had seen no significant

Thorease in delinquencies and one bank loan officer claimed he was
r‘eeeiving the same number of Master Charge Card applications as he
had the previous year.

From this general information one might construct an image

of the Meridian residents who are of concern in this study. It

WCal.01d see him as stable and relatively prosperous. As a worker or

"(Jlasewife native to the area with long-standing friendships and

81Zirong family ties, he has roots in the community. His job offers

IDV‘Omise in the lines of seniority or civil service and while it
may be uninspiring work at a desk or assembly line, it pays well
a"1d permits him to own a car and recreational equipment for enjoy-
ment in his leisure time and to finance a home of his own with com-
fortable furnishings and labor-saving conveniences. When strikes

0'“ lay-offs bring hard times he has some savings to fall back on

33

and he can cut his discretionary spending to keep abreast of neces-
sities. His work friendships and family ties are supportive when
things are bad and they can usually be counted on for some form of

material help, if only as co-signer to get a finance company loan

to meet instalment payments on his car or appliances. The image one

has of the great majority of Meridian people is not that of the
rootless transient worker or the hopelessly impoverished; it suggests
instead almost the stereotype image of the "apple pie American"--a
hard-working, stable family man or woman aspiring to obtain the

things he wants in order to enrich his everyday life and to make him

feel he is getting ahead in the world.24

P\a'l‘icipant Observation:

figs and Setting
However legitimate his reasons for making inquiry into the

"attire and practices of agencies involved in credit granting and
debt collection, it is very difficult for persons other than those
haVing a Specific business connection with them to learn about
their Operations directly from these agencies. The educational
divisions of the several trade associations in the credit industry-
p"‘Ovide a wealth of material designed to inform the public about the
Sea"vices it supplies to consumers and businesses and the importance
0": its role in the economy, and this information is made readily
a"ailable to inquiring outsiders but, since it is oriented toward
bu‘i 1ding good public relations, this material describes credit
agency activities in very general and euphemistic terms and stresses

their positive aspects. Prompt offering of such prepared literature,

34

which is designed to be helpful to people with only a casual or
superficial interest, serves also to divert the persistent inquirer
who is seeking a deeper understanding of the actual workings of the
credit system. A social researcher is met with courtesy and pro-
vided with ostensibly informative pamphlets, but he is made to see
that his request for a glimpse inside the credit world may not be
granted because that would violate the trust and secrecy which must
be maintained. The entire area of credit and credit management is
characterized by the great importance of confidentiality.25 Infil-

tration of the credit world in the role of collector was not a

deliberately planned research strategy; when an employment oppor-

tunity presented itself I accepted the job and was thereby made

privy to it. By working as a collector I experienced first hand

what goes on in a collection agency and this enabled me to gain some

understanding of how the larger credit world operates.

The site of my observational activity was the collection
department which is operated by the Greater Meridian Credit Bureau.26
hflfile in many respects it is typical of most credit bureaus, the
(:ollection department of the Meridian Credit Bureau (MCB) provided
Tan extremely rich setting for my research in that it contains as
broad a mix of elements as may be found in any one such agency.
I"Iportant among these aspects are the following: this bureau is
]<Jcated in a state whose laws permit wage garnishments and in an
uY‘ban area where employment on an hourly wage basis (as in manu-

facturing industries and white-collar jobs) lends itself to the use

()f’ this device for collection. Although its services cover much of

35

the Greater Meridian area, it is not a huge impersonally organized

operation; I was able to observe the procedures of most of the

other employees. The entire staff numbers less than 20, including 6

collectors; I was well accepted among them and learned a good deal

through informal conversations during our breaks. The department

manager, a man who has spent his entire working career in this

organization, knows the community and the credit business inti-

mately. Because of this long experience his style of office manage-

ment involves very active participation in every part of the

department's collecting activities. The MCB maintains a contractural

arrangement with a local law firm which provides legal advice and
staff services, and with this professional assistance the depart-

ment manager routinely carries out collection procedures involving

legal action and court appearances. For the collector (employee)

it thus becomes very simple, literally a rubber-stamp procedure, to
have court action brought against debtors, to start suit, obtain a

.judgment, and accomplish enforcement of the judgment by ordering

garnishments or execution upon debtors' property. These strategies

are made easy for MCB collectors to use because they have ready
access to the files of the credit-reporting department which
oDerates as a separate but closely integrated function within the
bureau's structure. The information. contained in these records is
he] pful in locating and identifying debtors; it includes his resi-
dence address, employer and social security number, pieces of infor-

mation without which a summons cannot be served or a garnishment

or‘Cler initiated. This is a most useful facility for MCB collectors

36

and one which is not available to independent debt collecting firms.
The Meridian Bureau is affiliated with a national trade association
which extends and augments both its reporting and collecting services;
through its membership in a national association collection accounts
may be transferred to another collection department in a distant

city should the debtor move away from the area. This feature is a
great help to collectors as a means of "skip" tracing--tracking down

debtors who may have tried to avoid paying by changing their place

of residence.

Although some credit bureaus are merchant owned, the MCB
is a private enterprise and its procedures are designed to earn a
profit through the services it provides its members and subscribers.
Many credit bureau members are also clients of its collection
department but it accepts collection accounts from other local
businesses as well. Its client roster includes a wide variety of
enterprises--smaller retailers, newspaper advertising departments,
employment agencies, telephone and utility companies, and many
(athers, but the largest volume of overdue accounts are submitted by
IiOSpitals, doctors, and medical laboratory services. Obtaining
EDayment from debtors on behalf of these clients results in a return
“to the department of commissions usually ranging from 30-50% of
the amount collected, not an exhorbitant amount in view of the fact
that such accounts have already been "worked" by the creditor and
'Vr“itten off in his ledger. For the collection agency the task is
clear: to be a profitable enterprise operating expenses must be

Cohtrolled and collection income must be maximized and, as in any

37

labor-intensive operation, this means that time is a resource to

be used effectively and employees must get the job done efficiently
and unceremoniously. In short, the collection department aims at
getting debtors to pay and in so doing is careful about working
within the law but little concerned with amenities or with the per-
sonal circumstances of debtors; this sentiment is conveyed to col-
lectors both by direct exhortation from the manager and through its
wage structure. Collectors are paid commissions on the amount col-
lected over a basic quota and this incentive proves effective since
the hourly wage is minimal and personal recognition of their per-
formance is evaluated solely in terms of daily collection receipts.
The period during which I worked as a collector, from late August
l974 to March l975, coincided with the economic slump which was
especially felt in the Michigan area and made the job of coercing
debt repayment somewhat more difficult; in Meridian this was com-
pounded by the declining viability and eventual bankruptcy of one
of its traditionally important industrial employes. (It should be
noted that the bills in question had been incurred several months
earlier; the recession contributed more to difficulty in payment of
old debts than to creating the indebtedness and it is believed that
the adverse economic conditions of this period do not materially
Taffect the sociological significance of the issues under investi—
gation in this study.)

My experience as a collector, although limited by time

Constraint, was as full participant and was virtually free of

"I:ontamination" as a result of attribution to me the identities

38

as a sociologist or researcher. These identities were unknown to
my co-workers and ostensibly unrecognized by my employer. Although
both the credit department manager and the bureau's general manager
knew of my academic interests from an earlier contact with them

(at which my request for an Opportunity to learn about the bureau's
functions as an observer had been denied), no mention of this
interest was ever made and no Special treatment was accorded to me
in any way in the course of my daily work.27 This benefited my
research since it enabled me to observe and participate in office
activity first hand without mitigation, as may have been afforded
otherwise. At the same time, occupying a total role as employee
was something of a disadvantage in that I was unable to take
detailed on-the-spot field notes of my observations and inter-
actions with individual debtors. While this is explained in part
by the lack of time due to work pressures and the need to avoid
revealing my alter-role to the other employees, it is also attribut-
able to the demanding and repetitious nature of the work itself.
iSince detailed field note-taking was precluded, I found an adequate
substitute in preparing summary notes of my experiences and impres-

sions at frequent intervals and these provide a generally accurate

(:haracterization of the daily routine activities of which I was a

Dart. 28

G\atherinflq of Questionnaire
346 Interview Data

Access to personal information about individuals who are in

'f"inancial difficulty is no less difficult to achieve than is access

39

to information about credit institutions, particularly when it is
important to obtain that information directly from peOple who are
presently in debt and when the knowledge sought involves their pri-
vate feelings and emotions. It is very difficult to broach the
matter of personal financial circumstances with any_person so it is
not surprising that, given the stigma of debt default and often a
practical need to conceal information that might be of use to
creditors, data of the kind needed in this study were not easily
available.29 I was able to make contact with a sizable group of
persons who were subjects of the debt enforcement process in the
Meridian area through the c00peration of two debt counseling agen-
cies. These agencies are described more fully in the chapters
which follow; in brief, the services they offer troubled debtors
include preparation of budgets, negotiating with creditors for
extending payment terms, and making prorated payments on their
various debts out of earnings turned over to them by their debtor
clients. The agencies with which I worked are the two prominent
(Dnes in Meridian. One is a privately owned firm which I will refer
'to as Debt Management Service, Inc. (not its real name) and the
()ther is one of 14 branches of the CCC (Credit Counseling Centers),
ii state-wide nonprofit service financially supported by local busi-
ness and industry. Each of these agencies agreed to address and
mail out to their clients the instrument and accompanying return
e"veTOpe (self-addressed to me) which I had prepared. The CCC sent
c:0pies to about 300 persons (their usual case load exclusive of

‘31 ients on welfare) and Debt Management, which has a case load of

40

about 150, sent them to all present and past clients for whom they

had current addresses. The number returned equals about one-third

of the normal combined case load of the two agencies (N = l52 in

all).
My intent in preparing a form for mailing in this way was to

locate debtors who would voluntarily (if anonymously) communicate

with me. Contact could only be made indirectly through a third

party who was privileged to know both their financial situation and
identity, since it is impossible to locate troubled debtors among
the general population and a researcher is not legally or ethically

free to address as such a person whom he knows to be in debt unless

it has become a matter of public record. It was originally

expected that I would submit my request to the counseling agency
clients in the form of a letter asking their permission to be
interviewed but, while the agencies were willing to help put me in
touch with their clients, the counselors who work with these peOple

'Feflt that debtors would be reluctant to volunteer as interviewees in

response to a direct request. They felt certain that some specific

Questions put to them in the manner of a survey form would be less

T‘ikely to arouse their suspicion (as one counselor put it, "They're

QU'I‘shyl"). At their suggestion I altered my direct request for an
iNterview and instead prepared a questionnaire which included two

att'itude scales and made this appeal appear secondary. Evidently

their advice was good since I received a much higher rate of return

than they or I had expected; in addition I obtained a set of 152
31

resDonses to the attitude scales which provided further useful data

41

A reduced reproduction of the questionnaire may be found in
the appendix. Its design elicited three different forms of data:
the main body of the questionnaire consists of two scales, one
measuring Attitude Of Responsibility for Debt Payment and the other
designed to tap Blame Projection (blame for the indebtedness situa-
tion). Following the scale items, at the bottom of the question-
naire, the respondents were invited to write voluntary remarks and
at this point I posed a request for them to supply a means Of
contacting them personally. To help overcome their reluctance and
possible suspicion, the request was so worded as to emphasize my

Openness and assurance Of their anonymity. It appeared as follows:

WOULD YOU BE INTERESTED IN SHARING WITH ME ANY EXPERIENCES
YOU MAY HAVE HAD IN CONNECTION WITH YOUR OWN USE OF CREDIT?
It would be very helpful to consider your views in this study
and anything that you let me know would be regarded as com-
pletely confidential--in fact you don't even need to give
your name. If you would be willing to assist me in this way,
please indicate how we could et in touch with one another
(either by phone or in person) Write your phone number or
address below if you'd like to have me contact you. If you

prefer you can call me--my number is. . . .

IIn response to my invitation to write comments or suggestions, com-
mentaries ranging from a few lines to several pages were contributed
IZY'BB persons; these remarks related primarily to their experiences
as debtors or gave explanations for their predicament. In response
to my request for a means of making contact with respondents,

55 persons supplied a telephone number and only lO gave addresses
instead (these mostly out of town), making it apparent that tele-
phone interviews were preferred. Of the 55 numbers, 8 were not

“Same (3 false numbers, 5 disconnected); of the remaining 47, I

42

was able to reach all but 3 of the respondents. Thus I conducted
44 unstructured interviews by telephone with anonymous persons on
the subject Of their personal experience as debtors.

The respondents from whom these data are drawn represent at
best an illustrative sample of debt counseling agency clients; as
volunteers they introduce bias, undoubtedly representing the more
Open and articulate, the less suspicious and fearful among debtors.
They do, however, portray persons who are presently in serious
financial trouble or have recently begun to recover from this kind
of problem; that is, they are definitely distinguished from the
general American public for whom the use of credit resulting in
"current indebtedness" (e.g., 30-day charges not past due) is a
common event in their daily life as consumers. On the basis of
studies dealing with debt counseling agencies, there are certain
characteristics known about agency clients in general: according
to facts taken from state-wide reports of the CCC and from the find-
ings of a national survey of counseling agencies, the typical client
is a 35-year-Old wage earner with 4.4 children; he earns an average
annual income Of $6,000 and owes about $4,500 to 8.9 different
Creditors.32 Since my respondents were anonymous persons to me,
«and no attempt was made to Obtain this kind of information from
them in the interviews, the extent to which my respondents as a
group reflect these characteristics is unknown. One fact pertain-
7'19 to these persons which is of important theoretical relevance
7'1 this study can be deduced from their identification as debt

‘3<>unseling agency clients; by virtue of their status as clients they

43

are or have recently been deeply in debt or they would not have
sought help from these agencies. They may be regarded as "paying"
debtors because agencies do not accept as clients any person who is
financially incapable of making payment even with the aid of coun-
selors; they have not deliberately tried to flee their debt Obliga-
tion nor have they as yet opted to forego further effort to make
payment Of their present debt load by filing for bankruptcy. This
means that they have, at least in principle, certain other alter-
natives Open to them as solutions to their debt problem but for the
time being they have elected to try to resolve their difficulties by
voluntarily engaging the services of debt counselors.

The attitude scales which were included in the questionnaire
sent to these people were designed for use in a study Of the causes
Of bankruptcy conducted by H. Lee Mathews (1969). Along with other
explanatory variables, including income and debt structure and
various personal and social characteristics of the bankrupted indi-
viduals under study, he considered "absence of a feeling of
responsibility about debt payment" as a causal factor in explaining
why they had become financially insolvent and voluntarily had them-

selves declared bankrupt. Mathews' thinking that the degree to
which debtors hold a "responsible attitude" about paying debts
might be a cause Of bankruptcy is straight-forward: "It was believed
that if a responsible attitude were lacking on the part of an indi-
VidUa'l he would feel less moral Obligation to repay his creditorsfls3
The Second scale measures Blame Projection among persons in default.

1" designing this instrument Mathews reasoned as follows:

44

Sociologists have Observed that individuals who are
involved in behavior that deviates from the norms of society
sometimes tend to blame other persons and things for their
Offenses. Those individuals, it has been shown, are more dif-
ficult to rehabilitate because they fail to accept the burden
Of responsibility for their own situations. The tendency to
relate the blame to other persons or conditions beyond their
control may exist among bankrupts. If they do not accept the
blame, then the present Bankruptcy Act, which is partially
aimed at rehabilitating debtors by giving them a fresh start,
may not be meeting its objectives.3

Although the apprOpriateness of Mathews' scales to this research is
apparent, even in terms Of the sociologically oriented rationale upon
which they are built, his study as a whole is atheoretical applied
research answering to the concerns of the comnercial sector; it

was not included among the literature reviewed because it utilizes
sociological thinking only to augment his design of these attitude
scales. Mathews administered both scales to a sample of ll8 persons
who had recently been granted discharge in bankruptcy and to a con-
trol group of similar size for comparative analysis. The distribu-
tions Of response scores together with comparisons between the
groups in terms Of descriptive statistics are presented in his
research report. He also provides a detailed explanation of the
system he used for scoring those responses, thus enabling me to
score the responses Of my group of subjects by the same system.
Score distributions and mean scores Obtained on 149 debtors who are
counseling agency clients may be evaluated in comparison with the
distributions and means Obtained on bankrupt and control group
respondents are reported by Mathews. It is important to note that
these scale data are not regarded as having primary value in this

analysis; although they are relevant and relatively precise,

45

comparisons between loosely conceived "groups" with many undeter-
mined characteristics may not be regarded as strong evidential matter
but they contribute to a better understanding of cognitive aspects
of the indebtedness experience nonetheless. The major importance

Of this material lies in the fact that it permits comparisons to be
made between persons who are involved in an ongoing indebtedness
career and persons who have exited that career through bankruptcy

in terms of the same kind of data. Since many of the reSpondents

to the questionnaire were later interviewed, the deeper feelings
beneath the attitudes they expressed could be probed. This strategy
serves to link overt and covert symbolic behavior, enriching both
the attitudinal data and the study as a whole.

The questionnaire mailings had gone out from the agencies
between mid-December and late January, l974-75; in late April, when
the flow of returns diminished, I began calling these men and women
volunteers. The 44 interviews were conducted and recorded over a
period of three weeks. The sessions ranged from 20 to 75 minutes,
but most Of them were just under an hour in length. Although they
were unstructured interviews and no formal questioning format was
used, I attempted to standardize my approach to the interviewees and
direct the course of conversation so that generally the same areas
would be included with each person. .During the course of the inter-
viewing period new insights tended to emerge which suggested new
lines Of inquiry; thus the content of the interviews changed some-
what as these lines of thought were developed. In the main, however,

I sought to touch upon the following issues in every interview:

46

(l) the experience of being in debt; what made the respondent aware
that debt was becoming a problemeuuihow or when he thought his dif-
ficulties began. Much of this information emerged from my opening
remarks to the respondent: I reminded him of the content of the
questionnaire as a way of introducing the delicate subject of
discussion--his debt default. The Blame Projection Scale, which
employed an indirect approach, had been put to the respondent with
the request that he "put himself in Joe's shoes" as he decided for
or against agreement with each Of the scale items; he was asked to
imagine Joe as a friend who has a wife and family and earns average
hourly wages at a local plant. "Things aren't going so well for
them lately and, for many reasons, they haven't been able to keep
paid up on their bills." Having been called upon to consider how
"Joe" feels about his trouble and who he blames for it, these
debtors strongly identified themselves and their situation with
this hypothetical case. Recalling Joe's financial problem served
not only to Open the subject and establish rapport, but added depth
and enrichment to the scale responses already in hand. (2) The
notion of "accounts" was embodied in the remarks volunteered by
most debtors who, cued by their own thoughts about "Joe," were
eager to express explanations for their own troubled situation (their
reasons, justifications, excuses, motives). (3) This line of talk
easily turned to debtors' recollections of events which they identi-
fied and described as crises (turning points in their career as
debtors); here many persons went on to relate difficulties with

collectors and creditors, family and personal problems and the like,

47

revealing their feelings of conflict, anger, defeat, guilt, resent-
ment, awareness Of stigmatization, and their efforts to cope with
them. (4) These expressions led readily to debtors relating their
experiences in exploring and selecting among alternative solutions
to their problems; they gave accounts Of how they came to consider
debt counseling and described the changes in their feelings about
receiving help in managing their personal money affairs. Most
debtors explained what alternative solutions to their problem had
been considered and why certain ones had been rejected; many volun-
teered their views about bankruptcy and the possibility of turning
to the court for relief and how they might feel in that event.

The interview protocols Obtained in this phase of data
collection together with the written communications received from
debtors constitute the basis for the exploration which attempts to
depict the debtor's world as he sees it. That phase of analysis
is undertaken only after the structural context within which it is
constructed and given meaning has been explored; this is the initial

focus of investigation, the endeavor Of the chapter which follows.

48
FOOTNOTES

1In general, the questions and issues addressed in this body
Of literature have been largely defined by the concerns of the busi-
ness community and, while adequate within that sphere of interest,
they do not answer to the issues raised from a sociological per-
spective.

2David Caplovitz, l974, p. 9.
3

4Rock's research was conducted when imprisonment for debt
was still possible in England under the Debtors Act of l869. New
legislation which became effective in l97l substituted attachment
of earnings for the Older sanction of imprisonment.

Although the existence Of debtors prisons suggests that
punishment for default is more severe in England than in America,
this is not the case. Means for coercing payment are much harsher
in this country. Most likely this is related to the more restric-
tive credit-granting policies prevailing there. While credit is
easily obtained by employed persons in all walks of life in the
United States, the extension of this privilege tends to be limited
to the fairly well-tO-do in England; small infractions by credit
users, such as the delayed clearing of balances, are typically
treated by creditors with an air of deference only a celebrity
would be accorded in this country. Differences in the systems Of
bankruptcy in the two countries also reflect these contrasting credit
policies; in England there is no standard recourse to bankruptcy
while here it is relatively easy and inexpensive to Obtain a dis-
charge voluntarily and it is thus a very common event.

Despite these differences in content and the inexact parallel
between the specific institutions in the two countries, I utilize
the general idea which Rock has developed, viz., that the various
agencies which handle consumer credit, debt, and default are serially
linked and constitute an integrated system Of social control.

5Paul Rock, 1968, p. l79 (emphasis added). The idea of
transformation of identity as a consequence of labeling by the debt
enforcement process is a major theme through Rock's major work,
Making People Pay. This is clear in his Opening remarks: "This
book . . . dbcuments the manner in which social deviancy is managed
so that few defaulters undergo significant transformations of iden-
tity. In Lemert's terminology, it is a study of 'primary devia-
tion.'" Paul Rock, l973, Preface, p. ix.

6Herbert Blumer coined the term "symbolic interactionism"
in 1937 and it has since come into general use in referring to the
approach to the study of human conduct and group life which developed

Paul Rock, l973, p. 2 (italics in original).

49

out of the thinking of George Herbert Mead and the work of other
scholars who contributed to its intellectual foundation--notably
John Dewey, Charles Cooley, William James, Charles Peirce,

W. I. Thomas, Robert Park, Louis Wirth, Everett Hughes, and Herbert
Blumer. Blumer has explicated the "root images" which characterize
this relatively distinctive approach and this paragraph represents
his summary of these basic ideas. Herbert Blumer, l969, pp. 6-2l.

7Norman Denzin, 1969, p. 926; 1970a, pp. 452-54; l970b,
pp. 6-9. The foregoing summary represents a composite of Denzin's
statements on methodological considerations implied in interactionist
theory as set forth in these writings.

8Herbert Blumer, l969, pp. 138 and l77.

9Norman Denzin, 1970b, p. 6.

10These words appear as a formal Statement of Position in the
Opening paragraph of the social psychology text (3rd edition) which
is commonly recognized as the major statement on human behavior
according to symbolic interactionist theory. Alfred Lindesmith and
Anselm Strauss, l968, p. 3.

nBlumer describes the aims Of exploration and inspection
and explains what is involved in carrying out these procedures in
his papers on the perspective and methodology Of symbolic interac-
tionism. (See especially Blumer, l969, pp. 40-47.) The present
discussion has drawn on this statement by Blumer of the methodologi-
cal position Of symbolic interactionism.

12Important among alternatives available to persons deeply
in debt are resort to straight bankruptcy which means legal for-
giving of most debts and proceedings under Chapter XIII of the
Bankruptcy Act which provides court protection and extended time for
making repayment. Another alternative Open to debtors in some
states is to engage the services of a debt pooling or credit coun-
seling agency. More information about these devices provided by
the Bankruptcy Act and about counseling agencies will be found in
Chapters 3 and 4.

13This assumption is based on the labeling orientation and
reflects Becker's widely quoted remark: "Social groups create
deviance by making the rules whose infraction constitutes deviance,
and by applying those rules to particular peOple and labeling them
as outsiders. Deviance is not a quality of the act the person
commits but rather a consequence of the application by others of
rules and sanctions to an 'offender.' The deviant is one to whom
that label has successfully been applied; deviant behavior is
behavior that peOple so label." Howard S. Becker, l963, p. 9.

Becker suggests that one consequence of viewing deviance
in this way is that "we become much more interested in the process

50

by which deviants are defined by the rest of society. We do not
take for granted, as has sometimes naively been done, that a given
action is deviant because it is commonly regarded so. Instead we
look to the process by which the common definition arises." HowardSS.
Becker, 1964, pp. 2-3.

Rock also applied labeling theory in developing his concep-
tualization Of the collection process as the source from which a
deviant definition arises.

14This phase of the study builds on elements of the assump-
tive framework developed by Rock which we have outlined earlier.
The rationale for integration of his work is explained at the end
Of the section in which the literature is reviewed.

'SGresham Sykes and David Matza, 1957, p. 669.

16See Stanford Lyman and Marvin Scott, 1968, on "accounts"
and C. Wright Mills, 1940, on motivation from the perspective of a
sociologist. A discussion of the relationship between these con-
cepts, the manner in which they are viewed by symbolic interaction-
ists, and their importance in an investigation such as this one is
presented in the prefatory remarks to Part 8, Motives and Motivation,
by Stone and Farberman; these and several other relevant papers
are also reprinted in that chapter. My views are in accord with
those expressed in this literature and it has guided my general
conceptualization and treatment of materials in this area. Gregory
Stone and Harvey Farberman (eds.), 1970, pp. 467-509.

17Edwin Schur, 1969, p. 318. It should be noted that label-
ing "theory" is not generally regarded as a theory in any rigorous
sense. Gibbs views it as a “conception" and Schur, using the terms
theory, conception, orientation, perspective, and approach inter-
changeably, has said, "Because Of its lack of clear definitions and
its failure to answer certain major questions, and because it does
not consist Of or clearly indicate a set of interrelated proposi-
tions and testable hypotheses, it may be charged that the reactions
analysis does not, strictly speaking, constitute a theory." Ibid.,
p. 316.

18Howard 5. Becker, 1963, p. 9. This phrase has frequently
been taken as a definitional statement, leading Often to misdirec-
tion if not misunderstanding of the aim of the labeling orientation
as an explanatory device. (See Peter Manning, 1975, p. 2.)

While the origin of labeling theory is commonly attributed
to Becker, its development came out of writings which predate
Becker's as well. Earlier contributions to labeling views were
offered by Tannenbaum (1938), whose discussion of the "dramatiza-
tion of evil" recognized the impact of stigmatization in generating
deviant careers, and Lemert (1951), who laid much of the basis for
the current labeling approach in his effort to work out a more
systematic theory of "sociopathic behavior" in which he related

-J‘m"

4.5.4..—

 

~‘ ‘ .w\
p, .

Sl

deviance to processes of social differentiation and social defini-
tion. The works of Kitsuse (1962) and Erikson (1962, 1966) are
frequently cited as representative of this school of thought and
many others have added to building a large body of literature in the
area of deviance as a product of societal reaction.

These writings also include a number Of critiques; some,
from a Marxist standpoint, reject many of the fundamental premises
Of labeling theory (see Taylor, Walton and Young, 1973, and Quinney,
1974). Others, such as Warren and Johnson (1972), take issue with
the labeling formulation from a phenomenological perspective.
Manning has identified some Of the numerous critical commentaries
which have "a fairly sympathetic cast.“ These, to name a few,
include the writings of Davis (1972), Gibbs (1972), Lemert (1972,
1974), and Schur (1969, 1971). In general these represent the
constructive criticism of the thinkers "who accept the centrality
Of the concepts of symbolically ordered interactional process, the
import of agents and agencies of social control, and the focus upon
fine adjustments of the self to alterations in transactions."

Peter Manning, 1975, p. 3.

19Alfred Lindesmith, Anselm Strauss and Norman Denzin, 1975,
pp. 533-34.

20The literature contains many calls for clarification in
labeling theory, among them the criticism voiced by Rogers and
Buffalo that it overemphasizes the stigma of labels and thus implies
bias in viewing the labelee as overly passive. Joseph Rogers and
M. 0. Buffalo, 1974.

Schervish, speaking to the same point, links this weakness
in labeling theory to the failure of its devotees to take into
consideration the broader structure Of ideas from which it derives.
"With such an emphasis upon the creative yet social character of
man, it is strikingly ironic that labeling theorists Often neglect
their Meadian heritage by speaking of man in a rhetoric more evoca-
tive Of the determinism Mead sought to deny." Paul Schervish, l973,

. 47.

p Liazos supports the charge we are making here, that much of
deviance research, caught up in the intricacies and excitement of a
particular micro world, is unconcerned with advancement Of theoreti-
cal issues in sociology. As Liazos puts it, emphasis in studies of
deviant behavior has been mostly on "nuts, sluts, and perverts."
Alexander Liazos, 1972, pp. 103-106. These and other criticisms

are answered directly by this study.

21My remarks concerning the fundamental differences in the
two major approaches to symbolic interactionism are based upon the
comparative analysis of the so-called Chicago and Iowa "schools"
to be found in Bernard Meltzer and John Petras, 1970, pp. 5-14.

52

22Norman Denzin, 1970b, p. 186. The more conventional view
Of participant Observation defines it mainly in terms of the Observ-
ing and recording activities of the investigator in a social situa-
tion (cf. Morris Schwartz and Charlotte Schwartz, 1955, p. 344).

A special section devoted to this mode Of study in Urban
Life and Culture 3, October, 1974, contains papers which describe
and illustrate the use of qualitative field procedures written by
sociologists who have used them. My strategy is modeled after this
view. See John Lofland, 1974.

23Because of the confidentiality surrounding all aspects of
personal credit and indebtedness, the identities of the research set-
ting community and all persons and agencies in that community
referred to in this study have been disguised and given fictitious
names.

 

24The research for Chinoy's study of auto workers was
conducted in a very similar Michigan community. In his investi-
gation Of the ways in which workers' aspirations are reconciled with
the American "tradition of opportunity," he noted that workers
whose jobs Offered limited Opportunity for advancement tended to
transform the meaning of ambition and achievement into the acquisi-
tion of material possessions; a worker would see himself as "getting
ahead" because he was working towards a "nice little modern house."
Chinoy commented, "Advancement has come to mean the progressive
accumulation Of things as well as the increasing capacity to consume.
The achievement which most clearly betokens advancement by purchase
is home ownership. . . . If one manages to buy a new car, if each
year sees a major addition to the household--a washing machine, a
refrigerator, a new living-room suite, now probably a television
set--then one is also getting ahead." Ely Chinoy, 1955, p. 126.

25Credit bureaus obtain credit application details and
ledger information from credit granters in the community who are
bureau members. They then make this information available upon
members' request in the form of a credit report on a given credit
applicant. Since this report is a record of the trade experience of
credit granters doing business with a particular consumer, the
importance of confidential handling is obvious. Divulging such
information to anyone other than those who have a legitimate business
need for it in connection with a business transaction involving the
consumer would at very least risk jeopardizing the relationships
between the bureau and its credit granter clients and between its
clients and their customers.

26In addition to the specific credit reports it prepares
Upon request by individual credit granters, credit bureaus make a
wide range of other services available to their clients and sub-
scribers. Supplementary services include bulletins and reports
IJrepared for general use and sold on a subscription basis. These
(:ontain items of information taken from public records, lists of

53

moves in and out of the city Obtained from moving companies and
utilities and other general information of interest to credit
granters. Bureaus also provide collection services; most supply
series of collection letters for use by members' credit departments
and many bureaus Offer clients the services of "professional"
collectors.

Many credit bureaus belong to nation-wide trade associations.
One such organization, the Associated Credit Bureaus of America
(known as the ACB of A),'H;described in the credit management text
by Cole and Hancock: "It offers its member bureaus such benefits
as inter-bureau reporting rosters, standardized reporting forms,
trade publications, national advertising, educational services,
credit bureau research,specialinformation reporting services. . . .
It also serves its members through the affiliation of collection
service Offices which can be called upon for personal collection
effort to collect unpaid consumer accounts. Likewise this Collec-
tion Service Division may help in locating any 'skip' debtor of a
local credit granter." Robert Cole and Robert Hancock, 1960,
p. 224.

27In previous years it evidently was possible to obtain
credit information on individuals from bureau files as did H. Lee
Mathews, for example, who had access to reports at the Columbus,
Ohio, Credit Bureau for his doctoral research in the 19605. During
a telephone conversation with Mathews, I inquired about this and he
indicated that recently enacted legislation had made confidentiality
of these materials much more tight and such access could not have
been gained at the present time. ~

I had visited the Meridian Credit Bureau as a researcher
prior to my employment there and was given only some very general
information from the bureau's general manager; the head of the
collection department refused my request to learn of credit matters
by Observing in the department and declined to give me any informa-
tion about its procedures. Shortly thereafter I responded to a
blind help wanted ad which led to a job interview with this same
man. Although we discussed the confidential nature of the work and
my student status and research interest, the latter concerned him
much less than the fact that I fitted the job requirements per-
fectly in terms Of age, sex, previous work experience, and willing-
ness to accept the low wage. Once I began work my role as sociolo-
gist was never mentioned again. (See H..Lee Mathews, 1969, p. 12,
for his account of the Columbus Bureau's COOperation in his research
efforts.)

281 later learned that Cicourel had had a similar experience
in researching his study of the juvenile justice system. Partici-
Dating Openly (he served for a time as a probation Officer), he
"came to feel 'close' to the 'inside' details Of day-tO-day activi-
ties, jealousies, power conflicts, dissatisfactions with the job,
‘the promotion system, and the like." Without such direct contact

54

he doubted "if the detailed Operations of day-tO-day police and
probation work could be observed in anything approaching what could
be termed their 'normal' work environment. The fact Of being
present in an Office day in, day out, busy with paper work but

privy to every conceivable kind of case, interaction, (etc.,)
provides the researcher with an invaluable perspective on the every-
day character Of law enforcement. But it also exposes him to the
danger of taking it all for granted in the same way as officers

do. . . . I found it impossible to continue to take notes after each
day Of participation or Observation because the repetition was
boring, and it was not possible to record all of the innumerable
details of actions scenes. The scene moved too quickly. . . ."

As an alternative, he presents verbatim written reports, notes,
transcripts of conversations, and similar materials which are
"intended as routine and characteristic instances of all day-tO-day
communication, decision making activity Of the organization, or
'what goes on all Of the time.'" Aaron Cicourel, 1968, pp. 107-72.

29Deviance research invariably finds access to theoretically
relevant cases difficult and random sampling impossible but informa-
tion can be Obtained which has value for work in this area inasmuch
as theoretical develOpment is often its principal aim (cf. Howard
Becker, 1970).

30Names of debtors are made public when a judgment against
them is Obtained in court or when they file bankruptcy petitions and
these public records have been used to identify subjects for research
in every study of indebtedness known to me. Caplovitz, for example,
Obtained subject lists from court docket books and Mathews and many
others worked with persons who had been publicly declared bankrupt.
(Rock interviewed some debtors who were inmates in prison where they
had been sent for nonpayment of debts.) The main disadvantages of
this practice for the present work are these: first, the debtors
under study are necessarily in a late stage of indebtedness and thus
have only a limited number Of alternatives still open to them. In
addition, the time required for debts to become sufficiently delin-
quent to merit these measures, and for legal processes to be com-
pleted, results in a considerable time lag between subjects' "active
indebtedness" experience and the point at which contact with them
can be made. It is important to this study that the debtors be
interviewed while still in an ongoing debt career and the experiences
they describe relate to a situation which is current.

31A brief cover note accompanied the questionnaire which
lent credibility tO my overture by offering to verify that it was a
research inquiry sent out on my behalf by the agency and with its
approval. The note was worded as follows:

Mr. (MANAGER'S NAME) of (NAME OF AGENCY)requests your help
on behalf of Jacquelyn Bass, an MSU graduate student who is
preparing a study Of people's attitudes about consumer credit

 

55

and indebtedness for her doctorate in sociology. Would you
please complete the enclosed questionnaire and mail it back
to her--it takes only a few minutes, requires no postage, and
your responses are completely anonymous. This research pro-
ject has no connection with any counseling or collecting
agency. Any information you give will be used only in scien-
tific analysis Of social-psychological aspects of consumers'
use of credit. We urge you to volunteer your help in this
study. If you wish to verify our approval, I invite you to
call this Office. Your participation in this project is very
important to its success and would be greatly appreciated.

During the course of the interviews with those who responded, several
persons indicated that they had discussed the matter with their coun-
selor before returning my questionnaire.

32Perry 8. Hall, 1968, p. 120. These facts are based on
both national survey findings reported by Hall and more recent
state-wide figures of the CCC in Michigan. Hall's comprehensive
study Of 32 counseling agencies and their clients in several commu-
nities across the nation reports that a sizable number of applicants
requesting help were not accepted, the principal reason being that
indebtedness was too great in relation to income so no realistic
arrangement was possible for prorating and extending debts which
would leave the family sufficient income for its needs. Some agen-
cies (e.g., the CCC) do take welfare recipients as clients for whom
it budgets and disperses money because it acts as a nonprofit commu-
nity service organization. All such cases were screened out by
the CCC when they sent my questionnaire on to their clients.

The general public tends to confuse counseling agencies with
finance companies that make consolidation loans; debt counselors
help prepare budgets, arrange payment plans with creditors for their
clients, and Often pay bills for them out of their own paychecks,
but they do not make loans. The operation of debt counseling
agencies is discussed more fully in later chapters. With respect
to those I refer to specifically in this work, the true identity of
Credit Counseling Centers, Inc. (CCC) has been used because it has
many branches in the state and CCC is a common name for similar
agencies in other states so anonymity Of its clients is protected
but I am able to use the informational material they make available
to the public as a community service agency. All other organizations
have been given fictitious names in view of the confidential nature
of the resource material they provide for this study.

33

34Ibid. Mathews collected several types of data on some
900 cases who had shortly before been declared bankrupt by a bank-
ruptcy court in Ohio. He interviewed 152 persons sampled from
this universe and administered the scales to 118 bankrupts;

H. Lee Mathews, 1969, p. 11.

56

34 refused, requiring him to put away all forms during their talk
because theirlawyers "had cautioned them not to put anything on
paper." For comparative analysis in determining whether bankrupts
as a class have attitudes that differ significantly from the socio-
economic group of which they are a part, a control group of the
same class was selected randomly and given the two attitude tests.
Comparative averages and distributions of scale scores on 118
bankrupts and 152 control cases are reported in his monograph.
Mathews employed the Thurstone technique of scale construction in
building the attitude measures; he selected the items included in
the final version from several hundred statements about debt thought
to represent the broadest possible range of attitudes. The proce-
dures he used are explained in his work (pp. 9-14 and 77-79).

CHAPTER 2
THE SOCIAL STRUCTURAL CONTEXT OF INDEBTEDNESS

The World of the Consumer Debtor: An Overview

The social structural environment of the individual who uses
consumer credit and thereby incurs financial Obligation is schematized
in Figure l. The schema abstracts from the total complexity of social
structure those institutions which have to do with personal indebted-
ness and depicts them as constitutive of the structural context sur-
rounding the individual consumer debtor. It represents an overview
of the social-economic organizations that are relevant for consumers
who make use of credit and those most likely to impact credit users
who do not adhere to their financial commitments. We are to perform
a two-sided examination of the consumer debtor's world, looking at
it from two perspectives, and the diagram is intended as a general
guide to the structural features that will be of central concern
through both stages of inquiry. The initial phase of study depicts
the social milieu of consumer indebtedness as it exists; it attempts
to describe objectively the principal organizations and processes
(of consumer credit supply and debt enforcement, mainly for the pur-
pose of providing information which is necessary to inform the
analytic presentation that follows. The second portion of the work
1Focuses on organizational processes of consumer credit and debt

1From the viewpoint of the debtor. Here we examine the experience

57

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59

of indebtedness and the unfolding of an enforcement career as it
appears to those individuals who have not carried out their agree-
ments with creditors.

The investigation Opens with a survey of the main types of
consumer credit and its primary sources. Organizations that supply
credit to consumers are of concern in the present chapter; they are
represented in Figure l by a rectangle labeled CREDIT GRANTERS AND
LENDERS. Of particular interest are finance companies and commer-

cial banks, financial institutions that make direct cash loans for

 

consumption purposes and provide financing for retail sales of
consumer goods. This chapter also deals with organizations from
which goods and services are obtained by consumers on credit terms
of various forms and these are identified in the diagram as sellers
of goods and services

These lending organizationscwdinarilyhave a credit department
which takes care of servicing the consumer credit transactions it
enters into. It has the responsibility of investigating the appli-
cant's credit record, establishing the terms of credit transactions,
and arranging for repayment according to those terms. The credit
department is the first point of contact between consumers and
credit granters; it is also the first organization encountered by
credit users who are past due in repayment Of indebtedness, since
the initial definition of debt delinquency is made by the creditor
through its routine procedures for debt servicing. Indebtedness
that is not cleared in the course of their routine handling is

subjected to a series of increasingly coercive patterns of action

6O

directed against the debtor in an effort to induce repayment. In
Chapter 3 we show how the indebtedness of individual consumers is
shaped and defined by these organizational processes and how the
experience of a consumer debtor is given a career-like structure
by the practices of creditors and debt collecting organizations.
The coercive efforts of various organizations involved in the debt
collection process constitute a series of connected stages; at each
stage there is a sorting and redefining of debtors-~some are
filtered out or emerge from the indebtedness career by paying up
and some are moved along for more severe enforcement measures.
Debtors who do not respond to the relatively mild collection
efforts of the credit department are singled out for more vigorous
treatments. When the creditor's collection routine has run its
course the debt is typically turned over to a lawyer or to a col-
lection agency which can invoke more drastic actions or take legal
steps as means of effecting repayment. At this stage the indebted-
ness is identified as a ”collection account” and responsibility
for its collection by the credit department is relinquished. The
better known and most effective of collection agencies are those

which operate as the collection department of local credit bureaus.

 

These organizations are identified in Figure 1 because they are
important among the structural features under consideration in this
study. Most credit bureaus Offer both a reporting service and a
collecting service for the credit granters in the community.
Through affiliation with national credit bureau associations,

reporting and collecting networks have been formed which enable

61

them to perform these services on a nation-wide scale. In Chapter 3
we will look at some of the procedures used by these organizations
in handling their clients' collection accounts. Among the most
severe measures at their disposal are legal actions which may be
taken against debtors through the state courts on the creditor's

behalf. The first legal step is suit action which is taken to

 

establish the fact that the debt does exist and that it is of such
an amount; the judgment against the debtor which is obtained by

suit provides the creditor with a legal remedy to aid in collecting
the proven debt. When the collection department has obtained a
judgment on behalf of its client a court order may be obtained which
enables the collector to receive the debtor's earnings directly

from his employer through the right of garnishment.

 

As we examine the activities of credit-granting institutions
and the organizational procedures that constitute the debt enforcement
process (in the initial phase of this study) we will see that the
organizations depicted as involved frequently function as both
positive and negative forces for the individual; they may provide
needed credit services to consumers, or remedies to persons over-
burdened with debt, but they work in the interests of creditors and
collectors as well. The two-sided nature of organizations that
supply consumer credit will be brought to light in the present
chapter. Here we attempt to explain how there has emerged out of
consumers' demands for credit a vast credit system encompassing
virtually every person in America. The credit organizations in

this system have, in their own interests, develOped credit-granting

62

policies that necessarily provide indebtedness Opportunities to
consumers who are only marginal (i.e., not good) credit risks and,
because it is profitable for lenders, there is considerable compe-
tition for the business of marginal debtors. As a consequence, a
debt collection process--one which may be a devastating experience
fOr some individuals--has come to be an essential aspect of the
credit system. We will glimpse other such ironies which appear in
the person-structure interaction between the credit system and the
consumer debtor as we consider the organizational processing of past
due indebtedness, although space limitations will not permit our
exploring them in detail.

Chapter 3, which is concerned with social structure as it
bears on consumer indebtedness, examines the organizational proce-
dures of debt enforcement that shape and direct the individual's
career as a debtor. Although our main interest lies in the struc-
tural pressures that constitute enforcement (and keep the debtor
in the career and subject to collection efforts), we will conclude
the chapter by calling to attention some organizational processes
that offer relief or avenues of escape to the debtor. In Figure l
we have depicted relevant organizational elements so as to empha-
size that the legal system provides some of the alternative solu-
tions available to debtors faced with coercion by collectors even
as it gives creditors and their agents the most effective means for

inducing payment. The instalment agreement, a device obtainable

 

in the state courts of Michigan, is featured in the diagram as a

specific example of a debtor's alternative. Under this agreement

63

a debtor may prevent garnishment of his earnings by arranging to pay
his debt in scheduled partial payments over a specified period of
time; when the court grants the instalment agreement it issues an
injunction preventing the creditors holding judgments from initiat-
ing garnishment proceedings so long as the debtor adheres to his
part of the bargain. There are other Opportunities for relief
provided to debtors under the federal law. A debtor whose indebted-
ness exceeds the value of his property is deemed insolvent and he

may voluntarily initiate bankruptcy proceedings by filing a petition

 

in federal court to have himself declared a bankrupt. If his peti-
tion is granted and he is adjudged bankrupt by the court, his
assets (with certain exemptions) are liquidated, the proceeds are
distributed among his creditors, and the debtor is discharged from
any further obligations to them. The Bankruptcy Act also includes
provisions for nonbankruptcy relief under Chapter XIII which is
known as the Wage Earner's Plan. It authorizes arrangements under
which a wage earner, with the consent of his creditors, pays off
their claims over an extended period. The debtor turns part of

his earnings over to the court for distribution to his creditors
and he is given legal protection from collection efforts or harass-
ment while the plan is being carried out. Chapter XIII does not
provide for discharge of indebtedness as does straight voluntary
bankruptcy; it is aimed at rehabilitation of individual debtors by
[woviding a method of making repayment which is feasible for the

heavily indebted wage earner.

64

Credit counseling agencies are an important extra-legal

 

alternative for debtors, also aimed at rehabilitation. They offer
arrangements for making repayment which are similar to those of
the Wage Earner's Plan but do not have the power to give their
clients any legal protection against collection efforts. The
rectangle representing credit counseling agencies in Figure 1 stands
for profit-making organizations which provide debt pooling and
counseling as a business (such as Debt Management Service, a
Meridian firm mentioned earlier) as well as so-called nonprofit
credit counseling agencies like CCC. Since the latter receive
financial support from the business sector, part of their function
is to provide a public service to the community; hence a portion
of their case load consists of welfare recipients and clients with-
out means to pay their fees. Many of their clients are referrals
from a variety of other social agencies to which people look for
help with their problems including mental health clinics, marriage
counselors, legal aid societies, and alcoholic rehabilitation cen-
ters. Because of the importance of this aspect of community-
supported credit counseling, these organizations are represented
in the schema as the primary social agency pertaining to debt-
related problems. Apart from the service to the nonpaying segment
of their caSe load, these credit counseling agencies do not Offer a
free service to debtors; in all other respects their operation is
essentially the same as that of profit-making counseling businesses.
Credit counseling agencies have an important place in any

consideration of credit-debt structures primarily because their

65

services are so frequently chosen as a solution to or an aid in
handling serious debt problems. Although the remedies provided
by the instalment agreement and Chapter XIII are similar to the
services of credit counselors, for various reasons they are rarely
selected by debtors as a course of action. In the conclusion of
Chapter 3 we will see that counseling agencies occupy an equivocal
position in the individual-structure relationship of debtors and
creditors; by guiding debtors in their financial activities and
dealing with collectors on their behalf, these agencies provide a
genuinely helpful service to many debtors but they are equally
dedicated to the interests of creditors. The main purpose of
counseling agencies, particularly the community-supported ones,

is allegedly to rehabilitate debt-entangled consumers, i.e., to
guide them out of a difficult debt situation before it becomes a
desperate one and re-educate them in the management of money and
credit, thus indirectly preventing credit abuse detrimental to
credit granters. Studies of actual practices of these agencies
show, however, that their main concern is to prevent losses to
creditors (and loss Of fees to themselves) by working to keep
debtors paying and to forestall them from exercising their right
to bankruptcy. Creditors may refer defaulters to agencies for
help but often not until the debt problem is hOpelessly entangled;
agencies then concentrate on budget management (rather than edu-
cation) and become in effect collectors for the creditor. As we

look at debt-relevant organizational processes from the consumer

66

debtor's viewpoint in Chapter 4, we will consider the effects of
credit counselors' influence on the debtor—clients they serve.
The large box in the center of Figure 1 outlines the essen-

tial aspects of indebtedness as they bear upon the INDIVIDUAL

 

CONSUMER DEBTOR whose contact with a credit-granting organization

 

has given rise to a credit transaction. The negotiation of a
credit transaction between an individual consumer and a consumer
credit supplier is always the initial act of personal indebtedness--

it marks the entry point to the INDEBTEDNESS CAREER. The indebted-

 

ness career is symbolized by the vertical bar at center. Marking
the course of the indebtedness career are organizationally defined

states of indebtedness or debt conditions. The dimensions of debt

 

condition are time and the amount of indebtedness: an individual's
state of indebtedness is defined on the basis of the size of his
debt load in proportion to his assets and in terms of his debt
delinquency--how far past due he is in repayment. Five states of
indebtedness marking increasingly serious debt conditions are
identified in the schema: the debt condition of an individual
whose credit transaction is not yet due for repayment is regarded
as financial commitment; when the due date for repayment arrives
his indebtedness is considered to be debt obligation. If the
debtor fails to make repayment when his debts fall due according
to the terms of his agreements with creditors, his debt condition

becomes that of debt delinquency. The point at which debts become

 

delinquent is variously determined by credit granters on the basis

of their particular credit policies and organizational practices.

 

 

 

 

67

There is no uniformity among credit granters in defining debts as
delinquent but the routine procedures of most credit departments
would almost certainly identify as delinquent an obligation that had
run 60 days past the agreed date of repayment. The manner in which
credit department practices routinely handle credit transactions

and identify those which are delinquent is discussed in Chapter 3.
Many factors enter into such a decision including the nature of

the credit transaction, the creditor's lending policies, the debtor's
reputation and present circumstances, and the prevailing state of
the economy. The condition of debt default is similarly indeter-
minate; it generally identifies indebtedness which is both long
overdue for repayment and involves a relatively large amount of
money so that definite collection efforts are likely to be initiated.
In most cases, such a debt is written Off as a loss and turned over
to a collection agency and at this point it would definitely be
considered a default debt. The debt default condition generally

ranges from serious debt difficulty to insolvency; it begins when

 

most of an individual's Obligations have been defined by creditors
as delinquent and subject to collection efforts, or when the amount
of his regular payments on existing credit agreements exceeds his
current income so that he is unable to meet his Obligations as they
mature. This state of indebtedness may grow increasingly serious
until it reaches the point at which the debtor's liabilities exceed
his assets; he is then insolvent and is eligible to have himself

declared legally bankrupt.

 

 

68

In general, these five states of indebtedness correspond
to the ordered series of experiences through which the individual
consumer debtor is propelled by the routine practices of credit
granters and collectors. As he is progressively redefined by debt
enforcers and advanced through stages of sanctioning severity, his
indebtedness state becomes ever more critical. Movement through

the indebtedness career is marked by a series of debtor statuses

 

which reflect these increasingly serious debt conditions. A given
individual occupies different debtor statuses as he moves through
successive debt conditions; the consumer who has entered into a

credit transaction is by that act a credit user but, mutato nomine,

 

he also occupies the status of debtor, Negative connotations are
not to be attached to the term debtor at this stage of indebted-
ness; it is used here to emphasize the fact that although persons
who have serious debt problems may eventually be labeled as deviants
by the process of debt enforcement, the credit transaction by which
one becomes technically a debtor is not of itself a deviant act.
Virtually every American consumer is at some time a debtor and the
tenn is intended only to denote an individual who has received goods
or worth in exchange for his promise to pay at some specified time
in the future. Failure to live up to this promise, however, altersl
his debt condition and his debtor status changes from current credit

user, technically a debtor, to delinquent debtor. Since debt

 

conditions are not definite stratifications, debtor statuses are
not discrete differentiations; these terms reflect the general

nature of debt careers which are processual but do not have temporal

 

69

specificity because the defining process itself is unstandardized
and inexact. In general, the status of an individual who has not
repaid indebtedness according to his agreements with creditors is
that of delinquent debtor; if his debts are of some magnitude and
are appreciably past due (usually at least six months) and definite
collection efforts are imminent or under way, he holds the status

of default debtor.

 

It is the experience of the default debtor with which this
study is primarily concerned. Upon completion of the preliminary
examination of the structural side Of consumer credit-debt as
outlined in Figure 1, attention turns to the task of understanding
and analyzing sociologically the subjective aspects of indebtedness.
As explained in the introduction, the main thrust of this study has
to do with such self-redefinition as may occur in the course of
an individual's experience as a default debtor. Specifically, it
seeks to determine the impact of the debt collection process,
treated conceptually as a social control system, upon debtors sub-
jected to the sanctions of debt enforcement. This investigation
builds on the groundwork of Rock's analysis of the collection
process and utilizes his conception of debt collection as a pro-
cess which is imposed on default by the career which is organized
for the debtor. Rock noted that the defaulter who does not repay
a debt is forced to undergo a series of changes of experience;
each successive phase of debt enforcement involves a different
pattern of action directed against the debtor and a forced change

of status for the debtor (i.e., a serially linked set of statuses

 

7O

ranging from credit applicant to prisoner). vWe are proposing a
similar progression of status changes, from credit user-debtor to
default debtor, but our treatment of indebtedness as a deviant
career gives more emphasis to the debtor's reSponse to these coer-
cive measures. There are alternatives of various kinds from which
he can choose, ranging from running away or filing bankruptcy to
seeking help as with counseling agency clients. We trace the
debtor's progress through a series of increasingly harsh collection
efforts, concerned with the manner in which deviance is imposed on
defaulters by collecting organizations which label him more deviant
at each stage--but we then give explicit consideration to the
labelee. This speaks directly to the point made by constructive
critics of the labeling perspective, that this approach typically
views the labelee as compliant and passive, that the successful
application of labels is emphasized to the neglect of the motives,

1 Rock's

intentions, activities, and self-views of the labelee.
thesis focused on the prOpensity of the debt collection system to
protect debtors' conceptions of themselves and on the way in which
its workings are centered in the need to keep defaulters from
assuming the deviant label, from becoming secondary deviants. We
are asking, To what extent are deviant labels applied by debt
collectors resisted, neutralized, or countered by the default
debtor?
The procedures of collectors are outlined in Chapter 3;

there we will show, confirming Rock's observation, that collectors

make decisions in the course of their treatment of debtors which

71

effectively shape and define the deviation. Debtors are categorized
and set up to receive particular forms of treatment and much depends
on the way in which the debtor responds to the collector's initial
communication. If he answers with a convincing explanation and
shows a willingness to cooperate, the collector is likely to agree
to arrangements which make repayment feasible for him. If he fails
to keep the agreement more severe measures are immediately forth-
coming. The collector will move to have suit brought against the
debtor; he then becomes a "judgment debtor" and his collection
account is singled out to receive speCial treatment during the ten
years that the judgment remains in effect unless the debt is paid.
In the case of nonresponse, collectors' interpretations of a
debtor's refusal or inability to act form the basis of their iden-
tifications of him. He is assumed to be either uncooperative,
thereby warranting immediate severe action, or deliberately evasive.
For example, if dunning letters sent to the debtor are returned
unopened without a forwarding address, the collector is likely to
identify him as a "skip" and take appropriate steps in an effort

to locate him. One of these labels derives from legal endorsement
and the other is based on conjecture, but they are both stigmatiz—
ing identifications that signify deviance-control measures; other
defaulter identities are suggested by the tentative list which
appears in the dotted rectangle in Figure 1. This list is intended
only to suggest the kind of role labels which might be applied to
or voluntarily assumed by default debtors. It is presented at

this time to preview the general direction of the later phase of

 

72

inquiry (that based upon interviews with default debtors) and to
show how the structural elements represented in Figure l which we
have been discussing relate to that part of the study. The survey
Of the structural context of indebtedness outlined by the schema,
of which this is an overview, concludes with a description of the
procedures of debt enforcement agencies. After we have looked at
the defining process that guides collectors' activities and have
considered its potential for imposing deviance upon debt default-
ers, we will try to determine how deviant labels generated by the
collection process are regarded by debtors and to discover what
kinds of identifications default debtors apply to themselves.
Because the extension of credit to individual consumers
is the foundation Of all other aspects Of personal indebtedness
and debt collection, a survey of consumer credit and its suppliers
is presented first. The remainder of this chapter contains a
definition of consumer credit, explanations of its major forms,
and descriptions of the principal organizations that supply various
kinds of credit. A brief history of the recent development of the
main types of credit is included to show how the complex financial
system presently existing in this country came to be formed in

response to the need and demand for credit by American consumers.

Consumer Credit and Credit Granters

Consumer Credit Defined

In collecting and organizing the consumer finance data

reported in monthly bulletins on monetary develOpments in the nation,

 

73

the Federal Reserve Board has defined consumer credit as "all
short- and intermediate-term credit that is extended through regu-
lar business channels to finance the purchase of commodities and
services for personal consumption, or to refinance debts incurred
for such purposes."2' Thus the term may refer either to an advance
of funds for the purchase of goods and services for personal con-
sumption or to an advance of goods and services in exchange for a
promise to pay at a later date. Since this definition is derived
from the actual lending activities of retailers and financial
institutions, it represents the generally accepted view of what is
meant by consumer credit within the business community. Implied
in this definition are several important distinctions: it refers
only to credit extended to individuals for household, family, and
personal expenditure and excludes all types of business credit;
it identifies two forms of consumer credit--purchase credit used
to acquire merchandise and services and loan credit used in direct
borrowing from lending institutions and other money sources; it
recognizes the distinction which is made in practice based on the
length of the stipulated period of repayment by applying the term
consumer credit only to short- and intermediate-term obligations
(ordinarily less than five years) in contrast to long-term credit
commitments. Thus credit for automobiles, mobile homes, and home
improvement is included while that for home purchasing, the only
Case of long-term consumer financing, is not.

Consumer credit is subdivided between instalment credit

(SCheduled to be repaid in two or more payments) and noninstalment

74

credit (to be repaid in a lump sum). There are four major forms
of instalment credit: (1) automobile paper, which represents
credit for the purchase of new or used cars including cash loaned
to consumers for this purpose and credit extended by dealers who
commonly sell their loan contracts to financial institutions;

(2) other consumer goods paper, similarly representing credit for
the purchase of durable goods such as home appliances and furni-
ture, boats and mobile homes, as well as some soft goods and less
costly items Of retail merchandise; (3) home repair and moderniza-
tion, which covers loans or credit used for buying and installing
such equipment as heating and air conditioning systems or for
making additions and improvements to the home; (4) personal
instalment loans, representing cash obtained for such varied uses
as travel, educational, or medical expenses or for the consolida-
tion of existing-debts. Noninstalment credit falls in three main
categories: single-payment loans, regular retail charge accounts
(payable within 30 days), and service credit which covers indebted-
ness to public utilities, medical facilities and practitioners, and

other suppliers of consumer services.

Major Forms and Sources of Consumer Credit
Adult Americans in the 19705 have grown up in a credit
world-~the ready availability of a variety of forms of credit for
personal consumption has become a part of our culture. A repre-
sentative of a credit bureau trade association who recently con-

ducted a series of retail credit seminars in several European

75

countries reported that his European audiences were amazed at the
extent of U.S. credit sales and at the promotion of credit in this

country.

Credit, as we know and use it in the U.S., is virtually
unknown on the Continent. Where charge sales in U.S. retail
stores average 50 to 75 per cent of total sales, they consti-
tute only 10 to 15 per cent of the total in most of Europe.

And despite tremendous Opportunities, little effort is made
to secure additional volume by offering credit accommodations.
In conducting retail credit seminars I always stressed the
value of credit. We were told, however, by many of the par-
ticipating merchants, that their clientele could not afford
to obligate themselves for credit. Their salaries would

not justify it.

When we discussed credit sales promotion, most of those
present were amazed at the amount of advertising and promo-
tion U.S. merchants use to secure new accounts, revive inactive
ones and advertise the advantages of having credit accounts and
maintaining a good pay record. Slides, newspaper clippings and
drawings were used to illustrate this part of our presentation.
During one of the lectures, following showing of a film, one
member of the audience asked, "Are you just showing us these
ideas or do you really use such violent and drastic methods to
sell merchandise on credit?" He also wanted to know whether
U.S. merchants would accept a cash sale.3

Consumer credit is so taken for granted that pay-later convenience

is often accepted without awareness that it is an extension of
credit and credit users, so long as they can meet their Obliga-

tions without difficulty, do not think of themselves as debtors.

When personal bankruptcies hit a record high in 1967 (208,329 cases),
the increasingly widespread use of credit and the magnitude of per-
sonal debt and its attendant economic and social problems came to

the attention of many scholars and social workers, but these phe-
nomena tend to escape notice by the general public. Most Ameri-

cans would be astonished to learn that their use of consumer and

home mortgage credit contributes to a total amount of personal

76

debt outstanding in excess of $600 billion at the present time.
Some form of instalment credit is used by over half Of all U.S.
families; two-thirds of all homeowners are committed to long-term
mortgage Obligations. One family out of two uses credit cards;
there are now more than 500 million cards outstanding and this form
of credit is used in over half of all retail purchases. About 17%
of the average family's take-home income goes to meet instalment
payments, double the 1949 prOportion, and this does not include
mortgage payments on the home.

The gas station credit card and the regular retail charge
account (familiar forms of 30-day charges) do not, as it might seem,
represent the biggest share of the total volume of outstanding
consumer credit. Although there are over 100 million such credit
cards presently used and some retailers continue to Offer 30-day
charge to convenience their customers, most have turned to optional
or flexible account plans which have a revolving credit feature and
are thus regarded as a type of instalment credit. The most signifi-
cant development in consumer credit in recent years has been the
phenomenal growth of instalment credit. Since the end of World
War II, while total consumer credit has increased from $6 billion
to $190 billion, instalment credit increased from $2.5 billion to
$156 billion, but 30-day charge credit has grown only from $1.5
billion in 1945 to $10 billion in 1974. Instalment financing of
automobiles and consumer durables alone accounts for more than
half of the total of consumer credit outstanding. Table 1 shows

the relative importance of the main types of credit extended for

77

personal use in terms of amounts outstanding at year-end 1974,
the most recent year for which Federal Reserve data are available

in this form.

Table l.--Personal credit outstanding December 31,1974,tu/majortype.
(In millions of dollars)

Mortgage debt (1-4 family dwellings) $411,520

Total consumer credit outstanding 190,121

% of total
consumer credit

 

 

Instalment credit 82.0% 156,124
Automobile paper a 27.2 51,689
Other consumer goods paper 27.3 52,009
Home improvement loansb 4.3 8,162
Personal loans 23.2 44,264

Noninstalment credit 18.0% 33,997
Single payment loans 6.8 12,979
Charge accounts:

Retail outlets (30-day) 4.2 8,012

Credit cardsc 1.2 2,122

Service credit 5.8 10,884
Total personal debt outstanding $601,641

 

aIncludes bank and retail credit cards with revolving credit
feature.

bInstitutional holdings only; home improvement credit by
retailers included in other consumer goods paper.

cService station, home heating oil, and miscellaneous credit

card accounts only; all other credit card outstandings included in
instalment credit.

SOURCE: Board Of Governors of the Federal Reserve System.

78

People who make only limited use of the consumer credit
opportunities available to consumers may be surprised by these com-
parisons. Those with relatively high incomes, the group which
typically uses credit as a convenience, may never have entered
into an instalment contract and perhaps did not realize that so
much Of consumer buying is done on this basis. Higher income
credit users tend to think of retail charge accounts and credit
cards in terms of 30-day credit; it is likely that they are unfamiliar
with the revolving credit arrangements provided by the card plans.
Because people whose financial situation enables them to do so Often
prefer to pay up their accounts each month before finance charges
become applicable, it is possible that they are not even aware that
the card or retail account they use is actually an instalment
credit device and that a great many consumers do make heavy use of
the revolving credit option. As the figures presented in Table 1
indicate, consumer goods purchases are far more commonly trans-
acted through instalment credit than on 30-day terms. The following
discussion of consumer instalment financing, which includes des-
criptions of some of the newer forms of instalment credit offered
by retailers and banks, explains how it is that instalment credit,
particularly other consumer goods financing, has come to represent
so important a part of consumer credit.

Instalment Financing
of Consumer Goods

An American humorist once remarked that the way to relieve

traffic congestion was to remove from the roads all the cars that

79

weren't paid for. That was in the 19305 and auto financing debt
is now more than 50 times what it was then. One-third of all
instalment debt in 1974 was for the purchase of automobiles.
According to Census Bureau figures for mid-l97l, 80% of all house-
holds own at least one car and 30% own two or more. The most
recent Survey of Consumer Finances (1970) reported that 66% of
new cars and 45% of used cars were bought on time. Generally in
these transactions, the car serves as security for an instalment
contract made with the dealer and sold to a bank or finance com-
pany or as security for a direct loan of money for its purchase.
Commercial banks are the dominant institution in auto purchase
credit: they finance three out of every five cars bought on
instalments and, in 1974, they held $30 billion in automobile paper,
over half of the total of all automobile credit. Bank auto loans
are often transacted directly with customers but instalment paper
purchased from car dealers represents 60% of auto credit outstand-
ing by banks. Another $12 billion in automobile paper is held by
finance companies, primarily by the finance company subsidiaries
of the big three auto manufacturers. The remaining $9 billion in
auto instalment contracts are held by other financial institutions,
particularly credit unions, and by auto dealers. For the privilege
of financing their car purchases, buyers pay interest at rates
ranging from 13% to 19% (somewhat less if they borrow directly
from a bank) and commonly require 36 months for repayment.

An equally large portion of instalment credit is used for

the financing Of "other" (i.e., nonautomotive) consumer goods.

80

More than 60% of all expenditures by consumers for durable goods
other than cars are financed by instalment credit. About a fourth
of other consumer goods credit is used for the purchase of mobile
homes and recreational vehicles, mostly through commercial banks
($8 billion in 1974) and finance companies ($3.6 billion). Another
large segment is represented by credit extended through instalment
contracts with financial institutions and retailers for such major
purchases as boats, motorcycles, jewelry, electronic equipment,
furniture, and home appliances. As of 1974, financial institutions
held about $12 billion worth of the instalment paper on consumer
durables, about 63% of the total, but retailers also have a hand in
making these "big ticket" items available to consumers on convenient
terms. Retail instalment contracts require a definite percentage
of the item's value in down payment and include Specific terms for
retiring the debt in a series of partial payments with interest
typically charged at annual rates of about 16% to 30%. Over $19
billion in other consumer goods credit was supplied by retail out-
lets in 1974, 37% of the total.4 Some of this was in the form of
instalment contracts but most of it was extended through the newer
form of instalment credit, revolving charge accounts, which are
taking an increasingly important place in the financing of consumer
goods by retailers.

Revolving credit is commonly offered in the form of option-
term plans whereby the customer is given a choice of paying his bill
within 30 days with no carrying charge or paying a prescribed por-

tion of the balance owed each month; in this event finance charges

81

are added, commonly a small percentage per month on the unpaid
balance, but this amounts to a true annual rate of 12 to 18%.
Additional purchases up to a limit established by the store may be
added to the unpaid balance of the account--the agreement entered
into at the Opening of the account serves to make the signing of
separate contracts unnecessary, no down payment is required, and
the customer's credit need not be rechecked with each purchase as
with the usual instalment buying. Revolving credit plans were
originally devised to stimulate retail sales of softwares and
clothing in the late 19305 but the advantages they offer, both to
consumers and merchants, haveled to their increasing use as a
means Of purchasing consumer durables. Many retail outlets which
formerly granted 30-day credit and issued credit cards to regular
customers primarily to facilitate identification and record keeping
have gradually switched to option-term revolving credit plans.
Instalment credit is thus made available for the purchase of more
kinds of merchandise and extended across a wider range of consumers;
it enables stores to supply free credit for customers with good
incomes while also providing the opportunity for buying department
store goods on time-~not as a convenience but as a means of paying
later from future earnings.

A profitable revolving credit card operation requires a
card holder mix weighted on the side of lower-income consumers for
whom a $200 to $500 line Of credit is a great boon in terms of
purchasing potential and these are the consumers who use a credit

card more as an extension of income than for convenience; without

 

82

the willingness of many such consumers to pay continuous finance
charges, credit card plans are unprofitable enterprises for issuers.
In effect this has made it possible for many families to own
durables who could not have bought them under other conditions but
it has also encouraged many consumers to purchase items on instal-
ment credit that they might not otherwise have bought and to pay
financing costs in addition. Mandell's (1972) study of credit
card use showed that credit card users tend to view their cards
more as debt instruments than as mechanisms for facilitating trans-
actions. In general, high-income families regarded credit cards
as a convenience and those who do use the debt feature of the cards
pay it off as quickly as they can. Lower-income families are more
likely to treat the debt as a loan.
Fully 75% of all respondents said that credit cards made

it too easy to buy things that they may not really want or

that they can't really afford. On the other hand, when

asked about the advantages of credit cards, the most frequent

response related to the credit feature--the fact that the

family could buy without having the money and pay the pur-

chase price back Over time.

At least half of all credit card users use the debt
feature of their cards. Of this proportion, approximately half

treat their debt like an instalment loan, that is, they pay a
little bit each month, generally the minimum allowable monthly

payment.5
Mandell also found that holders of retail store credit cards used
them most often for clothing purchases-~90% of all store card users
bought clothing and the next most frequently purchased items
(bought by 16% Of card-using families) were household goods and
appliances. The large chain retailers and mail order houses are

the giants of revolving credit card operations; retailers issue

83

over half of the 505 million credit cards outstanding and the Sears
and Montgomery Ward chains alone account for over 40 million of
them.

Gasoline company credit cards rank second in number with
138 million cards, 27% of the cards outstanding in 1974, and there
are now over 200,000 service stations that will honor these cards.
Although gas station credit cards were in limited use before World
War II the amount of such credit was negligible, but use of these
cards has grown rapidly since the 19505. Until very recently the
credit card system of major oil companies remained typical of early
credit card plans: the oil companies were very strict in their
acceptance of individuals as credit risks, all of the customers'
purchases over the month were consolidated and presented as one
bill to be paid as a regular 30-day account without finance charges,
and only items (mainly gas and oil) normally sold at service sta-
tions were charged on the card. Significant changes are now taking
place in this field: oil companies have begun to adopt the revolving
credit type of plan and, as with retailers, they have had to relax
their risk standards to achieve a wider card distribution. Along
with the proliferation of gasoline credit cards, oil companies have
made a wide range Of items available to card holders and an increas-
ing number of motorists are purchasing tires, batteries, acces-
sories, and car maintenance services, using credit cards instead of
cash. (A recent study showed that one out of five Oil company
card holders valued their cards mainly for the good mechanics and

repair facilities of the local service station.) The most recent

84

develOpment has been the extension of oil company credit card uses
to other merchandise and services including rooms and meals at
motels, car rental, insurance, and travel clubs; another innova-
tion is direct mail sales promotion of retail items not related to
Oil company Operations.

Of the $52 billion in other consumer goods credit out-
standing at the end of 1974, all but $19 billion, the amount held
by retailers, was granted by financial institutions. The holdings
of commercial banks, $22.3 billion, represented two-thirds of all
institutional credit outstanding for other consumer goods and 37%
of this was in the form Of charges made on bank credit cards. The
emergence of bank card credit has been one of the most dramatic
developments in the consumer credit picture. Bank card programs
began coming into general use around 1966; by the end of 1968 bank
card credit outstanding had reached $1.3 billion, and by 1974
there were 60 million bank card holders and outstanding bank card
credit totalled $8.2 billion. There are some 14,000 commercial
banks in the United States and virtually all extend credit to con-
sumers. On the average, other consumer goods credit represents
nearly a third of their instalment credit portfolio and bank card
credit about 10%. The big banks dominate this field--the nine
largest banks, primarily the card-issuer institutions, held 20% of
all credit card receivables in 1974.

The bank card credit plan is similar to that used in retail
card programs: the card holder can Opt for full payment within a

25-30 day grace period or run the account on a revolving basis

85

paying a required minimum and a finance charge, usually 18% annual
rate. Since the bank card can be used at any participating member
firm a wide variety of goods and services are available to con-
sumers on credit from a diversity of enterprises including retail,
service, medical facilities, educational institutions, and even
tax-collecting agencies. For participating merchants the card
represents a line of credit granted to the consumer by the bank.
Accepting bank cards offers them a number of advantages: it
allows them to maintain a cash position and relieves them from
having to Operate a credit facility for screening applicants and
servicing and collecting accounts; their sales slips are deposited
at the issuing or agent bank and they receive immediate credit to
their own account, discounted at 2-6% which represents the bank's
fee. The economy and convenience of bank card plans have made it
possible for many smaller enterprises to offer credit that would
otherwise have a cash-only policy and it is likely that bank card
participation has meant survival for some merchants and increased
business for most. For consumers, the Opportunity to obtain an
ever-widening assortment of relatively small items of goods and
services through an open line of bank credit is not the only
advantage of holding a bank card; a card holder may also use the
cash-advance feature of bank card plans to take out a small per-
sonal loan. It is quick and efficient since the advance need not
be processed or serviced as an individual loan and the consumer,
who has an already established credit line at the bank, receives

cash up to his predetermined limit without delay and without review

86

of his present financial situation or his expected use of the loan.
Mandell found that only about 20% of bank card users he surveyed
made use of the cash advance feature but according to more recent
Federal Reserve data, such credit extensions increased with the
economic downturn of 1974 and with the trend at banks to encourage

credit card related loans.6

Consumer Cash Lending

The two components of consumer instalment credit discussed
thus far, automobile paper and other consumer goods financing, are
almost matched in dollar volume by personal cash instalment loans.
Unlike other types of instalment credit, personal loans are not
related to consumers' expenditure for any particular kind of goods.
Consumers use borrowed funds for payment of medical and dental
bills and other emergencies of every-day living, to consolidate
(Iverdue bills or refinance existing obligations; better-qualified
borrowers may simply prefer to borrow cash to buy large consumer
‘items rather than disturb their investments or pay the higher costs
(If other types of financing. In the personal loan category of
instalment credit finance companies are the dominant lending insti-
tution. Over a fourth of all instalment credit, some $4 billion,
'was outstanding in cash instalment loans at the end of 1974 and
nearly two-thirds of this was held by financial lenders other than
banks. Although finance companies have traditionally been the
principal source of small loans for American consumers their

dominance in this field has been challenged by other institutions

87

in recent years. (Important changes in the organizational struc-
ture and credit activities of finance companies taking place during
the 19705 as a result of this competition are discussed at the end
of this chapter.) Bank participation in consumer cash lending is
rapidly increasing through the development of innovative instal-
ment loan concepts such as check-credit plans. In 1974 commercial
banks held $15 billion in personal instalment loan credit, of which
$2.5 billion was in check-credit plans, while finance companies
held $17 billion in consumer cash loans. These new check-credit
plans (and other related forms of over-draft plans) are connected
Twith bank checking accounts and are independent of bank cards.
With check-credit an arrangement is made with a bank which grants
an approved line of credit to a customer up to a stated amount,
Inuch like an unsecured personal loan. The customer is given a
special check form for making withdrawals and as repayment to the
account is made the available credit can be reused; finance charges
'for the plan are similar to bank card rates. While check-credit
outstanding in 1974 was relatively small in terms of dollar volume
(16% of the personal instalment loan money extended by banks),

the activity is significant because it reflects a trend in banking
practice toward developing Open lines of credit for consumer use
rather than granting separate loans. These plans have some dis-
advantages for the bank, such as their inflexibility in times of
changing economic conditions (see footnote 6) and difficulty with
some customers who fail to revolve their accounts properly and

.abuse their credit privilege, but they are cost-saving and profitable

 

88

operations and they generate more loan business. The customer bene-

fits by having to apply only once for loan money which can be
revolved indefinitely and its use is not limited to particular
merchants as with bank cards. Since applicants must measure up to
certain credit standards, check-credit is a prestige form of bor-
rowing intended mainly to finance small purchases and vacation
needs rather than costly items such as cars. The nature of check-
credit and over-draft plans tends to encourage consumers to borrow
more casually and to stay in debt for longer periods and even those
who yield to these temptations more for convenience than need pay
finance charges at substantial rates for the privilege. Check-credit

imates commonly run close to 18% annual percentage rate, compared

writh about 13% for one-year instalment loans. Nevertheless, amounts

CHJGE on consumer check-credit plans have increased from 13 to 20%
ea<:li year while the increase in bank lendings on regular instalment
terms has been much less. Banks have encouraged the use of these
plans as an alternative to bank credit cards because they are far

less costly to Operate.

HQflLjLzlgitalment Consumer Credit

This review of the major types of instalment credit is by
“0 means exhaustive of the borrowing opportunities open to con-
sumers. There are in addition the large segment of credit repre-
se"‘363<1 by residential financing and instalment financing of
i“‘P"0vements and additions to the home. Single-payment cash loans,

whi<:t‘ make up a sizable part of outstanding noninstalment credit,

l 89

are an important source of funds for those who need large loans
for short periods of time; this type of loan is usually made by

commercial banks at nominal rates to low-risk applicants, often

 

l on an unsecured basis or with investment securities as collateral.
Noninstalment loans are an important part of bank portfolios
(almost $12 billion of the total $13 billion in single-payment
loans outstanding in 1974 was held by banks) but instalment cash
loans are of far greater importance in the over-all consumer credit
picture. Another source of money for certain borrowers is the
pawnbroker; personal prOperty is pledged in exchange for a quick
cash loan and although interest may run as high as 35%, no inquiry
“is made into the individual's credit standing. A large amount of

loan money is supplied by nonbusiness lenders such as philan-
thr'Opic organizations, church societies, fraternal orders, and
educational institutions. There are also loans made by one indi-
vic111£al to another, by businesses to employees, and cash borrowed by

DOT “icy holders against their life insurance.

Our review of charge cards with revolving credit features

did r1<>t include 30-day charge card credit. In this area there are,

for €3)<ample, seven million outstanding "T&E cards" (travel and

 

enteIf‘tainment), predominantly Diners Club, Carte Blanche, and
Amer-i” can Express. Private card issuers are oriented toward a
Patti cular segment of the card user market: holders are carefully
screened--a $10,000 yearly income is one criterion of eligibility--
and a $20 annual fee is charged for use of the card. These cards

repreSent "convenience credit," particularly useful to business

90

people because the billing provides an itemized record to sub-
stantiate business expenses for tax purposes. A number of estab-
1 ishments such as fashionable big-city restaurants have responded
to this kind of business spending by catering to the "high class
C] ‘i entele and expense-account types" that use T&E cards.7
A survey of ways in which consumers may defer payment of
the'i r expenditures is not complete without consideration of service
credit. Service credit is defined as the amount owed by indi-
vi duals to professional practitioners and service establishments.
The largest component of this type of credit is that owed to
hospitals, doctors, and other medical practitioners; another sub-
sta ntial component Of service credit is represented by public
“111' 1 'ity service5--gas, electricity, water, and residential tele-
Phones. The remainder includes a variety of personal services
inc‘l uding fees charged by educational institutions and social
““138 , costs of legal services and funeral expenses, and sundry
repa ‘i r services such as tailors, TV and household repair services.
Although instalment credit is gradually coming into use by some
“TV? ce suppliers, the 30-day account remains the customary way
Of (101’ ng business in the medical and legal professions and a grow-
ing number of service establishments that operate on a 30-day credit
basi 3 have appeared in recent years. Increasing use of service
cred-i t is evidenced by the fact that the amount of outstanding
semi-see credit has doubled in every decade: it was nearly $11
billion in 1974, $4.5 billion in 1964, $2 billion in 1954, $800
“Anion in 1944, and $400 million in 1934. Unlike the obligations

91

a consumer accepts when making retail purchases on credit, indebted-
ness for services may be incurred without its being recognized as
such. Robert Cole, an authority on consumer credit management,

no tes

When people heat their homes with gas during the winter
months and receive a bill for this utility service at the end
of the month during which the service was received, credit is
involved just as much as if they had walked into a department
store, bought a suit Of clothes, and charged it. As in the
medical and dental professions, it is a customary method of
doing business. True, the time involved is usually short,
and the instalment method of repayment is not commonly used in
consumer service credit as it is in retail credit. However,
the cost of services continues to take a larger share of the
budget of the American consumer and will undoubtedly continue
to do so in the years to come.8

In spite of the vast growth of hospital, medical, and surgical
insurance and increased use of health insurance provisions as an
911191 oyment fringe benefit, expansion Of health care delivery
tC’Qe‘t‘Jier with soaring costs of medical care are contributing to an
inc”“easing debt load for most consumers. Because service credit
invo‘lves intangibles, as contrasted with instalment credit for
"hi Ch material goods at least ostensibly secure the indebtedness,
it presents some special problems in terms of credit control. This
is particularly true with professional credit: factors such as
phys 1' cians' ethic requiring treatment without regard for ability
to Day and the unexpected nature of many medical emergencies
(“"91 icate the extending and collecting of health care credit; in
addi tion, professionals seldom have facilities for follow-up on
pat-i ent indebtedness beyond routine handling of current accounts
by the regular Office staff. From the consumer's side, service

credit may quickly become burdensome debt because it is payable

92

shortly after the service is received even though repeated use of

the service may be necessary or desired and this kind of debt
cannot be sustained for long periods with minimal partial payments
and finance charges as can the Open—ended credit of revolving
accounts. These are probably the main reasons why service credit
is difficult to enforce and why physicians, hospitals, and service
enterprises comprise an important client group for collection
agencies.

Development of Consumer Credit as a
Social Institution

 

 

SQCial Forces in a
anamic Credit System

Given this array of opportunities for persons of ordinary
means to use credit for personal consumption it would be difficult
t0 1"? nd a gainfully employed American who has never known indebted-
"953 - Variations on the basic concept of advancing cash or goods
and services in exchange for a promise to pay later have been
dEV‘i sed to put credit within reach of consumers of every social
and 1‘ ncome strata and for almost any conceivable purpose. As a
consequence, consumer credit is now measured in many billions of
d0] 1 ars and has come to be recognized as an important economic
TOY‘ce in this country. It represents the discretionary purchasing
”we? of Americans as active consumers at work; it keeps assembly
H"as flowing to produce consumer durable goods which in turn

geneV‘ates jobs and incomes. It is a new force in the economy in
t'e'll‘ls of greatly increased personal consumption expenditure and

wme~3pread ownership of the means for satisfying many necessary

93

consumer wants and services. Consumer credit has become an institu-
tion in America: it takes an almost endless variety of forms, it
is used in an increasing diversity of consumer transactions, it is
extended to consumers in all walks of life--but more important than
common usage is its acceptance as an everyday feature of American
life, and this more than anything else has led to the institutionali-
zation of consumer credit in our modern society. The pervasiveness
of consumption through credit and its establishment as a viable
institution are what have given meaning to the cliche--Credit is
part of the American way of life--and these are largely happenings
of recent decades. Consumer credit in the United States has emerged
as an immense system and a complex structure of financial and
SEPV‘ice organizations has evolved, almost entirely within this
C9111: ury, to serve the ever-growing demand of consumers for credit.
It ‘i 3 these aspects of consumer credit, its change in character
and 1" ts development into a vast system that are twentieth century
phenomena. What is new is not the use of credit by consumers but
the ‘Form of consumer credit and the speed and magnitude of its
growth and change. The American consumer credit system is one
Which is continuously changing and expanding in response to the
var-i ed needs and desires and capabilities of consumers and reflect-
ing the Shifting attitudes of the public and the business commu-
nity - It is the interlocking influences of social, psychological,
and economic factors which give our contemporary credit system its
dy“am‘ic character, just as these forces have altered the form and

use Of consumer credit throughout the course of its develOpment in

94

this country. The following brief history of American consumers'
use of credit explicates the role of social forces in the recent
development of consumer credit. It shows how social change gave
rise to our present system of credit merchandising and cash lending
and how social and economic factors led to the origin of the special-
ized institutions for supplying consumer credit.

The purchase of consumer goods on time was already a common
practice in Colonial times. Merchants sold supplies and staple
goods and put it "on the book," but these were informal transac-
t'ions, an accommodation extended to customers who settled their
accounts as agreed; defaulters suffered the pressure of public
Op‘i n‘ion and suspension of their credit privilege. It was expected
that purchases would be kept within buyers' earnings and that the
ful 1 amount of the debt would be paid upon receipt of income,
however irregular that might be. In an agrarian economy this
aV‘V‘ar‘ngement enabled consumers who had little cash to purchase goods
as they were needed and settle up with the merchant when the har-
vest came in. Several different types of credit had their begin-
"iV'Qs in the years before the Civil War. The use of credit for
pa“Went of durable goods while they were being used was an early
“ij 0pment. Credit selling by merchants was an established prac-
tice by 1850 and in the cities of New England a large part of
cons Umer trade was carried on in this way. At that time it was
eXte"‘Ided in the form of Open account sales credit payable in a

Si“91 e lump sum and tradesmen typically carried the debt for long

periods, Often a year or more. Instalment credit originated near

95

the beginning of the 19th century and the sale of such items as
pianos, sewing machines, and stoves on instalments represented a
considerable amount of business by 1850. With early instalment
arrangements terms were short, down payments large, and only con-
sumers with excellent reputations for their credit dealings quali-
f'i ed for the privilege. The first service credit was that extended
by early-day physicians and dentists (and much of it was uncollect-
ib'l e). Pawnbrokers, the first agency to make cash loans to consumers,
were Operating extensively in larger eastern cities by the early
18005, but the development of other forms of consumer cash credit
was delayed for almost a century because the legal basis needed for
the emergency of consumer lending institutions was lacking.

Eonxsumer Credit Transformed
We Industrial Revolution

This entire picture of credit and its use in early America
was changed by the series of dramatic technological changes and
ecol'Iornic innovations which occurred with the spread of the Indus-
tria‘l Revolution to the United States in the period around the
turn of the century. The massive socio-cultural and economic
Changes following the Civil War transformed the primarily agrarian
Ame"“ica of 1860 into a predominantly industrial nation by 1900 and
With the rise of an industrial economy the stage was set for the
origin of consumer credit in its modern form. In the writings of

M' R. Neifeld, who has authored several standard references on
consumer credit, may be found a useful account of the manner in

Which consumer credit was affected by the Industrial Revolution.

96

l)r. Neifeld identifies five factors of critical importance in this
process and employs them to show how consumer credit was altered
t2)! the social and economic changes of this period.

Industrialization caused profound changes in the economic
organization of society and these in turn generated social
changes which altered the use of consumer credit. Changes
in a half dozen economic factors will illustrate how changes
in the structure of society changed the character and use of
consumer credit.

1'fiea factors in which these changes manifested themselves are the
to 1 lowing:

1. Concentration of population. With the develOpment of

 

tzfiea 'factory system, society evolved from rural handi-craft to the
rnc><jeern industrial and technological age characterized by large
Population shifts from rural to urban living. With the shift
from an agrarian economy to a factory system in cities came occu-
133 ti onal specialization. The worker became a specialist at a
faCtory job who worked for wages at hire. His labors no longer
gave him income in kind directly needed for maintenance; the family
"0 1 onger supplied through their own exertions the means for living.
'T‘G33V' gave up self-sufficiency to achieve greater efficiency. This
Spe<2ialization through the factory system which increases effi-
Ci ehcy of production leads to a greater inter-dependence between
consumers and brings to the fore the importance of money. As
Specialization of efforts replaces self-sufficiency and the machine
co"(:entrates the common man in heavily populated areas, it makes
h'“" (iependent upon a money income. In a wage economy, when the

fl 0‘" of money is interrupted for any reason, the need for different

 

 

 

97

forms of credit arises immediately and different institutions arise
to supply the need.

2. Change in time income is received. When and how the
consumer gets his income affects his use of credit. In an agrarian
economy the consumer receives his income in a lump sum after the
harvest so he must have credit from one harvest time to the next
and he pays his debts once a year. In a factory economy the con-
sumer receives his wages or salary weekly, bi-weekly, or monthly,
so he pays his debts by weekly or monthly instalments. The effect
is to change consumer credit from an average maturity of more than
a year in colonial days to the weekly or monthly payment arrange-
ments of modern instalment plans.

3. Gradual increase in real wages. The invention of time-
saving tools has been increasing national productivity at a con-
stant rate Of 2 to 3% each year. This increase has had a powerful
effect in terms of raising our standard of living and increasing
the purchasing power of the average skilled worker. The economic
effect of increased productivity has been gradually to lift incomes
of workers above a mere subsistence level and to leave him a margin
of discretionary income which provides the means of payment for
consumer credit. In heavily populated countries without advanced
technology national production remains below the subsistence level
and consumers in such countries have little or no discretionary
income. The demand for consumer durables we see in the United
States is not determined by biological needs to stay alive. In

(our economy man does not live by bread alone. We have an economy

 

98

that satisfies wants, not merely needs. Needs are quickly sated;
wants are inexhaustibly in infinite variety. Consumers with large
chunks of discretionary income are active customers for durable
goods and users of consumer credit. Under the American system a
man can have a savings account and an automobile time-payment
agreement at the same time.

4. An Open society. Unlike European society, America does

 

not have a class structure based on a feudalistic tradition where
class means something fixed, unchangeable, and hereditary. The
economy of the United States is dynamic because there is no real
barrier between social classes. The "wrong side of the tracks"
aspires to the right side and millions of Americans have ascended
the social ladder in a single generation. Upward social mobility
means the acquisition of comforts and conveniences. Standards of
rank in society are almost unknown here, most of all standards
that concern what is befitting for the lower classes. You hear no
one saying, "That is not for the likes of me.” The average American
does not aspire to a bicycle for his means of transportation like
the EurOpean worker--he wants an automobile, and he uses discre-
tionary income to buy it through consumer credit.

5. Character of the goods the consumer uses. In the early
decades of this century the housewife bought refrigeration for cash;
each day the iceman tracked through the kitchen with a block of
ice, placed it in the icebox, and collected a dime. It was poor
refrigeration and an inefficient system of delivery. Today we

buy a package of refrigeration that lasts for ten years and it is

99

efficient, reliable, and clean. In the same way we buy transpor-
tation, recreation, and time-saving as a package for long-time use.
Countless services that were once supplied to consumers by outside
sources are not available to the consumer by his own means--
transportation, recreation, laundry and cleaning services, food
processing and storage. Long-lived products are bulk packages of
store-up utility to be extracted by the buyer on a time sequence
and we buy these packages of multiple service through time-payment
plans.

As a result of these five factors, there develOped two major
streams of consumer credit--lender or cash credit and vendor credit,
credit for financing the sale of goods. The latter was reasonably
well established by the middle of the 18005 in the form of sales
credit by merchants, but the growth of cash credit for consumers
was yet to begin. Its develOpment depended upon a sixth economic
factor, adequate capital for credit granters, and the sound legal
basis needed to attract capital to this area had not been formu-
lated at that time.

The Beginnings of Cash
Lending#Institutions

Today's small loan industry had unsavory beginnings in the
urgent need for cash lending brought about by urbanization and
industrialization. Industrial workers were without the relative
security and self-sufficiency of agrarian life. Any interruption
of earnings in a money economy--accident, illness, unemployment--

is likely to create a crisis and wage earners were in frequent need

100

of cash loans to tide the family over emergencies or to compensate
for differences in their incomes and expenses. As urban dwellers
and workers in huge factory organizations, they lacked personal
relationships with employers and close community ties. They had

to search for an outside source of cash loans but before 1910 there
were no legitimate institutions from which low-income workers could
borrow. Wealthy families and persons with security in the form of
real estate or investment certificates could get bank loans but

few consumers met these requirements and the vast majority were
forced to turn to illegal lenders in times of stress. Early cash
lenders used various devices as loan security--some loaned against
a signed agreement to have part of the borrower's future wages paid
to them if repayment was not made on time; others made larger

loans with mortgages on household furniture as security. They
charged interest at 10 to 40% a month (often more than 500% annual
rate) although existing usury laws prohibited interest of more than
8 to 10% a year. These general interest-limiting laws had been
written with business lending in mind and they did not allow for
the higher costs of services involved in making consumer loans.
Legitimate capital was not attracted to the cash credit business
because consumer loans could not be handled under these restrictive
rates.10 As borrowing demand increased, the cash loan field became
a jungle of unscrupulous lenders using deceptive practices and
charging unconscionable rates. This "loan shark era," which lasted
well into the 19005, was marked by "unethical business practices,

shoddy merchandise, strong arm collection methods, physical violence

101

and collection pressure through reliance on social mores that a
debt is morally wrong and therefore shameful."H Sporadic efforts
at stricter law enforcement were futile because borrowers, glad

to find any source of emergency cash, rarely pressed charges and
lenders' practices made the usurous nature of transactions diffi-
cult tO prove; interest was disguised as service fees, receipts
were not given, borrowers were required to sign uncompleted con-
tracts, and so forth. These abuses were finally brought to public
attention when the Russell Sage Foundation made a study of lending
conditions and began a campaign (supported by some lenders) to
bring small loan Operations under state control. The model statute
drafted on the study recommendations in 1910 was soon adOpted in
different versions in nearly every state. Personal loan companies
which had been in existence since around 1875 were exempted from
usury statutes and licensed under these state small loan laws; the
amount they could loan was limited and their business practices
closely regulated but a realistic interest rate was allowed. Since
most loan sharks were forced out of business and banks would not
recognize personal loans to workers as a legitimate phase of their
Operations, small loan companies became the main answer to the
social problem presented by a large class of borrowers who needed
state protection to shield them from exploitation. The services

of licensed small loan companies were in such demand that between
1923 and 1929 the number of regulated loan offices jumped from 600
to more than 3,500 and their loan balances increased sixfold. Large

chain companies began to develOp rapidly; Household Finance

102

Corporation, which Operated 30 offices in 1918, had 100 lending
outlets in 1927.

During this period, in which Small Loan Laws were being
formulated leading to the growth of consumer finance companies,
there was pressure to find alternative ways of providing small
loans to workers which would legally circumvent unrealistic usury
laws. From this emerged some ingenious new lending practices and
several new forms of financial institutions were develOped to engage
in credit transactions that came to be exempted from existing laws
by judicial decisions or special legislation. Credit unions origi-
nated in this way; the first was organized under Massachusetts
law in 1909 and it set a pattern for other states as a way of
curing the abuses of usurous lending. Although special enabling
legislation had to be passed state by state to authorize higher
interest rates than generally allowed, more than 150 credit unions
were organized within a few years. The method of Operation which
qualifies credit unions for special legal status is that of a
cooperative society, an adaptation of cooperative financial institu-
tions developed in Europe. Under the cooperative organizational
structure, credit unions were designed to provide a means for
members to accumulate savings and cash loans could be made to
shareholders for "any prudent and productive purposes." Member-
ship was limited to groups having a common bond of some sort and
the Operation of the credit union was made the responsibility of
the members themselves. State-chartered credit unions have grown

rapidly in number, membership,znuiassets since the twenties; they

103

have organized into state leagues and in 1934 a national associa-
tion of state leagues was formed. About half the eXisting credit
unions originated under a federal act passed in 1934, which for
many years provided funds to promote their organization. The
success of credit unions has continued in recent years; some 20,000
are now in Operation and they are presently among the most important
and competitive of consumer lending institutions.

The industrial bank was still another type of institution
established in the early 19005 to provide for small savings and
make small loans to consumers. Rather than Operating as an exemp-
tion from usury laws, the method of these institutions was designed
to detour their limitations. Industrial bank lending was conducted
as a dual operation: the loan transaction called for lump sum
payment upon maturity and interest charges conformed to usury rates
but a second transaction was linked to the lending which doubled
the lender's rate of return. The borrower had to agree to make
regular small deposits in a savings account at the lending bank
until the amount loaned had been accumulated and it was then
applied to payment in full of the loan. The plan was intended to
meet the needs and resources of industrial workers, hence the name
industrial bank. This system, which amounted to making generally
equal payments at equal periodic time intervals, was a revolutionary
idea at the time since the usual loan was essentially an IOU, with
interest to be paid regularly and the principal due on demand.

In 1910 a variation on this method Of lending to the working man

was developed in the "Morris Plan" and presented as a banking

104

practice, but it was poorly received by banks which remained
generally negative toward nonbusiness lending. Its originator,
Arthur Morris, then opened his own Morris Plan Bank and actively
promoted the establishment of others in big cities across the
nation. By 1917 there were about 100 of them, but since the 19205
there has been little further develOpment of industrial banks or
Morris Plan institutions. This is due in part to commercial banks'
opposition to the creation of other financial institutions and lack
of success in getting uniform special laws through state legisla-
tures as with small loan companies and credit unions, but the main
reason was entry of commercial banks into consumer lending in the
19305 and their vigorous promotion of consumer credit programs
since that time. Industrial banks as such have disappeared in
many states, Often (as in Michigan) taking the status of state
banks. The importance of these institutions lies in their contri-
bution of the essential innovation to consumer financing. In a
sense they were the forerunners of today's instalment credit plans.
The general idea of the Morris Plan loans, the concept of making
repayment of debt in equal amounts at specific intervals over a
period usually less than a year, was to become the basis of instal-
ment financing in all its many forms.

It was only a few years before World War I that the insis-
tent demand for legitimate sources for personal loans finally
culminated in the state legislation which established consumer
lending institutions, and these organizations blazed new trails

in consumer credit by demonstrating that the working man can be

105

trusted with credit and will meet his Obligations. Even though he
may lack tangible collateral, he can Offer his character, a good
payment record, and his earning power as security. During the
years before 1920, while institutional development was under way
and the average man was proving himself to be an acceptable credit
risk, the automobile had reached a stage of development around
which new demands for consumer credit would emerge. The growth of
consumer goods financing and establishment of institutions to
provide credit for the purchase of automobiles and the variety of
other durables which became available after World War I occurred
as a credit explosion after 1920. To understand how this aspect
of consumer credit was shaped by changing social patterns and how
its growth was stimulated by economic and social factors associated
with American industrialization, it is necessary to return briefly
to the general conditions around 1900 and trace the develOpment of
consumer goods financing as it paralleled that of consumer cash
lending.
The Development of
Retail Goods Financing

We have seen how the character of sales credit was altered
by the social-economic changes of the Industrial Revolution. The
harvest-to-harvest credit carried by colonial tradesmen gave way
to Open credit extended for the period between paydays by general
merchants. As the general store evolved into the modern depart-
ment store, open account arrangements were formalized into the

30-day charge account provided for customers' convenience, but only

106

for those with higher incomes, white-collar occupations, and sub-
stantial bank accounts. Until instalment selling had become wide-
Spread in other areas of consumer selling, most retail stores con-
sidered credit to be a costly necessary service and though they
reluctantly appreciated the need for open accounts they shied away
from instalment credit long after other vendors had accepted it.
Reputable retailers, especially department stores, did not look
favorably upon instalment selling and for much of the consuming
public, enjoying the use of goods while paying for it was not con-
sidered respectable.

Prior to 1911, the generally accepted thinking of the era
was to discourage "time buying." Such stalwarts as Sears,
Roebuck and Co. published admonitory editorials in their mail
order catalogues advising customers not to be misled by firms
advertising time payments.12

Although department stores withheld their acceptance of instalment
selling for some time, expansion in retail charge account credit
began in the mid-twenties when store owners came to recognize credit
accommodations as a vital factor in competition between retail
outlets and between consumer products. Products which competed
against items sold on instalment plans had to be given more liberal
open account terms and merchants became hesitant to press for prompt
30-day payment from good customers for fear they would be lost to
more lenient competitors. Stimulated by active competition for
consumers' retail business, open charge credit grew quickly and

the amount extended by retailers has continued to rise steadily

since the 19205. Federal Reserve figures show a constant yearly

increase from one and a half million dollars in 1929 to ten million

107

in 1974. When analyzed as a percentage of total credit for each
year, however, a decidedly different picture is revealed; charge
account credit has appreciably declined in relative importance over
these years, a reflection of the growing acceptance of instalment
credit by retailers and the encroachment of new forms of retail
credit, particularly revolving account plans.13 Since revolving
credit is among the most recent of instalment credit variations,

we will return to the emergence of special forms of retail credit
after reviewing the general development of instalment selling in
its earlier stages.

The invention of the instalment payment concept, its exten-
sion into virtually every kind of consumer transaction, and its
phenomenal growth since World War II brought profound changes to
the everyday lives of Americans. Gradually through the first half
of this century and at a faster pace since the fifties, the American
consumer has become increasingly more receptive to the idea of using
credit-—more tolerant toward being chronically in debt-~and instal-
ment buying has found a central place in his life. The real boom
in instalment credit came with the general economic growth following
the last world war but the practice of buying durable goods on time
payments goes back more than a hundred years. The rudiments of
modern instalment retailing were already present in 1856 when
Isaac Singer found that he could sell many more sewing machines by
financing their purchase. In one year after he introduced the idea
of hire purchase (instalment financing) his sewing machine sales

had tripled. By the turn of the century instalment credit practices

108

had spread through most of the eastern states and were applied to

a wide variety of consumer goods; terms became gradually more lib-
eral and extended payments began to be made available to consumers
with relatively lower incomes. Early on, instalment buying began
to change retail credit from an arrangement of prestige and con-
venience for the well-tO-do to a means of expediting sales of
factory-made goods to consumers on a mass scale. The giant boost
in instalment buying came after the first world war when an array
of new forms of consumer durables was introduced and made generally
available to the consuming public through instalment selling. The
investment in durables by consumers was the major factor in the
explosive growth of instalment financing which began at that time.
The stock of durable equipment in the home of the middle-income
American of 1900 had an original investment value of about $200

in such devices as a sewing machine, an icebox, a cooking stove, and
some inexpensive items of laundry, cleaning, and transportation
equipment. Today such a home would have at least one automobile,

a refrigerator, a stove and dishwasher in the kitchen, a washer and
drier, several radios and a TV set, and numerous smaller appliances
for use in cooking, cleaning, personal grooming, and recreation
with a total purchase price of five to ten thousand dollars or
more. The basic causes of increased investment in consumer durables
lie in the fundamental social-economic changes associated with
industrialization and urbanization; important among the more imme-

diate reasons are these:

109

Methods of producing durable goods in large quantities at
a low price were important. To make large sales possible,
goods had to be available at prices millions could afford.

It is also true that a market had to exist for large quanti-
ties of goods to make the economies of large-scale, assembly-
1ine production possible.

This mass market was provided because incomes were increas-
ing and money was available for items other than necessary
food, clothing, and minimum shelter. Changing modes of living
also provided the incentive to purchase such goods. More
people were moving to the cities and wanted conveniences and
a show of goods equal to those of their neighbors. Increased
activities put a greater premium on leisure time, thus leading
to a demand for labor saving devices.)4

Although instalment buying was coming to be widely used, it
was not universally regarded as an acceptable practice 50 years ago.
Prevailing moral values, especially among the upper classes, had
not adjusted to the idea of owing for possessions. They placed a
high value on thrift and believed in saving ahead for major
purchases--something that they, but not average wage earners, were
able to do--and perhaps blue-collar workers' use of instalment
credit to acquire the accoutrements of upper-class life despoiled
the practice for better-Off consumers. It is likely that the
aversion to personal money lending as a business enterprise
(reflected in usury laws) still lingered, and thelegend of repre-
hensible dealings of loan sharks probably did much to give personal
debt a bad image. Considerable stigma had come to instalment sell-
ing in its earlier years as some enterprising merchants and door-
to-door vendors realized the possibilities of instalment terms for
shady business practices; their abuses in sales techniques and

collection methods also contributed to the negative side of instal-

ment credit.

110

Many retailers had built up the same prejudice against
instalment selling. They were discouraged by the prevailing low
standards of the credit industry and they were apprehensive about
promoting instalment credit because of their customers' negative
reactions to it, but most of all they had not yet realized its
potential as a merchandising device. The development of the mass-
produced automobile and its commonplace purchase as a consumer
durable brought respectability to instalment financing and led its
expansion into other areas of retail credit selling. Nugent's
historical review of American consumer credit suggests that the
important influence of instalment auto financing in reducing the
stigma attached to this kind of selling can be attributed to the
major sales finance companies which came into being with mass
automobile sales. They recognized that customer good will was
essential to their business and set high standards in instalment
dealings, forcing their adherence by smaller finance companies and

15 (The sales finance company and its

by auto dealers themselves.
development as a major source of instalment credit is discussed in
the section following.)

As retailers Observed the improved practices and the tre-
mendous success of auto financing institutions and as consumer
attitudes gradually became more favorable, they were increasingly
willing to accept instalment customers. At first stores limited
instalment sales to certain types of hard goods and required sizable

down payments, with the idea of reducing the risk of loss if buyers

defaulted. With increasing confidence in the credit process and a

111

better understanding of the behavior of consumers as credit users,
reliance was put more upon buyers' character and evidence of willing-
ness to pay than on the physical security of repossessible items
and soon every kind of merchandise could be bought with some kind
of instalment credit. As the practice gained respectability
consumers of middle and upper-middle income levels began to do
instalment buying and by the late twenties better retail stores
could openly promote instalment credit without fear of damaging
customers' good will or diminishing their own status in the eyes
of the clientele. Retail instalment selling had arrived. Its
constant growth has been interrupted only in the years of the Great
Depression and by the wartime shortages and credit restrictions of
the 19405. In the decade after the war's end consumer credit
increased five times, led by instalment financing of durable goods,
and retail stores had not closed themselves out of this credit boom.
As Cole observes
Without question, the retailing industry now regards this
type of credit as a necessary requisite. The success with
which they have been able to merchandise instalment sales is
such that the customer who does not buy in this way at some
time in his or her life is coming to be the rare exception.‘6
Instalment selling in the form of revolving credit emerged
after stores began granting regular charge credit to wage earners
and lower grades of credit risk. This customer group were urged
to open more limited forms of Open charge accounts and to comply
with certain weekly or monthly payment requirements and stores

introduced a number of special "short-term" charge account plans

which fitted the needs of this type of customer. Most successful

112

among numerous variations on the special account idea was the
revolving credit arrangement which combined the monthly repayment
feature of instalment terms with the traditional Open charge

account. The further develOpment of revolving credit by retail
stores into its present form reveals with particular clarity the
manner in which credit is changed and expanded by consumers' willing-
ness to buy goods of every sort on credit and sellers' need to find
ways of complying with this demand in order to compete successfully
for a share of consumers' discretionary spending.

The first revolving credit plan was offered by a large
eastern department store in 1938. It was quite different from the
form commonly offered today in that it required the account to be
cleared in four monthly payments and involved no finance charges.
The idea caught on at once among big department and specialty stores
because conventional charge arrangements had not proven adequate
to their merchandising problems; clothing and soft goods purchases
were being crowded out of family budgets as easy instalment terms
became more readily available for buying cars and durable goods.
Expansion of this type of instalment selling was halted temporarily
by the restrictions imposed on credit activities during World War II,
but after these were lifted there was clearly a transformation on
the part of retail stores from a passive acceptance of credit to
active promotion of instalment selling. As a part of this movement
many new forms of Special credit plans were devised, specifically
designed to broaden their customer base and maintain customer

allegiance by liberalizing credit terms. Newer, more liberal

113

versions of basic revolving plans were introduced to give customers
the Opportunity to buy softwares and less costly items on a
deferred payment basis and this proved to be a wise move for the
retail industry.

The revolving account turned the tide for our major
stores. It boosted overall sales enormously and with extended
payment plans soft goods came into their own. The store had
been correct in concluding that easy credit for durables had
been cutting into clothing sales but now consumers could buy
suits, dresses and even socks on long easy payments too.

Of course revolving credit isn't free to customers--most
plans carry a rather high rate of interest. The revolving
account is geared to the sale of apparel, toiletries, minor
utensils and soft goods for the home. It is now possible to
buy rapidly consumed goods and short lived items of clothing
with 12 months or more to pay. With revolving credit it has
become easier to buy but harder to budget and many consumers
are finding it easier to get into credit problems. For
instance, if you were to add a two-months supply of beauty aids
to your revolving account, you might be paying for these
niceties many months after they were used up. As payment
terms are stretched out, it is essential that the consumer
develop more realistic planning habits and he must give much
more careful consideration to the cost of purchase, replace-
ment, maintenance, interest charges and the addition to his
debt load when he decides to use the convenient terms of his
revolving account.

The post-war revolving accounts permitted the customer to
select the size of monthly payment best suited to his needs (to
which finance charges were added) while the store set the length of
time a revolving plan could run and these determined his credit
limit. This system represented quite an expansion in credit terms
for although it required clearing of charge balances within a
definite period, it did provide more time for repayment and usually
more credit for the consumer. Still, most stores found that these
basic plans held too tight a rein on the buying activities of their

customers. These shortcomings were overcome with the newest

114

version, the Option-terms plan which was first introduced by a
large Detroit store in 1956. This is the form commonly used today.
It provides for full payment in 30 days as with regular open charge
but the customer may opt for payment of a partial amount with a
finance charge added. The typical plan requires balances paid
within six to ten months if no further purchases are added on, but
as the debt is repaid partially under the plan the customer is
encouraged to continue buying within the original credit limit.
Ordinarily he does--if he did not, the store would consider its
sales promotion program to be inadequate.

From the retailer's perspective, the objective of revolving
credit is to increase sales and hence profits on merchandise and
there is added income from finance charges, but equally important
is the need to offer these terms in order to compete with other
retail establishments which have this policy. For the consumer,
however, it may be a mixed blessing: although the store determines
his credit limit, responsibility for the use and control of the
option-terms plan is placed squarely upon the credit user. He is
in the position of being able to charge a larger dollar amount of
merchandise than with the regular 30-day arrangement because of
the extended period over which payment can be made. Once the
account is established he may continue purchasing without making
repeated credit applications as with usual instalment buying.
Despite these advantages for the consumer there are pitfalls in
using revolving credit: buying may be too easy for certain users

and they may find themselves continually in debt to the store. In

115

some cases, particularly when revolving credit has been actively
sold to them, families have come to look upon revolving credit
'payments in the same light as other regular committed expense such
as tax deductions. Moreover, revolving credit customers are paying
directly for this privilege of delayed payment and at substantial
rates.

Among the major retailing firms Offering Optional-terms
revolving credit plans are Montgomery Wards and Sears. The heading
of Sears' revolving charge account and security agreement form

reads as follows:

YOUR SEARS CREDIT CARD CAN BE USED IN ALL 50 STATES:

*To charge anything Sears sells *In any Sears retail store

*With our catalog by phone or mail *InaSears catalog sales office

This speaks dramatically of the change in retail consumer credit
since 1910, when this same establishment admonished its customers

about firms that advertised time buying.

Contemporary Consumer Credit Organizations
Introduction
This chapter has traced the development of consumer credit

to show how it has evolved out of the demands and needs of indi-
viduals for material goods, how its development has been directed
by changing social patterns which have altered consumers' credit
requirements over the years, and how consumer credit has come to
be a firmly established social institution in this country. The

complex of practices and forms of transaction it now involves are

116

represented to the consuming public by a variety of credit-granting
and lending organizations which have emerged as the suppliers of
credit to individuals for consumption purposes.

The present section deals with these organizations, the
financial institutions from which most consumers obtain instalment
financing and cash loans--those organizations represented in
Figure l as the first point of contact of the consumer debtor with
the social structure of indebtedness. Although there is now a
variety of consumer credit suppliers, some of which have already
been mentioned in our description of consumer credit development,
attention here will be directed mainly to the two largest and most
important financial institutions of today, finance companies and
commercial banks. We will first describe the development of con-
sumer credit activities by these institutions, showing how they
came to reach positions of dominance in the major forms of consumer
financing within only the past few decades; we will then discuss
the intensely competitive environment within which these giants of
consumer finance now Operate and suggest some ways in which the
aggressive stance they have recently adopted affects the individual
consumer.

Organization, Practices, and
Customers Of'Finance Companies

Until very recently finance companies were clearly identi-
fied as two distinct types of financial institution--consumer
finance companies and sales finance companies. Our earlier chronicle

of the development Of consumer cash credit showed how the needs of

117

industrial workers forced the introduction of a form of credit
suited to their circumstances and led to the emergence of the small
loan company as its major supplier. These companies, the consumer
finance companies of today, operate under state small loan regula-
tions and do most of their business in instalment cash loans made
directly to consumers. Other financial institutions have emerged
in a similar way, to meet the need for a particular form of credit;
one of the most recent forms of specialized credit organization is
the sales finance company which made its entrance with the develOp-
ment of the automobile industry. This institution specializes in
consumer goods financing by buying instalment paper from car

18 As a result of

dealers and retailers of other consumer durables.
major changes in the organizational structure and activities of
finance companies within the past few years, a clear distinction
between them is no longer drawn. The Federal Reserve Board, for
example, now reports data only for finance companies in general,
although a firm which does more than half its volume of business in
the purchase of instalment contracts would still be defined as a
sales finance company even if it engages in some direct cash lending.
We will first describe the develOpment of the sales finance company
and then look at the services the present-day finance company pro-
vides to consumers.

The rise of sales finance companies illustrates the impor-
tant role of financial institutions in developing the consumer

credit system which has now become an essential part of the American

economy. These institutions emerged with the beginning of large

118

scale production of consumer goods in response to the growing
demand for instalment credit to buy consumer durables and to meet
the financing needs Of dealers and retailers. After 1900, as credit
arrangements were coming to be widely used and accepted, financing
companies were formed to supply working capital to manufacturers
and wholesalers by buying their Open accounts and notes receivable.
These discount companies were the forerunners, but it was only when
automobiles became pOpular a decade later that sales finance com-
panies were organized as they are known today. Dealers in consumer
goods were arranging instalment contracts with their customers, but
they needed an alternative to tying up their own capital in credit
selling. Banks of that day were dubious about the soundness of
these contracts and refused to make loans secured by instalment
paper so retailers turned to the discount companies who would take
over sales contracts and advance them the cash. Retail instalment
financing soon became a major part of their business and they thus
became known as instalment sales finance companies.

When the infant auto industry further incremented the need
for working capital this new form of financial institution was at
hand and the growth and development of sales finance companies has
Since paralleled and enhanced the expansion of automobile and
consumer goods manufacturing. Early motor cars were first bought
for cash by the well-to—do as a luxury or novelty but that market
was quickly saturated--everyone who could afford to buy for cash
had soon done so and there was need for some arrangement permitting

the less affluent to pay out of income while using the car. With

119

this broad new market beckoning, auto dealers sought to expand

sales by using their own limited capital to carry a few instalment
accounts but they lacked resources for extensive credit granting

and could not carry retail instalment contracts to maturity. Before
1915, despite public enthusiasm about automobiles both as status
items and as a practical means of transportation, fewer than half

a million families owned a car; auto production and distribution
were restricted because lack of cash prevented consumers from buy-
ing. Capital was just as scarce for early car manufacturers. They
were in no position to ship automobiles to dealers on credit terms
as is customary in other lines of business and they began the
practice (which continues today) of requiring immediate cash payment
from auto dealers; hence retail dealers were also in need of a
source of credit to finance their own inventories. Commercial

banks were the established institution upon which business tradi-
tionally depended for credit but they were unwilling or unable to
provide the new financing service required by the growing passenger
car demand. Capital shortage seriously impeded expansion of the
promising new industry until the gap was filled by sales finance
companies. The first corporation Specifically organized for auto
financing was set up in 1915, and by 1925 at least 100 independent
financing corporations had been established. In 1919 General Motors
formed GMAC (General Motors Acceptance Corporation) as a finance
subsidiary to facilitate its dealers' car sales across the nation
and the other big auto companies soon followed with their own

financing divisions. With the entry of sales finance companies

120

into the field of consumer credit the foundation for auto manu-
facturing as America's leading industry was established; the massive
financial resources necessary for mass distribution of automobiles
were at hand and availability of credit for use by middle-income
car buyers ensured an ample market for their mass production.
From the very beginning the automobile manufacturers and
,the sales finance companies supported each other's develop-
ment and flourished. The automobile was off on a distin-
guished career of upgrading the American standard of living.
Consumer credit was no longer only a part of the struggle
for existence; as specialized financial institutions emerged
in response to the demand for instalment financing, mass
credit became the means to upward social mobility and an
important feature of the great American struggle to achieve
social status.19
Vast changes have taken place in the field of consumer
goods financing in recent years and other institutions have cut
deeply into the market of the independent sales finance companies.
Sales finance divisions established by the nation's "big three"
auto makers-~GMAC, Ford Motor Credit Company, and Chrysler Financial
Corporation--have now become the dominant suppliers of automobile
financing. Many other large industries have also created finance
subsidiaries to hold the instalment paper produced in the parent
company's retail sales and to provide wholesale financing for its
dealers. Captive finance companies are now so widespread among
American industries one writer Observed that "the roster of companies

20 The Opera-

involved reads like a social register of corporations."
tion of finance subsidiaries is most concentrated among electrical
appliance, machinery, and transportation equipment manufacturers

including General Electric, International Harvester, Fruehauf, and

121

Cessna Aircraft, to name only a few. Some have extended their
activities far beyond the financing of their own product sales and
have become major enterprises in themselves. The wholly owned
subsidiary, General Electric Credit Corporation, for example,
earned $46.5 million in 1975, 8% of the parent company's net income.
The wide range of activities it is now involved in is clear in

their advertising message:

 

 

i (::r63(jit

i “ _
L1,; in... Tweaks Lee: -J CORPORATION

 

Administrative Offices:
Stamford, Connecticut 06904

 

Equipment and Fleet Leasing

Installment Purchase Plans

Computer Financing and Leasing

Capital Loans

Real Estate Financing

Accounts Receivable and Inventory Financing
Wholesaler, Retailer and Consumer Credit
Mobile Homes 0 Home Modernization 0 Boats

 

Progress for People and Business

 

 

 

 

Figure 2.--Advertisement suggesting range of activities
by finance subsidiaries.

In the area of retailing, several of the nation's large chain

store systems--Sears, Wards, Penney's Macy's, and many others--have
established huge wholly owned finance subsidiaries to carry out the
highly profitable function of providing retail purchase credit and
these retailers now derive an important part of their income from

consumer credit operations.

122

As durable goods and auto manufacturers expanded the opera-
tions of their finance subsidiaries andmas retail chains formed their
own affiliated finance companies, independent sales finance com-
panies adjusted by moving into other kinds of activity. Many of
these institutions have built up complex corporate structures
through mergers and acquisitions of other companies and by forming
holding companies and subsidiaries by which they have been able to
broaden the scope of their Operation and increase their volume of
business. Diversification has taken several different forms:
dealing in instalment paper other than automotive, such as mobile
homes, boats, aircraft, and farm machinery; entering new fields,
such as acquiring banks and forming insurance subsidiaries; moving
into other types of financing, particularly into consumer cash
lending. Some of the companies that pioneered in the field of
sales financing, such as Commercial Credit Company, GMAC, and
C.I.T. Corporation which were all founded before l920, now rank
among the world's largest financial institutions. They Operate
hundreds of offices throughout the nation and engage in a variety
of forms of business and finance.

Major changes in the character of both forms of finance
company have been taking place. The National Consumer Finance
Association, which conducts annual surveys of finance companies
and their operations, reports these industry trends for 1970 through

1974:

During the past several years most sales finance com-
panies have followed the policy of moving heavily into the
personal loan market. The effects of this policy are

123

reflected in a growing number of consumer finance companies
and a decline in the number of sales finance companies.
Moreover, these two types of companies are becoming much
more similar as to sources of income, sources of funds (and
other economic aspects).
Other trends are suggested by their data: a decrease in the number
of companies together with an increase in the number of offices
reflects the expansion of larger companies, mainly by purchase of
smaller ones. The report also notes that while consumer finance
companies continue to be somewhat more specialized in their func-
tion, they also have diversified their services through purchase
of or merger with companies offering services other than instal-

2] An illustration of this form of expansion is seen

ment loans.
in the case of two of the largest consumer finance companies:
Beneficial Corporation, owner of the Beneficial Financial System
which has nearly l,800 loan outlets, also owns Western Auto Supply
and Spiegel's; Household Finance Company Operates hundreds of
small loan offices across the country and also owns the Ben Franklin
Stores system.

The finance company has long been the principal money
source for the common man. Small loan laws were originally written
to help consumers who could not get legal loans elsewhere and to a
large extent it is still true that many families have no alternative--
unlike the typical bank customer who could qualify and borrow funds
from several sources. Finance companies in most states are regu-
lated by some form of small loan law which limits their interest

rate and the size of loans they make, and requires certain proce-

dures to be followed in consumer lending. Michigan currently

124

permits loans up to $l,500, but 32 states have raised their limit
to loans of $2,000 or more. (The original loan ceiling set by
early small loan laws was $300, about 20 times the average factory
worker's weekly pay at that time.) Although interest rates are
governed by state laws, finance company rates are the highest among
lending institutions. As of January l975, the average annual per-
centage rate was 2l.2%, but it ranges up to 36% in some states. In
Michigan the maximum is 30.4%--for a consumer borrowing $300 for one
year this adds up to $5l.66 in finance charges on his loan. These
relatively high interest rates are justified on the basis of the
type of operation conducted by finance companies. They lend mainly
to wage and salary earners who typically borrow small sums which
means that the dollar cost per loan of acquiring customers and
servicing their loans is high. Because they deal with higher risk
borrowers, finance companies must incur larger costs of credit
investigation to screen out those who lack the ability or the will
to repay. Finance companies experience a higher rate of bad debt
loss, partly because of high risk customers but also because the
average loan size is too small to persist in costly collection
efforts. Since finance company loans are always made on instalment
terms, the costs of making regular collection are high as compared
to the single-payment loans often granted by banks. Costly pro-
cedures of detailed accounting and special handling designed to
protect borrowers from abuses are imposed on finance companies by
state laws to which other lending institutions are not subject.

Finally, because of the higher risk of their lending Operations,

125

finance companies often have more difficulty in attracting capital
and must pay higher rates for it. By permitting rates high enough
to enable finance companies to do a profitable business in cash
loans, a legitimate source of funds remains available to marginal
borrowers who would not be likely to obtain legal funds elsewhere;
these were the people the small loan laws were originally written
to help.

Although finance companies lend to higher risk borrowers
more than do other financial institutions, their lending is not
limited to marginal customers. They serve the entire spectrum of
credit risk. The companies surveyed by the NCFA in l974 reported
that 25% of the number of loans made were to borrowers with monthly
incomes over $l,000, 24% to those earning between $750 and $l,000,
and 20% to those with incomes under $500. The largest number of
loans, 30%, were made to borrowers earning between $500 and $750
a month. The relatively low incomes of finance company borrowers
are explained by their age and their occupation. Half of all
finance company personal loans were made to borrowers under 35;
the single largest group (l5.3%) was 25 to 29 years old. The
second most prominent age group was that between 45 and 50, to
whom finance companies made l3.5% of all loans, and most likely
includes persons locked into lower paying occupations. The cus-
tomer group of finance companies is comprised mostly of blue-collar
workers, as seen in the percentage distribution of Table 2. The
average size of personal loans finance companies made to these

borrowers has ranged between $800 and $l,000 in the years l970

126

through 1974. The average retail instalment contract purchased on
durable goods in l974 ws $4,560 on new cars, $l,740 on used cars,
$480 on household appliances and equipment, and $l0,000 on mobile

homes.22

Table 2.--Percent of finance company loans by occupation of
borrower, l974.

 

. Percent of
Occupation of Borrowers Loans Made
Craftsmen, foremen, and kindred workers 35.2%
Operatives, laborers, and kindred workers 25.2
Service workers (including government,
civilian, military personnel) l5.

Clerical and kindred workers

Proprietors, managers, and office workers

Unemployed and miscellaneous or unreported occupations
Sales persons

Professional and semiprofessional excluding teachers
School teachers

dammmw
igneous-4014:-

 

Total l00.0%

 

SOURCE: National Consumer Finance Association based on survey data
reported by finance companies which operated 4,065 offices in l974.

Neifeld characterizes the typical finance company borrower
as representative of the middle income group in our society; a
composite picture would show that 80% are married with an average
of two children, one in ten is widowed or divorced, and their
average age is 30 to 40. More than half own cars, a third own
homes; about three-fourths carry life insurance and one-fourth
have some kind of savings. More than half are high school educated

and l in ll are college graduates; about half are union members.

127

Although many of these people have some protection against emergency
in the form of accident and hospital insurance, one of their main
reasons for taking out cash loans is to meet the impact of unex-
pected emergencies such as accidents, medical and dental care, car
expenses,auuijob loss, where a need for funds arises suddenly and
they need more money in a bulk sum than they have on hand. This
group accounts for 25 to 30% of the volume of personal loan demand.
The number one reason for finance company borrowing (40% of loan
volume)'hsto refinance existing obligations or consolidate already
existing personal debts.

By consolidating his debts the borrower is able to clear
up scattered obligations and replace them by a single debt
that can be paid off in future instalments. The average
borrower obtains new loans, simultaneously paying off the
balance of the existigg loan, twice before finally paying
off hlS indebtedness.

The companies surveyed by the NCFA in l974 reported that almost
two-thirds of their loans were made to present borrowers, persons
who already had a loan with their company. The third main reason
for borrowing is to pay for miscellaneous items: among loans in
typical finance company offices would be those for car and home
repairs, taxes and insurance premiums, vacations, moving expenses,
school tuition, funeral costs, purchases of farm animals, horses,
used cars, motorcycles, home appliances, and furniture; loans to
assist relatives, finance childbirth, buy new clothing, and pay for
winter fuel supplies. Although these are generally reasonable and

legitimate uses for borrowed money, and the vast majority of bor-

rowers do make good on their loan obligations to finance companies,

128

many apparently underestimate their will or ability to get the money
paid back. Mathews found that among the bankrupted subjects of

his study, finance companies were the second most important credit
institution (the largest dollar amount of these bankrupts' debt

was owed to real estate lenders). Mathews comments that finding
loan companies to be important creditors to bankrupts, particularly
those in lower debt ranges, "is not surprising since finance compan-
ies more than other financial institutions traditionally loan to a
higher risk market which includes many of the potential bankrupts,
e.g., relatively young members of the blue collar worker class who
do not have the credit worthiness to qualify for other sources of

funds."24

Brosky's study of 300 bankruptcy cases in Seattle also
showed that finance companies were the single most important credit
group in his study; only l26 of his subjects owed money to banks
while 261 were in debt to finance companies and l80 of them owed
more than one company, some as many as seven. Brosky places the
responsibility for bankruptcies largely on "overloading" of debtors
by finance companies, suggesting that many borrowers are inexperi-
enced in money management and look to creditors for advice on their
capacity to handle debt, but finance companies are remiss in
permitting customers to incur more debt than they can safely handle.
He cites several extreme cases to make this point: Debtor C, for
example, owed $7,000 to five different finance companies which
constituted 97% of the total debt load which put him into bank-
ruptcy. Debtor 0, who owed $3,500 to four companies, had committed

himself to 22 months of future income with this indebtedness.25

129

Many of the debtors interviewed in the present research had had
experience with finance companies, and we will examine the nature
of those relationships from the debtor's perspective in Chapter 4.

Consumer Credit Activity
by Commercial Banks

 

The commercial bank of today is a very different institution
than it was a few decades ago. Historically banks have been estab-
lished to serve the financial needs of businesses for commercial
purposes and while many specialized institutions were growing up
around them to serve special sectors of the credit market, banking
policies remained conservatively business oriented and prejudiced
against consumer financing. Their major interest was in commercial
lending and a business's loan application could be considered in
terms of its assets and profit-making ability; evaluating a consumer
applicant's family budget to determine his qualification for a loan
seemed alien to traditional banking practice--and bank management
had genuine doubt as to whether working peOple could be trusted
with borrowed money. Through the 19205, with the exception of some
real estate lending and a few single-payment loans made to indi-
viduals with high incomes, banks stood aloof from the develOpments
in the consumer cash loan field and automobile financing. At one
point the American Bankers Association made a study of new develop-
ments in the field and then advised its membership that lending for
consumption purposes was unsound and not a prOper function for

commercial banks. This advice was disregarded by only one major

130

bank, and its Opening of the first personal loan department in 1928
met with considerable disapproval in banking circles.

These attitudes changed with the serious decline in commer-
cial lending suffered by banks during the 19305 and, out of an
urgent need to find new outlets for their idle funds, they overcame
their reluctance to enter the field of consumer finance. After
their initial venture into personal credit the character of bank
dealings with consumers soon moved beyond uncertain acceptance
toward a concerted effort to create a new image and to broaden
their services in order to attract a broader customer base.

To bolster diminishing profits bankers exchanged their
aversion to a positive hunger for as many small loans as they
could get. They learned the attractiveness of instalment
loans and the value of personal loan activity to the bank and
to the community. Prior to l935 less than 100 banks engaged
in consumer instalment financing but in that year the ABA
completely reversed its former position on consumer credit
and encouraged member banks to seek new sources of revenue
in personal loan plans. In 1938 they (in an American Bankers
Association Bulletin) added a new rationalization for ventur-
ing into consumer credit. In the few years they had become
conscious that their public relations had been poor and their
former attitude too exclusive and standoffish. In consumer
credit they now saw not only an opportunity to invest money
profitably but also a practical means to create good will for
themselves in the community, to humanize the banker as one
anxious to help the little fellow in financial trouble.26

Since the middle fifties, with the tremendous expansion of
consumer finance that accompanied post-war durable goods purchas-
ing, modern banking has been marked by an aggressive stance toward
consumer credit activities. They have become the dominant institu-
tion in durable goods and automobile financing and are rapidly
overtaking finance companies' lead in the area of instalment cash

lending. Commercial banks now account for half of all outstanding

131

instalment credit, including three-fifths of automobile financing,
almost half of other consumer goods credit, and over a third of
personal instalment loans, and they hold a third of all noninstal-
ment credit in addition. Bank consumer loans together with home
mortgages are now almost equal to the amount of their commercial
and industrial loans.

While business-related credit remains the main function of
commercial banks, their consumer lending activity covers a broad
spectrum and they offer a wide array of other financial services
to individuals as well. Unlike finance companies which deal
exclusively in instalment credit and are best suited to meeting
the demands of wage earners for small cash loans, banks are the
only institution to provide the full range of forms of personal
cash loans including conventional (single-payment) loans, ordinary
instalment loans, and a variety of new types of instalment loan
plans, some having unusual features devised by banks to distinguish
their product from that of competing institutions. These include
cash advances on bank cards and check-credit plans which were des-
cribed earlier as forms of instalment credit most attractive to
more affluent bank customers for convenience purposes. Also of
greatest use to lower risk consumers are noninstalment cash loans,
about 90% of which are made by commercial banks (over $ll billion
in l974). These single-payment bank loans are usually extended to
accommodate borrowers engaged in some specific transaction and
repayment is expected from the transaction rather than through a

formal repayment program. They run for short periods, their average

132

size is much larger than instalment loans, and they carry a lower
rate of interest. If collateral is required, depending on the
borrower's credit risk relative to loan size, it is usually in the
form of securities or other easily liquidated assets.

While banks offer these types Of credit useful to certain
kinds of customers which are not obtainable elsewhere, they also do
a considerable business in instalment cash lending. Historically
banks made instalment loans to finance consumer durables purchases
and significant reliance was placed upon the value of the item as
collateral even though repayment was expected to come from the
borrower's current income; in recent years they have come to put
emphasis more on the repayment source rather than the collateral
value and banks now extend instalment loans for many purposes,
ranging from the purchase of durables and consumer services (such
as medical bills) to such unnecessary purposes as vacation expenses.
A large share of bank instalment loans are made for the purchase of
automobiles. Although other types of credit could be used to buy
large durable items, many consumers compare the costs of other
instalment financing with that of a personal bank loan and use the
cheapest money available to them. In some cases peOple prefer to
borrow directly for major purchases because of prestige or conven—
tional association with a particular institution. Interest rates
on bank instalment loans are generally lower than charged by
finance companies-—the common average rate is currently about l3.5%
on a one-year loan. For smaller consumer loans a large part of

the interest the lender receives is used to cover the costs of

133

servicing the loan rather than as payment for the use of bank funds.
Servicing costs include a credit check on the customer, processing
the loan application, providing records for the individual payments,
following up on any late payment, and allowing reserves for possible
loss due to nonpayment. In some cases these costs exceed the return
and small loans, even at much higher rates, are seldom profitable.
This was a major reason for banks' develOpment of credit cards and
check-credit plans; their rates are reasonably competitive with
direct instalment bank loans and they provide a more efficient and
profitable way to provide consumer credit.

Although banks compete directly with finance companies in
the area of personal instalment lending, the two institutions have
had somewhat different patterns of customer loyalty. Finance
companies have been most successful in attracting and serving wage
earners and customers of limited means while the credit associations
of the professional and managerial occupation groups have typically
been with the commercial banks. Bank customers tend to have higher
levels of income and occupational stability; they represent a
lower degree of risk and the amount they borrow is usually larger,
in line with their more substantial incomes. The services of banks
and the general approach they make to consumers have traditionally
been of a different character than those of finance companies. The
finance company stresses the ease and speed of obtaining credit
and the simplicity and convenience they Offer to borrowers in

obtaining loans and making repayment.

134

_ To broaden their customer appeal and serve the convenience
of their customers, finance companies usually locate their
offices in easily accessible sites, often in the so-called
high rent districts. Such an office stands ready to accept
loan applications, make investigations of the applicants,
accept payments on the premises and by mail, as well as to
handle delinquencies and other matters.27

Their advertising is atuned to the needs and convenience of their
traditional customer grouping, mainly people with problems and
wants that can be satisfied with promptly transacted loans of
modest amounts. A sampling of the finance company advertisements
appearing in the Meridian classified telephone book illustrates
this orientation:
If there's anything in this big yellow book you'd like to
own, remember who can help you buy it. Call Avco Financial
Services.
IF CASH CAN HELP . . . Phone or see us now. Loans for what-
ever you need or want. Payments planned to fit your budget.
For same-day service call Liberty Loan.
Cash? You're good for more at--BENEFICIAL. Why settle for
less money than you really want? Tell us the full amount
you have in mind. You'll be surprised at how much you can
get at Beneficial--where the money is.
WE'LL TAKE YOUR APPLICATION OVER THE PHONE. It only takes a
few minutes. In fact, if you call in the morning, it's not
unusual to pick up your money the same day. And don't worry.
There's no fine print--no fast talk. Borrow up to $1500.
Call today--Pacific Finance.

As banks have become more active in consumer lending they
have had to make adjustments in order to compete successfully in
the instalment loan market against such competitors as finance
companies. Cole cites studies of consumer attitudes which showed
that one reason banks found it difficult to broaden their clientele

(in the l9505) was their projection of "a stern image as a symbol

135

of unemotional morality.” One study looked into the paradox of
loan company growth in spite of the fact that banks were lenient
in accepting peOple for loans and offered personal loans at lower
interest; it was concluded that the loan companies' big advantage
over banks was their lower moral tone. The image of banks came
across to borrowers as righteous and condescending. Cole sum-
marizes the general changes in the approach of banks to consumers:

Characteristically banks have been conservative financial
institutions and have been so regarded by most consumers.

The conservative nature of their management; the early stigma
associated with consumer instalment financing; the legal
requirements, in some instances, and the reluctance to charge
higher rates so as to profit on small loans; and, in general,
the bank's preoccupation with commercial needs--all these fac-
tors slowed the entrance of banks into financing of consumer
needs. In addition, the bank's big handicap was its stern
moral image. . . .

Most present day banks have set out to overcome such
negative attitudes and have accepted all kinds of consumer
credit as basic to our economy. In adOpting the policy that
consumer financing was sound and aggressively seeking con-
sumer credit customers, they have gradually become one of
the dominant sources for consumer loans. To their good for-
tune, they have a large customer group which exemplifies
stability and a low degree of risk.

In expanding their present day customer group, banks have
had to compete against other aggressive consumer loan insti-
tutions. Much of the increase in bank customers has been
accomplished by adOpting the sales promotion techniques which
were known and proved to appeal to the masses. They have
adjusted banking hours to conform to customers' convenience;
provided friendly, convenient, comfortable and attractive
loan quarters; and used the most effective advertising media
and techniques. . . . The overall effect of this changed
approach has been its success in creating a very different
image of banks and bankers than had formerly existed.28

There is hard evidence to show that banks are now positioned
to wage intensive campaigns for the patronage of consumer borrowers;

this abstract of a recent study by the Federal Reserve Board is an

example:

136

"Competition Between Banks and Finance Companies: A Cross
Section Study of Personal Loan Debtors." The study uses
national survey data to get at the question of inter-industry
competition. Multivariate profits analysis is employed to
analyze the characteristics of personal loan debtors at
banks versus the characteristics of debtors at finance com-
panies. It is found that banks generally serve low risk bor-
rowers while finance companies service the entire spectrum
of credit risk including low risk customers. Although the
mean profiles of debtors are different at the two institu-
tions, there is substantial overlap in debtor characteristics.
It is concluded that the considerable overlap of customers at
the margin thereby implies a high degree of actual or poten-
tial competition. 9
Inter-industry competition is the characterizing feature of today's
consumer credit environment. The intensity of this competition is
made clear in the graph on page l37, which reveals the success of
banks' penetration into finance company specialties over the past
decade. These comparisons show that a relatively small percentage
of decline in automobile and other consumer goods financing by
finance companies has put them far behind banks during a decade
in which the amounts outstanding in these forms of instalment
credit rose dramatically. Banks retained over half the auto financ-
ing market and moved far ahead in the financing of other consumer
goods. Finance companies remain the dominant institution for per-
sonal instalment loans but their expansion has not kept pace with

increases in the personal loan business.

Conclusion

The changing character of banks brings to light two dis-
tinct trends in the relationship between the aggregate of consumer
credit users and the institutional structure which evolved to meet

the need for consumer financing: the first, in the period between

137

Other consumer

 

 

Personal loans Automobile paper goods paper
60 _.
JEZLEL. $52.0
$44.3
4O -— r‘—-——_
- ‘$28.4 58'8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56.0%
24.1%”
2.4%
_‘ w, , //‘ .
1965 1974 1965 1974 1965 1974

Commercial banks m

Finance Companies 74

Figure 3.--Commercial bank and finance company share of
consumer instalment credit markets, l965 and 1974.
(In billions of dollars)

SOURCE: Federal Reserve Board.

138

about l9l5 and the l960s, was marked by growth in consumer goods
production and the rise of a system of financial institutions to
provide the credit essential for nurturing a mass demand for those
goods. In this period the consumer proved himself not only a good
risk but an important force in the nation's economy and a major
customer to the finance business. The financing organizations that
were willing to serve consumer credit needs in the formative years
gained an early foothold in a rich and growing market and in this
era banks missed their chance. Reviewing these events in the
changing world of banking, one banking authority points to their
lack of vision and failure to adjust and change with the times as
the explanation for lost Opportunities when voids were filled by
nonbaking intermediaries saying, "The classic example is seen in
the early reluctance of bankers to understand consumer credit which
led to the development of the great sales finance companies to
finance the auto industry."30
Since the mid-sixties a very different kind of person-
structure relationship between consumers and credit granters has
been emerging. The credit suppliers of today are part of a mature
and robust consumer credit institution, one which requires organi-
zations to take a completely different approach toward credit
users. In this new environment the goal orientations of credit
granters have been transformed; their institutional aim has moved
far beyond accommodation of consumers' needs. Consumers are now
enticed and urged and even badgered into instalment buying and

cash borrowing because their participation in a credit market on

139

a mass scale is essential to success in the credit industry. The
defensive attitude of institutional suppliers of credit has given
way to vigorous promotion of credit. For sellers of consumer
goods, credit often represents a more profitable enterprise than
the sale of goods itself; for lending institutions, consumer credit
is a business in itself.

The several cash lending institutions may be regarded
as "sellers" of money. This concept of cash lending insti-
tutions clearly establishes them as MERCHANDISERS of credit.
The supply and cost of money to cash lending institutions
have their parallel in the supply and cost of goods to retail
firms; their building of a customer group which seeks cash
loans and the same group which will return when the need
again exists has its counterpart in the goodwill, promotion,
and repeat sales to satisfied customers so well understood
by retailers of other commodities. The profit motive attracts
capital, institutions, and personnel to this field just as
this motive lends impetus to most economic activity. Sellers
of money are confronted with the same problems as other types
of merchandising establishments, and the degree of their suc-
cess will often hinge on the same kind of merchandising
methods used by successful merchants of goods and services.

The importance of this change in the attitudes and activities of
credit granters lies in its impact on the individual. Viewed from
the consumer's side of the picture, the changed environment of
financial institutions has given a different meaning to the use of
credit.

The original function of consumer credit was to sell mer-
-chandise and services. Credit in this sense had a social
purpose whereby the goods or services bought on time had
some human use. This was the ultimate function. Among
other things it helped in the mass distribution of goods and
raised the standard of living. Recently, however, sellers
of credit discovered more profit could be derived from debt
itself so that the sale of merchandise became subordinated
to the sale of credit. This phenomenon of debt merchandising
in part explains why the consumer is being subjected to a
constant pounding to Buy Now, Pay Later.3

140

The consumer in this era of debt merchandising is a new
breed, quite different from the turn-of-the-century factory worker
with Eggg_for cash loans and changed even from post-war consumers
whose wggt_of middle-class consumer items generated an explosion
in the production of goods and the supply of instalment credit.
Today consumers of every social-economic level gxpgct_credit to be
available for virtually any kind of transaction and credit granters
willingly meet and encourage these expectations. The current
generation of young, employed American consumers has never known
it any other way. For them credit is a right and "buy now, pay
later" is a way of life. There is nothing uncommon or discom-
forting about indebtedness. Credit is the accepted way of acquiring
the things they want and in most cases this system serves them
well. For the relatively few who suffer misadventure through
financial carelessness or an unexpected emergency the problems
attending the inability to pay later can be difficult, for their
creditors are as business-like about collecting as they are in
making credit available. Those organizations that become relevant

to the consumer with indebtedness troubles are our next concern.

141

FOOTNOTES

1See Paul Schervish, 1973, p. 52.

2Board of Governors of the Federal Reserve System, Supplement

 

to Banking and Monetary Statistics, Section 16 (new), "Consumer
Credit." Washington: 1965, p. 2. This document describes the pur-
pose and history of Federal Reserve data, its sources and methods
of compilation. Much of the information presented in the first
part of Chapter 2 is based on this pamphlet but specific data are
taken from more recent issues of the Federal Reserve Bulletin which
is pub1ished monthly and contains the most comprehensive tabula-
tions on personal indebtedness that are available.

 

3Louis Selig, "An American Looks at European Credit,"
Management. St. Louis: Associated Credit Bureaus of America,
1964, p. 22.

4Only about 12% of the instalment contracts they originate
are actually carried by retailers. Retail instalment transactions
are financed primarily by selling the instalment paper at discount
to commercial banks and sales finance companies. We will deal with
these operations at the end of this chapter.

 

5Lewis Mandell, 1972, pp. 7 and 69.

60espite the slowed economy in 1974, bank card credit, both
cash advances and credit for retail purchases, remained strong
according to Federal Reserve data reported in early 1975. This is
partly explained by the special cyclical behavior of this kind of
indebtedness: "On the demand side, card credit may be used for a
wide variety of relatively small purchases and consumers may
increase their use of such credit during the early stages of
cyclical downturns in an attempt to maintain customary standards
of living. On the supply side, banks find it difficult to curtail
card usage because for the most part such usage involves exercis-
ing lines of credit already authorized. In contrast, banks can
restrict direct automobile lending more readily; since each auto
loan requires individual approval, the banks can tighten lending
standards and apply those standards immediately to all subsequent
extensions of credit. Last year's expansion of indebtedness on
card credit also reflected a trend at banks toward diverting to
credit card plans many small personal and goods-financing loans.
The reasons for the shift include the lower administrative costs
of handling original and repeat extensions of credit under a card
plan, the greater likelihood of generating additional borrowing,
and the higher finance charges that are generally applied on credit
card balances. "Consumer Lending at Commercial Banks," Federal
Reserve Bulletin 61 (May 1975), pp. 268-69.

142

7Holders of T&E cards are regarded as "a different class of
person" by credit granters. "Their average income is roughly
double that of bank card holders and they pay up within 30 days--
thezpoor risks have been screened out." Richard Stinson, 1974,
p. 9.

8Robert Cole, 1976, p. 171.

9M. R. Neifeld, 1961, p. 16. The following section is
taken from Neifeld's presentation, pp. 16-23.

10The law distinguishes consumer credit (credit for consump-
tion with an individual as Obligor) from credit for production
involving business firms and a different rule of law is applied to
each of the two categories of consumer credit, sale credit--
arising directly from the sale of goods, and loan credit--involving
a loan of money. The overall rule applying to sale credit is that
the difference between a time sale and a cash sale is a matter of
agreement between contracting parties and is of no concern to the
general interest statutes. Sale credit requires the use of secu-
rity instruments (chattel mortgage, conditional sales contract)
the purpose of which is to enable the seller to repossess the goods
if the agreed periodic payments are not made. With loan credit the
rule of law is that a loan or forbearance of money is subject to
and limited by general interest laws. These so-called usury laws
set maximum interest rates which may be charged in the absence of
specific legislation permitting higher rates.

In recognition of the economic fact that the cost of operat-
ing consumer credit is higher than the rate of interest permitted
by general interest statutes, special legislation has been enacted
by the states to accord commercial banks, industrial banks, credit
unions, sales finance companies,awwismall loan companies the right
to exceed the limitations of general interest laws. Ibid., p. 86.

11
12

Ibid., p. 24.
Ibid., p. 429.

13Data compiled by the Federal Reserve Board on dollar
volume of retail charge account credit from 1929 to 1974 are pre-
sented by Cole and it is his analysis and interpretation of these
data in terms of percentages which are used here. Robert Cole,
1976. pp. 160-61.

14

15Rolf Nugent, 1939, p. 54. Nugent's book includes a summary
account of the early growth and develOpment of consumer credit in
the United States. This has served as a reference for much of the
material presented in this chapter. See Nugent, pp. 42-64.

Carl Dauten, 1956, p. 11.

143

'5Robert Cole, 1976, p. 122.
'7Char1es Neal, 1968, pp. 152-53.
18

Instalment credit purchasing of automobiles (and certain
other types of consumer durables) follows an established pattern:
after the dealer and customer have agreed on a price, the customer
makes a down payment, supplies the necessary information for
establishing his credit worthiness, and signs an instalment sales
contract prepared by the dealer for the remaining cash balance to
which finance charges are added. The dealer then delivers the
debt instrument to the finance company to be sold for an agreed or
formula-fixed price and the dealer is paid the purchase price
immediately. (Arrangement will usually have been made at an
earlier time between the dealer and the sales finance company to
provide for such transactions.) The finance company having pur-
chased the contract proceeds to collect the instalment payments
from the consumer as they come due. Each instalment payment
amortizes the debt so that the entire amount is liquidated upon
maturity of the contract, a feature intended to provide a sound
relationship between the depreciation rate of the financed item
and the consumer's equity in it during the life of the contract.
The income of the finance company derives from the difference
between the face of the note as paid by the instalment purchaser
and the discounted amount at which the note is bought from the
dealer.

As a separate but related function, sales finance companies
also provide inventory financing for dealers, an operation known
as floor planning or flooring.

19M. R. Neifeld, 1961, p. 311.

20Victor Andrews, "Captive Finance Companies," Harvard
Business Review, July-August 1964, p. 82.

21"NCFA Research Report on Finance Companies in 1974,"
Washington: National Consumer Finance Association, July 21, 1975,
p. 3. The information reported is based on data submitted by 341
finance companies which Operated 15,903 offices in 1974. These
companies held $13,565 million in personal loans, an amount equal
to 79% of the personal loan outstandings of all finance companies
as reported by the Federal Reserve Board.

221bid., p. 8.

23M. R. Neifeld, 1961, p. 314.

24H. Lee Mathews, 1969, p. 44.

25John J. Brosky, 1965, pp. 16-17, 50 and 69.

144

26M. R. Neifeld, 1961, p. 341.

27Robert Cole, 1976, p. 197.

28Ibid., p. 186.

29"Research on Consumer Credit, Early 1975," Washington:
National Consumer Finance Association, 1975, p. 25.

3OHerbert Prochnow, 1974, p. 320. The quote makes reference
to "intermediaries"--these are institutions having the dual purpose
of receiving funds from savers and lending to borrowers as do
banks, savings and loan associations, and credit unions. Business
organizations which comprise the consumer credit "industry" are
excluded from this definition. These include sales finance com-
panies, small loan companies, and industrial banks whose primary
purpose it is to finance the consumer through direct cash loans or
the purchase of instalment sales paper.

3'Robert Cole, 1976, p. 176.

32Hillel Black, 1961, p. 216.

CHAPTER 3

THE ORGANIZATIONAL ENVIRONMENT OF INDEBTEDNESS CAREERS

The Nature of the Consumer Debt Problem

 

We have been looking at the vast financial structure through
which billions of dollars flow to be used for consumption purposes
by individuals. We have seen that the widespread use of credit
has brought material abundance to large segments of the population
and has been largely responsible for the phenomenal growth of the
American economy. This is the positive side of the picture, but
the total outstanding amount of consumer gredit_may also be viewed
as nearly two hundred billion dollars in outstanding personal debt.
One might ask if this is not too great a debt burden--what does it
mean for borrowers as a whole and for the American economy?
Economists observe that credit has enabled consumers to accumulate
great masses of consumer capital assets and this should be taken
into consideration. A consumer balance sheet using aggregate data
pertaining to late 1974 would show that consumers had total assets
of $3,509.3 billion and total liabilities of $651.5 billion, leav-
ing a Consumer net worth of $2,857.8 billion. That net worth
reflects an owner's equity of 81.4% of consumer assets--(this
measure of financial condition indicates stronger positions with
higher percentage). The ratio of total assets to all debts was

5.4 to l, and for assets to debts other than home mortgages it was

145

146

10.4 to 1. In view of such figures one economist commented, "Based
upon these customary credit ratios, the consumer, in the aggregate,
was in very good shape."1 The Brookings Institution looks at it
from the perspective of bankruptcy economics, and they take a simi-
lar view: "Total private debt has grown rapidly in the last two
decades but there is little empirical evidence that the debt burden
is too great for borrowers as a whole."

A willingness to seek and extend credit is essential to
the smooth functioning of the U.S. economy, whose institu-
tional structure efficiently accumulates the nation's savings
and channels them into the hands of borrowers. In the pro-
cess, situations inevitably arise in which the borrower is
unable or unwilling to repay. Indeed, the absence of credit
losses would be an indication of economic inefficiency, since
it would suggest that the marketplace was not being allowed
to work and that lenders were withholding funds from marginal
borrowers as a class, even though such borrowers would be
willing and able to pay interest rates sufficient to cover
losses on bad debts.

 

 

The Brookings people hold that although some $2 billion, about 0.2%
of the private debt outstanding, is lost to creditors each year by
discharge in bankruptcy, "This may be viewed as a cost of the
existing credit system-~a cost that is widely diffused throughout

2 In terms of its overall effect on the money and

the economy."
credit situation, consumer debt carries much less weight than
either the debt of private business or government. In contrast to
the latter, where large amounts of debt are owed by a few units
and changes in the policy of any one may have a broad impact on
the market, no single consumer unit could have great economic

effect because there are millions of consumers, each owing a rela-

tively small amount.

147

It appears then that in spite of the great magnitude of
outstanding consumer debt, the credit system, on balance, benefits
the aggregate of consumers. Unpaid consumer debt is an expected
outcome of this system, it is the price we pay for broad, liberal
credit granting. Debt loss represents only a small fraction of the
credit extended and it is distributed across millions of consumers
so that it poses no threat to the economy. In short, consumer

debt is not so much an economic problem as it is a human problem.

Consumer Debt as an Individual Problem

Debt loss is small relative to the billions of dollars
loaned to consumers each year and it is absorbed by paying consumers
and by society as a whole. Because individuals who pay their debts
in full far outnumber those who don't, it has been possible for
those who sell credit to widely extend such privileges. Americans
have a history of promptly paying bills and the credit-collection
industry relies to a great degree on the American consumer's record

as a dependable bill payer.

Deeply inculcated into the American conscience is a bill-
paying ethic that is rooted back in the small-town tradition
of face-to-face commercial dealings which held debt dis-
reputable and default unthinkable. We are traditionally a
nation of bill payers and for the most part we remain so. We
pay, but not necessarily because we are honest, claims
E. H. Barnes, a former psychology instructor who directs a
large Chicago bill collection organization: "Prompt payment
of debts among the majority of people is the result of a
complex process of social conditioning involving parental
teaching, social pressures, vague fears of legal consequences
and so on."

But the bill-paying ethic, which once meant cash payment
in toto for goods and services upon presentation of the bill,
has been drastically redefined. We no longer expect to
Operate our home economics in the black. In fact, sociologists

148

now define family solvency in terms of "debt-income ratio."
Any disturbance of the delicate debt-income ratio, however,
is sufficient to push many of us over the line into serious
financial trouble.3

Our main interest is in the consumer debtor who, by miscalculation
or some disturbing event in his daily life, has upset the balance
between his resources and the debt load he can safely carry. Once
the line has been crossed he is subject to the psychological pres-
suring of collectors which is largely an exploitation of motiva-
tions underlying the "bill-paying ethic" and subtle manipulation of
debtors' fears.

We begin by asking, Who is the typical consumer debtor?

What are the sort of circumstances that might lead him to a trouble-
some situation with debt? Part of the answer is found in an

address before a Consumer Credit Conference by Professor of Market-
ing Reavis Cox. Commenting that recent studies of the Spending and
borrowing of consumers as individuals (in contrast to aggregative
studies of consumer behavior) had made much more information avail-
able on consumer credit use, he spoke as follows:

From these stores of data are beginning to emerge some
fairly definite ideas as to what consumer debtors are and
are not like. One conclusion to which they lead us is that
the family that makes no use whatsoever of consumer credit in
any of its many forms is a very rare family indeed. The
belief that only the improvident and careless borrow to con-
sume, we now can hold true only if we call virtually the
entire population improvident.

We have learned also that because the consumers who use
consumer credit in one form or another are enormously numerous
and vary widely in almost every regard, no real meaning can be
attached to the term "typical consumer debtor. " There is
simply no such thing as a typical consumer borrower. .

The consuming units that buy something or other on install-

ments in a normal peacetime year show only a slight tendency
to cluster more heavily in the middle income classes than

149

does the pOpulation itself. They are in fact scattered
throughout the full range of income. They live in all regions
of the country and come from all national and racial stocks,
all age groups and family sizes.

Information now being accumulated also makes possible
clearer conclusions concerning consumers who get into trouble
because of debt. We have ample evidence now to conclude that
only a small percentage of consumers get into serious trouble
because of their use of consumer credit. We have been ade-
quately warned that for many consumers who do get into serious
difficulties, their troubles as debtors may be symptoms of the
social ills from which they suffer. . . . The roots often lie
in factors quite different from the misuse of credit that
serve: to precipitate their trouble and bring about their down-
fall.

Authoritative information has been compiled over the years
through the various series of consumer surveys conducted by the
University of Michigan Survey Research Center.) On the basis of
these data on the distribution of consumer income, assets, and
debt, and on durable goods expenditures and use of instalment
credit, some widely held misconceptions about credit users are
being set right. These data show that, contrary to pOpular belief,
lower income peOple are not the most common users of credit and
credit is not a need or emergency phenomenon, sought to tide the
family over a crisis or reluctantly accepted out of necessity.
Statistics show that credit is most commonly used by middle-class
families, those with (early 19705) incomes between $10,000 and
$15,000. The Survey Research Center reports that 60% of these
families owed some instalment debt in 1971 and, according to
national four-year averages from these surveys, peOple in this
income level also carry the largest debt load. Those with average

annual incomes of $12,500 to $14,999 had an average instalment

150

debt of $1,247, compared with $659 for those earning $5,000 to $5,999,
and $328 for low—income people in the $3,000 to $4,999 bracket.
Amount of debt varies considerably with family life cycle

factors. The Survey Research Center's Surveys of Consumers l97l-72,

 

which reports outstanding instalment debt among American families,
found that
Younger families typically are more prone to borrow than

are older families; 66% of families with heads under age 25

and 67% with heads between 25 and 34 had outstanding debt in

1971. This proportion decreased with each age group after

the age of 35.5
In general, the heaviest users of credit are families with children,
heads of the household under 45 years old, and annual incomes of
$10,000-$15,000. Two out of every three families with these char-
acteristics are in debt. Understandably, credit is most useful to
young families who are just beginning to accumulate assets, fur-
nishings, and personal belongings at the same time that they have
the heavy expenses of growing children. While these families do
not have big incomes, for them occupational advances are particu-
larly frequent and income expectations are optimistic. For those
with stable occupations and incomes and good prospects for con-
tinued increases in earnings, their heavy use of credit as a quick
way to acquire things is not necessarily dangerous.

The extent to which debt represents a burden may be evalu-

ated in terms of the amount of family income that is committed to
debt repayment. Changes in family needs, as the age of family

head increases, are reflected in the level of commitment for debt

repayment by age groups. The Michigan studies show that the

151

families with 10% or more of their disposable income committed to
repayment of instalment debt are distributed by age group in this
manner: young families, head under age 25, 39% and age 25-34,
26%; growing families, age 35-44, 19% and age 45-54, 22%; contract-
ing families, age 55-64, 14%. As to be expected among retired
families, only 10% of those age 65 to 74 and 3% of those over 74
had this much of their income committed to debt repayment.
According to findings reported by the 1970 Survey of Consumer
Finances, an instalment debt burden of 20-40% or more of the family
income is not uncommon; 16% of families with heads younger than 25
and 10% of those in the 25-34 age group lay out at least one-fifth
of their incomes in instalment payments; 21% of families with
children under 6 and household head younger than 45 had a payment-
to-income ratio of lO-19%, and 11% of such families had a higher

6

payment-income ratio. The perilous position of young families

with an unfavorable debt-tO-income ratio is illustrated in this

news item:

When George P. got married five years ago, he and his
bride took out a $500 loan to furnish their new apartment.
Two children, nine credit cards and seven loans later, the
young bank clerk owed over $6,000, more than he earns in six
months.

Financial experts say that George, who doesn't drink or
gamble and is in his early 205, is representative of millions
of Americans who have gotten into debt over their heads.7

Although there is no clear-cut formula for defining over-extension
of indebtedness that fits all families in all situations, experts
in family money management have attempted to work out rough guides

for determining how much debt is too much. Dr. Gwen Bymers, a

152

Cornell University Professor of Household Economics, has develOped
a "vulnerability index" designed for helping families to decide
"whether or not to take on another debt.“ The decision is made

on the basis of three factors:

1. The amount of assets available to meet emergencies.

2. The length of time required to pay off present instal-

ment debt.

3. The amount of income committed to instalment debt

repayment.
Dr. Bymers makes the following recommendations in terms of these
factors:

1. The family should have at least $200 in a liquid
reserve fund. (In other references to this index the recommended
minimum is $500 and Dr. Bymers admits that $200 may not be an ade-
quate amount.) "Two hundred dollars was used as a minimum criterion
because nearly half of the families reported liquid assets this
low."

2. On the average, present instalment debt should not be
allowed to run longer than one year. Major debts, such as car
loans which may run for several years, should be balanced by prompt
charge account payment. "The longer it takes to pay off store
accounts, the more is shelled out in finance charges."

3. "Instalments debts (this doesn't include house pay-
ments) should total no more than 20% of take-home income. The
risk increases as the percentage rises."

Indebtedness is evaluated by this index as follows: "A
family which fails to measure up to these recommended standards in
all three areas would be placed in a 'very vulnerable' category
where a small financial setback would be serious."8

Financial columnist Sylvia Porter, discussing similar

guidelines on how much debt is too much, indicates how most American

153

families measure up to such standards. She agrees that families
should not owe more than 20% of yearly after-tax income.

The average family now uses about 15¢ out of every after-
tax dollar to repay various instalment debts, 23¢ if rent or
house payments and taxes are added in. This should make one
point abundantly clear--if you are forced to earmark 25¢ or
more out of each dollar for payment of instalment debts alone
you're heading for major financial trouble if not catastrophe.

Family assets provide another debt limit guideline; to be only
average all family assets (savings, equity in the home, etc.) should
exceed debts by seven to eight times.

The avera e U.S. family has assets worth 7.5 times the
amount of all 1ts debts. But averages are statistical myths.
If yours is a young family, for instance, you well may be
spending more than 15¢ of every after-tax dollar to repay your
instalment debts (although not as much as 25¢) and you still
may be in a financially sound position. Or the value of
your assets may be nowhere near 7 to 8 times the amount of
your debts, for you are in an expensive period of your life
and you haven't had much time to build up a nestegg. In
other words, yardsticks must be applied with common sense.

From this kind of information a general picture of the
troubled consumer debtor and the conditions leading to his problem
begins to emerge. To summarize, thus far we have seen that no one
type of consumer debtor is typical. Although young, middle-income
family heads are the heaviest credit users, virtually every American
consumer is a participant in the credit system. The consumer
debtor can certainly not be typified as poor and needy; nor can all
default debtors be seen as irresponsible or dishonest. Heavy credit
users do not necessarily become defaulters. As the preceding para-
graphs suggest, young married couples with children, who have good
incomes ($10,000 to $15,000 a year), are the most likely to fall

behind in their credit payments, but over-indebtedness can happen

154

to anyone. Debt problems do not depend solely on credit use or
income; it is credit users with high ratios of debts and payments

to assets and incomevflmiare good candidates for major financial
trouble. There are some guidelines to help them evaluate their
debt burden but many credit users fail to recognize or to observe
their own safe level of indebtedness. kAlthough high vulnerability
does not necessarily mean that a debtor will default, an unfore-
seen event putting additional strain on the family budget is very
likely to lead to a financial crisis. The consumer debtor moves
gradually into a precarious debt position as a result of a combina-
tion of factors; in many cases the debtor may not realize the
gravity of his situation until he has begun to hear from his credit-
ors. We will now consider the situation of the consumer debtor

who is headed for trouble in this way. How a consumer debtor comes
to the brink of debt default is our immediate concern. One impor-
tant factor, suggested by the following excerpt from Changing Times,
is the insidiousness of indebtedness.

The overuse of credit is like an illness that creeps up
without your realizing what's happening. And almost anyone
is vulnerable, even the seemingly healthy. All it takes is
a bit of financial carelessness, a false sense of security,

a few concessions to the temptations of "easy payments."

An unexpected cut in pay or some big, unforeseen expense
might bring the problem to a crisis you can't ignore. More
often it develops slowly, giving off a number of warning sig-
nals that could avert danger if only you heed them. The very
first symptom of trouble may, in fact, be a condition you've
already grown used to: Each month you find yourself struggling
to make ends meet.10

The writer notes that the consumer debtor will undoubtedly find that

this feeling of being hard-pressed is widely shared but if there are

155

other indications of overindebtedness as well he may be headed for
trouble. The article includes a set of "early-warning signs"
intended to help the consumer debtor to evaluate his situation. A

summary of these criteria of overindebtedness is presented below.

According to this set of guidelines, the debtor is destined for
serious financial difficulties if he--

l.--depends heavily on extra income (overtime, bonuses,
moonlighting) to get over rough spots.

2.--finds it harder and harder to save; his passbook shows
more withdrawals than deposits and he cashes in savings bonds long
before they mature.

3.--doesn't have an adequate reserve to tide him over a
major upset like a pay cut; he isn't prepared to replace big items
like household equipment.

4.--robs Peter to pay Paul. For example, he dips into funds
accumulated for insurance premiums to pay the water bill.

*************

5.--shuff1es bills once paid promptly to the bottom of the
pile and waits longer and longer to pay them.

6.--can't figure out where the money goes. He doesn't
believe it was spent foolishly, but there's not much to show for
all his outlay.

7.--has lost track of what his debts add up to and has to
scrounge for money to make monthly payments. He is using a lot of
credit and because so much goes for finance charges the balances
don't seem to decrease much.

8.--is beginning to get reminders about overdue payments
from some of his creditors.

*************

156

9.--uses credit to purchase things like clothing that he
should have anticipated the need for and that he previously bought
with cash.

lO.--takes out new loans to repay old ones or asks for exten-
sions in order to have lower payments spread out for a longer time.

ll.--pays only the minimum amount due each month on charge
accounts and has accounts all over town.

12.--is in danger of overdrawing on his checkbook or, if
his checking account has an overdraft loan feature, he is using it
frequently.

Taken as a whole, this set of indicators is generally des-
criptive of the troubled debtor's situation. His habitual patterns
of spending and money management are not working and piecemeal
attempts to cope with the problem are only aggravating it. His
unsystematic efforts to handle immediate difficulties as they arise--
holding off creditors with minimum balance payments or taking out
loans to pay bills--are adding more to the debt burden. The debtor
is only beginning to realize that he may soon be in serious trouble;
the situation has not yet been formulated into a general problem
that would suggest a comprehensive solution. Lacking the means and
ability to bring the situation under control, the debtor may be
moving inexorably toward a condition of debt default.

Implicit in these debt-trouble indicators are at least three
factors which help to explain how he has come to be in this situa-
tion. We have rearranged the 12 items taken from the article to
form three groups in order to show how they correspond to these
three contributing factors. The first is lack of an adeguate

financial cushion to protect the debtor when unexpected events make

 

157

it impossible to meet regular debt payments. Failure to keep
within safe debt limits in terms of such criteria as those sug-
gested above is reflected in items 1 through 4. Second, poor debt

management-~seen in items 5 through 8. Consumer credit users

 

seldom become over-extended because of careless accounting and
record keeping--forgetting to pay bills, not writing check stubs,
and the like. Typically the trouble begins with failure to adjust
spending and charging to changing conditions--job layoffs, infla-
tionary price increases, added demands on the budget by a growing
and expanding family. When the paycheck doesn't reach it is the
debtor's lack of skillful debt management that causes his situa-
tion to become increasingly serious. The third factor is encourage-

ment by credit-grantigg_organizations. Items 9 through 12 suggest

 

how this is a contributing cause: instalment credit is extended
(by revolving charge accounts) for the purchase of soft goods such
as clothing; consolidation loans (often called bill-payer loans)
are easily available from finance companies; banks offer overdraft
plans (related to the check-credit plans) which are essentially a
line of bank credit. These plans have the Oisadvantage of being
somewhat inflexible; in times of changing economic conditions lend-
ing standards can quickly be tightened on regular loans but it is
difficult to curtail open credit lines already authorized. Item 11
suggests the danger to troubled debtors of the Optional revolving
account such as retail and bank credit cards offer. In Chapter 2,

in connection with bank-finance company competition, we noted the

158

importance to these institutions of the marginal credit risk and
this is especially true of bank card holders.

Banks are in a peculiar position. They thrive on the guy
who doesn't pay his bills on time, the guy who doesn't mind
going into debt and staying there. They don't make any money
on card-users if they pay up right away--in fact they lose
money.

Some skeptical observers, eyeing the ease with which any-
body can obtain a credit card, insist banks ought to clamp
down. But banks have a problem. Says one industry executive,
"If they cut back they'll be eliminating the people that are
paying their way--the slow payers. Their whole business
dependscn1pe0ple paying interest."11

It is not difficult to see how a credit user with a good income

might slide into an over-extended situation; attempting to extri-
cate himself, he uses credit made available to him under his previous
financial circumstances. Little deterrent is offered by credit
granters-~unti1 he is well over his head in debt. Return of a

credit card, for example, is not requested until long after collec-
tion efforts begin.

Bank-card customers are offered a revolving credit arrange-
ment where they need pay only a small percentage of their bill
each month to remain in good standing. A customer who does
not pay his bill in time is greeted first with one or more
letters from a computer. If the card holder still does not
pay, he will get a personal letter or phone call. Finally,
his card will be invalidated.12

The consumer debtor who finds himself in one or more of the

12 situations listed above may be headed for trouble. He might

still be able to bring his affairs under control but, with debts

far out of proportion to resources, any other problem is likely to
push him over the line from debt delinquency to debt default and
perhaps to bankruptcy. One quick route is a family medical problem--

illness, injury, a new baby; a quirk in the economy, such as a

159

recession or an inflationary jump, sends many a pressured bill-
payer into serious difficulty; and job problems--layoffs, strikes,
loss of overtime--can be a calamity. Marital trouble, particularly
divorce which commonly follows upon the trauma a debt-ridden family
undergoes, is another trigger of financial emergency. The fact that
crises such as these have been identified as major causes of bank-
ruptcy shows the impact an unexpected event can have upon an ordi-
nary consumer debtor when he is in a deteriorating financial
situation.
Research by the Brookings Institution shows the average

individual bankrupt to be a blue-collar worker, about 40

years old earning about $130 a week, married, with two chil-

dren and carrying an average debt load.

David Stanley, director of the research project, said

that the average bankrupt could have gone along making his

payments if some crisis had not occurred--loss of overtime

pay, birth of an extra child, medical bills or divorce.1
Once the line to default is crossed the collector's threats begin.
The sections which follow focus on organizations which have to do
with debt enforcement. There we will see how debt delinquency is
defined by the routine procedures of credit departments and the
way in which the "line" marking debt default signals a new stage in

the collection process and the beginning of coercive enforcement

measures.

Structuring the Indebtedness Career

Perspectives for Viewing
the Enforcement Process

This phase of investigation explores the process of debt

collection and its structuring of individual indebtedness careers.

160

These phenomena are examined against the background of the con-
sumer credit system as it was described in the last chapter.

The general milieu which provides the context for viewing debt
enforcement activities is conveniently summarized in the following
remarks:

Our society generally regards the widespread use of credit
as necessary to maintain high levels of production and employ-
ment. Reflecting this view, sellers and financing agencies
use credit primarily as a promotion technique to sell goods
and secondarily as a financing device. Credit sources and
consumer credit users share a joint responsibility for the
use of credit and also share in its beneficial effects on the
economy.

Bad debt losses are a disadvantageous by-product of credit
extension and one which is inevitable. . . . They are absorbed
by consumers who pay their debts in full and are relatively
unimportant in impact since they are small in relation to
consumer sales.‘4

The following points, developed in our discussion of consumer credit
and summarized above, place consumer debt and its collection in a
proper perspective and they should be kept in mind as we turn atten-
tion to debt enforcement: widespread use of credit is important

to our economy and beneficial to our society; mass consumption and
credit use have become accepted social norms; credit is expected

by most consumers and encouraged by sellers of goods and credit;
since profitable credit enterprises require that credit be extended
to marginal risk users, debt collection is a necessary process;
inevitably some debtors will default but defaulters are few in
proportion to debtors who pay.

If we [creditors] accepted only prime credit risks and
if everyone had the ability and willingness to pay bills

promptly, there would be no collection problems. However
that seldom occurs. As a matter of fact, if a credit

161

manager had no collection problems and no bad debt losses he
would not be a good credit manager. Credit creates volume
and sales—minded credit managers naturally assume some "cal-
culated risks.”5
On balance, the risk taken by credit granters in accepting marginal
customers is not detrimental; creditors' losses in bad debts are
small relative to the amount of consumer goods sold and the volume
of credit granted to consumers. "The over-all national average of
bad debt loss for all kinds of business is less than one percent of

16 Moreover, bad debt losses (debts dis-

total credit volume."
charged in bankruptcy or written off by creditors because collec-
tion is inexpedient or impossible) are considerably lower than debt
delinquencies since a large portion of delinquent accounts are
eventually collected. Of the vast number of people who use con-
sumer credit, only a fraction are defaulters and relatively few are
delinquent.

It has been estimated that out of 100 open-charge and
instalment customers, 81 will pay with reasonable promptness
and 18 will show varying degrees of slowness and will require
some mild effort to collect the 30-day charge in less than
90 days and to secure the second payment on the instalment
transaction. (These will not always be the same individuals
but they will fluctuate because of illness, temporary over-
buying and various other circumstances.) The remaining 1
out of 100 will turn out to be troublesome and may prove to
be absolutely unworthy of having been extended credit.17

Prompt payers, the 8 to 9 out of every 10 consumer debtors

who usually pay in response to the simple suggestion that payment
time has arrived, present little difficulty to creditors. Among
those who represent slow payers, however, there are debtors who fail
to perform on their commitments to creditors for a variety of

reasons; the irresponsible or imprudent credit user and the

162

procrastinating debtor are among the fewer than 20 in 100 who pay
their bills late, but so is the ordinarily good payer whose vul-
nerable financial situation could not withstand an unexpected mis-
fortune. The occasional debtor who sets out to deliberately
evade payment may also be among the slow payers until his inten-
tions are revealed in the collection process. Clearly, different
strategies are required in order to deal effectively with the
various debtors included in this heterogeneous grouping. It becomes
the task of debt enforcers to distinguish among debtors in terms of
their reasons for debt delinquency so that appropriate measures can
be applied. They must identify the deliberate evader and separate
the "unfortunate" debtor, who is prevented from paying promptly by
extenuating circumstances, from the irresponsible or indifferent
debtor who requires immediate and vigorous treatment.

The collection system solves the problem of work volume
by being largely routine in its operation. Achieving its objective--
to get the money promptly, economically, and without loss of cus-
tomer good wi11--is complicated by the need to recognize causes
of debt delinquency and to Operate in such a manner that standardized
procedures are applied selectively to fit debtors' varied character-
istics and circumstances. Debt enforcers attempt to manage this
problem by developing classifications of debtors and tailoring
collection routines to fit these classifications. The classifica-
tion system described in this excerpt from a training manual on

credit and collections prepared by the International Consumer

163

Credit Association represents the way in which typifications of
debtors are develOped by debt enforcers.

There are three main classes of debtors when handling
collections. First, those who are good payers because they
usually pay promptly. Second, are those who are slow but pay
ultimately. This class includes the indifferent type which
lets the creditor wait for the money while théy spend their
money for pleasure and other pursuits. Also, in this group
are good paying accounts who are prevented from paying
promptly because of misfortune or other causes. In the
third class are those who purposely evade payment; and no
matter how careful a credit granter may be in accepting
applicants, a few unworthy ones are granted credit. When
the collection department commences collection efforts these
persons are discovered.‘8

 

 

 

 

This basic categorization of consumer debtors into prompt payers,
slow payers, and evaders is generated in the workings of the debt
enforcement process. Creditors and collectors develop these broad
classes of debtor "types" in terms of their experience with aggre-
gate consumer debtors and they then form the basis for different
enforcement strategies which are appropriate for each type. Deciding
upon what policies and practices apply to the best and worst of
credit risks is relatively straight-forward since the qualified
objectives of the collection system are not conflicting in these
cases. There is little danger of losing the good will of prompt
payers because the use of harsh measures is unnecessary; "deadbeats"
can be handled with no holds barred for they are not desired credit
customers anyway. These distinctions are empirical rather than
theoretical. That they are the product of the collection process
and are applied in the practical conduct of debt enforcement is
evidenced by the following quotation from an authoritative credit

management text.

164

Customers who place themselves in the desirable classi-
fication of prompt payers solve one part of the problem of
classification and remove themselves as possible collection
cases. Certainly in these cases if any pressure is ever
needed, it will be applied gradually and with exceeding slow-
ness. Included in this classification are those debtors who,
although they may be having some difficulty in making payment,
respond fully to any inquiry with a complete explanation as to
reason for nonpayment and with careful analysis as to when
full payment may be expected.

At the other extreme, if it appears obvious that a mis-
take was made in granting credit in the first place, little
is to be gained from using gradual and weak devices. Experi-
ence has shown that such individuals respect only strong
efforts and immediate threat Of legal action may produce
results not obtainable by less vigorous attempts.

Between prompt payers and known deadbeats is the group of
debtors with whom judgment and experience will have to play a
vital role in determining just how strict to be, just how
severe a collection method to use, and just when to apply the
pressure. Thus it is with these debtors that the problem of
classification is most acute.

Collection work would be easier and the results better if
there were some magic way in which each account could be imme-
diately and accurately classified as to the reason for nonpay-
ment. Sorting devices to perform such miracles unfortunately
are not yet available . . . the responsibility for any classi-
fication rests with the credit personnel involved.1

The debt enforcement system provides its personnel with a typology
of debtors and a set of strategies for each type, but the success-
ful functioning of the system depends upon accurate placement of
individual debtors into the prOper classification to receive apprOp-
riate treatment at any stage in the enforcement process. This
responsibility lies in the hands of the enforcement agents who are
engaged in direct interaction with consumer debtors. Enforcement
agents throughout the enforcement process, from credit risk evalua-
tors to collectors armed with the most drastic of collection devices,

are required to make determinations about consumer debtors on the

165

basis of their understanding of the reasons behind their credit-
using and bill-paying habits.

Obviously debt enforcers cannot know what these reasons
are, what motivates the consumer debtor's behavior. They deal
with uncertainty by attaching meaning to whatever pieces of evi-
dence can be derived from histories of the individual's past per-
fonnance as a debtor and from assembled facts about his personal
and social situation. Considerable significance is attributed to
the limited information which they receive about his employment,
residence, the kind of debt obligations he has, and who his other
creditors are. From these the debt enforcer infers the character-
istics of the debtors; stereotypes based on social characteristics
seen as causally linked with default facilitate the leap to assump-
tions explaining his behavior as a debtor in terms of the traits
ascribed to him. A particular address or occupation is often
enough for determining that a slow payer is a "will not" rather
than a willing but troubled "can not."

Debt collectors rely on interpretative procedures for
identifying the grounds of debtors' failure to pay promptly and
frequently it is debtors' inaction which must be explained by con-
jecture. Order is imposed on ambiguity by the strategies which
evolve in the course of debt enforcement. Differentiation of
debtors is accomplished in large part by organizing enforcement
activities in such a way that debtors are maneuvered into self-
placement. It is clear from the quotation above that debtors who

volunteer their reason for nonpayment and offer some constructive

166

plan for making repayment are placing themselves in the category of
prompt payers who require little pressure. By contrast, those who
fail to respond to early inquiries continue to be prodded; gentle
reminders are followed by dunning messages designed to provoke
nonresponsive debtors. Rock has likened this procedure to a serial
testing system. "Enforcement is organized around a serial testing
system. Debtors who resist all a creditor's advances have failed
his tests and are inevitably defined as 'tough,' recalcitrant and

20 Thus a slow-paying debtor is moving from tentative

deviant."
placement in the category of "unfortunates" whose circumstances
have prevented his making prompt payment; he is reidentified and
exposed to the treatment accorded irresponsible debtors. His
responses to further testing may prove to the collector "that a
mistake was made in granting credit in the first place." From the
debt enforcer's perspective, the debtor's identity "appears
obvious"—-he has placed himself among the ranks of deadbeats with
whom only strong efforts and immediate and dire threats will pro-
duce results.

It is from these unique features of the debt enforcement
process that indebtedness derives a career-like structure. Debt
enforcement is made up of deliberately phased stages, each with its
own personnel and each designed to be more punitive. Although the
enforcement system provides for a complete series of increasingly
severe sanctions, few debtors run the whole gamut. Debtors who

respond to reminders or early mild collection efforts are filtered

out; others are candidates for more intensified enforcement

167

measures. At each stage there is a sorting and classifying of
debtors and only those who qualify themselves for progression are
moved through succesSive stages of enforcement. As the debtor is
propelled through an ordered series of experiences, the meaning

of his failure to pay is interpreted and reinterpreted by debt
enforcers and his situation is evaluated on the basis of their
practical experience with similar debtor "types." With the failure
of each set of enforcement sanctions to produce results, a new
identity is imputed to the debtor and each time he is labeled anew
he becomes eligible to experience sanctions of greater severity.

A brief survey of the organizational activities making up
the debt enforcement process is contained in the remainder of this
chapter and the features we have been discussing will be brought
to light in the course of this review. We will look first at
credit departments and their procedures for screening credit appli-
cants and for monitoring the accounts of the credit granter. In
terms of indebtedness as a career, these functions constitute the
initial phases of debt enforcement. The first stage begins with
the negotiating of a credit transaction by a consumer following the
approval of his credit application; the second begins with the
creditor's identification of the account as delinquent. Next we
will review the preliminary and relatively mild attempts by creditors
to collect delinquent accounts. The multistage collection process
of creditors terminates when efforts to maintain customer goodwill
are abandoned. The final phase of enforcement commences when the

account is referred to debt collectors for more drastic measures.

168

The workings of collection agencies are examined next; we will look
at the techniques and strategies collectors employ and see how they
make determinations as to which defaulters are to be subjected to
legal actions available to collectors for inducing payment. We
will also consider some alternatives debtors have for escaping

the pressures of the collection process.

The purpose of this survey is to describe the actual prac-
tices of organizations responsible for the enforcement of indebted-
ness so that we may show how these practices have the potential
for imposing deviance upon the individual undergoing an indebtedness
career. We are guided in this presentation by Rock's comprehensive
analysis of the collection process as a social control mechanism.
Rock identifies the features of the debt enforcement system which
result in debtor identifications and the shaping of indebtedness
as a career, basing his analysis upon an extensive and detailed
account of debt enforcement agencies and practices as they exist
in England. Material contained in texts and manuals prepared for
training credit personnel who perform enforcement functions, as
well as my personal observations and participation in collection
activities, provide assurance that the American debt enforcement
process is luyt essentially different and that his general analytic
framework is appropriately applied here. Our more limited descrip-
tion of credit sanctioning, creditor account control, and debt
collection practices intends primarily to point up those aspects
of the debt enforcement process which support the contention that

it constitutes a labeling process--a system which generates and

169

enforces definitions. Our examination of these practices empha-
sizes the features of debt enforcement by which it can be char-
acterized as a social control system. We are primarily interested
in the way in which individual consumer debtors are ascribed
deviant identifications through the categorizing, labeling, and
sanctioning activities of debt enforcement.2]

It might be well at this time to address and put to rest an
issue which may be raised in connection with debt and the treatment
of defaulters who are processed through the collection system,
i.e., the question of the amount and type of debt incurred by the
consumers under consideration--whether they are equally in debt
or have equal repayment potential, and whether their debt originated
in response to need or from frivolous or unnecessary expenditures.
Another perspective would have found it necessary to take these
questions into consideration, arguing that objective factors do
enter into becoming and remaining deviant. It is our position,
however, that deviance does not adhere in the act of becoming
over-indebted or defaulting, but originates in the labeling of
debtors as deviant by others, principally by the social control
agents (creditors and collectors) who carry out the process of
enforcement. In this study consideration of type and amount of
debt is not seen as of Operating importance, for debt agencies do
not respond as would an economist. As we show in the remainder
of this chapter, collectors develOp and impose categories on
debtors in the routine course of their work, to organize the sanc-

tioning of large volumes of "collection accounts," and they take

170

little interest in the debtor's personal circumstances. It is
their conception of his ability and willingness to pay, guided by
stereotypical notions of debtor "types" and their experience with
them, that direct the way in which the enforcement measures avail-
able to them are selected and imposed. Moreover, defining debtors'
deviancy in terms of amount and type of debt depends upon official
or class-based notions; I have avoided making such judgments
throughout this study, for it is impossible to be objective in
distinguishing needful indebtedness from that which is not. For
this reason, and because the condonability of behavior seems to me
irrelevant to the practical application of deviant designations,

I have devoted considerable attention to showing how debt "trouble"
emerges out of financial vulnerability. I have presented the
troubled debtor as Anyman, who for lack of an adequate financial
cushion as protection against unexpected events, and because of
poor debt management or encouragement by credit granters, may

be moved across the line to over-indebtedness by any one of a
number of events (job loss, illness, over-spending). I have tried
to make clear that over-indebtedness cannot be considered in
absolute terms; people with high and with low incomes, with large
and with small debt loads, can fall into arrears and any American
consumer can find himself beset with a sudden change in his circum-
stances (affecting either his earnings or his indebtedness) that

he is unprepared for. When such an event occurs, should it lead to

his defaulting on debts, he will be set upon a course of treatment

171

that is marked by the defining of him as deviant, and that is the

process to which we now turn our attention.

Enforcement by Credit Granters

 

Entry to the Indebtedness Career

 

Decision making by credit personnel is the essence of credit
work and the most crucial of credit decisions is whether or not to
grant credit to an applicant. Before making this decision most
credit granters subject the applicant to a set of probes. "These
probes are collectively known to creditors as 'credit sanctioning,‘
and they prepare the basis for any subsequent transactions with the
debtor. Sanctioning determines whether a person will be allowed to

22 The work of credit sanctioners is

adopt the status of debtor."
directed to identifying and retaining the desirable candidate and
detecting the debt defaulter. It requires credit granters to make
judgments about consumer applicants that will predict their future
behavior as debtors but since credit decisions must be made quickly
and inexpensively their work is complicated by the need to make
such judgments on the basis of incomplete information. ”Credit
sanctioning cannot be a rigorous search for the unimpeachable
consumer. It must be a subtle exercise in the definition of what
is just tolerable as a risk."23

The determination of what is tolerable as a credit risk for
a given creditor is generally established by the firm's credit

policy--its plan for the course of action to be taken over a

period of time including the set pattern to be followed in collecting

172

past due accounts. Thus the credit policy involves consideration
of both credit granting and collecting functions. A credit granter
has the choice of four basic policies: liberal credit-strict
collection, strict credit-liberal collection, liberal credit-
1iberal collection, or strict credit-strict collection. The first
two are the most likely policies to be found in effect, especially
among retailers and service establishments. Four main factors
influence policy determinations: first, available capital. Many
creditors must adOpt a strict collection policy in order to meet
the demands of their own creditors. They depend largely on the
turnover of goods to provide needed funds but when goods are sold
on credit the transaction is not complete until payment is received.
In many cases the need to ensure prompt collection of accounts
receivable implies the need to limit credit extension to consumers
who are most likely to be prompt payers. For some credit granters
(not granters of service credit or financial institutions), the
type of goods to be financed is also a factor in establishing
policy; sellers of perishable goods usually find a strict credit-
collection policy necessary while sellers of hard goods which

could be repossessed may be more lenient. Competition is a very
important influence in forming the credit-collection policy.
Creditors are becoming increasingly aware that they must consider
the credit policies of competitors in formulating their own. Tight
credit standards and a policy Of swift collection may mean lost

customers and reduced business and retailers and lenders are often

173

forced to establish more liberal policies than they would like in

order to stay in business.

The need for sales and the credit extension policies of
competitors may force a credit grantor‘s acceptance standards
down the risk scale. Retailers regard their credit cards as
merchandising tools. The card exists to generate sales--
smooth, quick transactions unhindered by stuffy approval
policies or restrictive credit limits. The credit manager
soon comes to understand that if a customer can get credit
from a competitor across the mall, it had better be avail-
able from him as well.24

Finally, the credit-collection policy depends on the type of clien-
tele a creditor has or wishes to attract. This factor hinges pri-
marily on the concept of credit risk, hence the evaluation of
applicants in terms of the risk level acceptable by the creditor's
general credit policy comes to the fore. Whether a credit policy
calls for strict or liberal credit, or where it sets the risk level,
means that some border-line accounts or only prime risks will be
accepted. Policy sets the creditor's acceptable level of risk,

but identifying the risk an applicant represents is largely a

matter of judgment aided by such information as can be obtained from
the customer and from records of his history as a credit user.

In attempting to make determinations in advance about an
individual's performance as a debtor, credit sanctioners share the
problems of later-stage debt enforcers. They must reconcile the
conflicting objectives of the collection process--achieving prompt
debt payment without great expense or loss of good will--and they
must try to detect causes of default in anticipation of its pos-

sible occurrence. To dispel uncertainty about the unknown consumer

who confronts him, the credit sanctioner must have some knowledge

174

of the applicant and his situation in order to estimate the pos-
sibility that granting him credit will not prove to be a costly
mistake, but probing for facts about personal and financial
affairs is a delicate matter and he must be subtle in attempting
to elicit such information. (Credit granters go to considerable
expense to lure new accounts and they are careful not to affront
them with tactless or intensive interrogation.) In making risk
evaluations, credit sanctioners build models of types of candidates--
the good risk, the marginal, and the "deadbeat," an unacceptable
risk. The information they receive is used to infer the applicant's
characteristics which are matched against these constructed types.
They look mostly for evidence of stability; the main criteria for
determining the individual's place on the risk scale are occupation,
income, age and marital status, place and length of residence. At
the tOp of the scale is the established business executive earning
$20,000 or more, married, age 32 to 48, a homeowner for five years
or more; at the bottom is the 21 year old, new on the job, living
in a furnished apartment, and making about $6,000. Good risks are
desired by all credit granters but to decline all marginal risks
would deprive the firm of profitable credit volume. The border-
line cases between good and bad risks are difficult to evaluate
because they present the investigator with ambiguous evidence:
Border-line credit risks, these are the hardest to
handle and they offer a real test of credit judgment. Per-
haps they have a record of slow payment on a couple of

accounts but they also have some good ratings; several
recent changes of address or employment might appear,

175

causing uneasiness as to stability. Perhaps the applicant

seems pretty well loaded up with debt already, but is due

some consideration.25
Credit policies setting the tolerable limit low on the risk scale
place difficult demands on the evaluator. He must identify marginal
risks on the basis of sparse evidence and then sort within the mar-
ginals selecting out those whose situation is only somewhat uncer-
tain rather than dangerous. The lower down the risk scale minimum
acceptance standards are set, the more marginal risks become
debtors--and greater becomes the volume and ambiguity of cases to
be processed by the enforcement system.26

There are four main sources of information available to

credit investigators: the credit application, the personal inter-
view, outside sources suggested by the applicant's references, and
reports purchased from the credit bureau. Basic information is
supplied by the candidate in his application--name, address, age,
occupation, family status, and names of friends, relatives, and
other creditors. From these basic facts a gross image of the
applicant emerges and unless the sanctioner harbors doubts about
the applicant's truthfulness, this may be enough to consider the
investigation complete. (Should he have guessed wrong, convenient
leads are supplied by the credit application to help in locating
the debtor and pressing for payment.) If the sanctioner is not
confident in assuming the desired traits on the basis of applica-
tion data, he may invest additional time and expense in a personal

interview. A few more facts can be obtained in this way but pri-

marily it is an opportunity for the credit sanctioner to develop an

176

impression of the applicant's character and sincerity. Consider-
able weight is placed on experience and "gut feelings" in making
subjective determinations about applicants; by “getting to know him"
the investigator feels he can estimate the candidate's ability and
willingness to meet credit obligations promptly. Credit depart-
ment personnel attending a training session on credit and collection
procedures are told to get acquainted with the applicant:
Find out all you can about him but be tactful in asking

questions--make it look like conversation. Avoid talking

about tOpics like politics, religion and personal problems.

Better to stick to news--current events and sports. Men

like to talk about sports. And give them compliments--

they're good with women. Ask about his job so information

can be extracted about how he makes his living. Talk about

his kids, brag on the kids and ask about others. Give the

kids something--people love it when you give them something

for the kids. Don't be fooled by the applicant's appearance.

Manner of dress is not a good indicator of ability to pay.

And social position is not a good basis for granting credit--

Mr. Social Status will tell you that a check is in the mail!27

If the investigator has misgivings about the quality of his

evidence, direct inquiries of outside sources may be made to verify
the applicant's claims. References are not likely to be checked if
the investigator is comfortable with the consistency of the data he
already has, and verification is unimportant when he feels he
already has sized up the candidate as a good or a bad risk. The
veracity of a clearly good risk is not doubted and bad risks have
usually mastered the art of debtsmanship and can outwit the inves-
tigator. The credit course lecturer cautions his students that
references are important but "you can't put too much stock in them.
The biggest deadbeat can always give one good reference, some can

give two or three. It's more important to check out his

177

background--you should know about lawsuits, bankruptcy,

."28 This kind of information can be obtained from

divorce. . .
the credit bureau. Part of the purchased credit report is based on
the ledger experience of other creditors which shows how the indi-
vidual has met his credit obligations in the past, but the report
is also valuable as an outline of facts about him collected from
other sources. Credit reports contain facts from employment records,
landlords, collection services, the post office, city directories,
other credit bureaus, newspapers, and public records. A gold mine
of evidence is obtained from public records; it can confirm the
stability of the applicant-~marriage, home mortgage, property
transactions, or it can be damning to him--lawsuits and judgments,
petitions in bankruptcy, divorces, arrests, indictments, convictions.

The infonmation gleaned from these four sources is factual.
It constitutes raw data which credit sanctioners can collect and
verify but it must be analyzed and interpreted. The credit-
sanctioning process is crudely scientific; the criteria for deter-
mining an applicant's place on the risk scale correspond to the
factors creditors believe are causally linked to default and it is
these factors on which data are gathered to serve as the basis for
sanctioners' judgments. Limited knowledge of the applicant on
the crucial indicators of residential and occupational stability
and a tolerable debt load is sufficient to ground assumptions about
the traits and circumstances that identify types of debt risk.

Credit sanctioners concentrate on four factors that are

commonly accepted as valid guides to the investigation process.

178

When the question of what to investigate is raised it
is easy to repeat the "four horsemen" of credit--character,
capacity, capital, and conditions. These so-called four
C's of credit have echoed down the ages and through the text-
books, articles and speeches on credit with a remarkable per-
sistency.29

Conditions, the current state of the local economy, influences the

 

credit-collection policy and the way it is implemented by the credit
department. Capacity, evidenced mainly by income, reflects the

applicant'sability to pay. Character is a clue to an individual's
willingness to pay.

Character may be defined as an intangible sum of personal
attributes and they are revealed indirectly rather than
directly. What we frequently accept as character is reputa-
tion and reputation is really the Opinion held by others
about a person.

The elements entering into character may be personal and
thus concerned with family situation or habits and attitudes
such as drinking, gambling; they may include virtues such as
honesty and courage or the reverse. It may be inferred or
revealed by business or professional conduct such as payment
of obligations, tendency to make unwarranted claims . . .
attitude toward Obligations, speculative tendencies, respect
for the rights of others.

Character being an inward thing, in effect an intangible
personal quality, can be correctly inferred only to the
extent that it is revealed. In some reSpects a reputation
for good character may be the result of never having been
pressed by adversity. 0

Because the investigation cannot produce certainty about an appli-
cant's capacity or character, his future performance as a debtor
can only be estimated; the creditor takes a gamble but he hedges
his bet by seeking information about the candidate's capital
resources, for this answers the question--Can he be magg_to pay?
When a successful applicant passes the stage of credit
sanctioning he may make financial commitments to the creditor and

adhere strictly to the terms of his agreements. He may take other

179

routes before he becomes of further interest to the credit depart-
ment; a common course of action combines eventual repayment with
minor departures from model debtor behavior. The machinery of debt
enforcement is geared to the routine processing of these forays
into debt delinquency and it is equipped as well to deal with those

consumer debtors who must be made to pay.

Defining Debt as Delinquent

Approved credit accounts are supervised and monitored by
credit department personnel under the same policy that directs
credit sanctioning; these functions are defined and integrated by
that policy. Typically, with strict credit granting less stringent
control is called for--in fact, if sellers of goods and services
accepted only top grade credit risks there would be no need for a
credit department since they would be doing essentially a cash
business. If credit is granted liberally, accounts are likely to
be strictly managed. When the credit policy sets lower standards,
more marginal cases are attracted which require close credit depart-
ment surveillance and place greater decision-making demands upon
credit personnel. Credit standards express degrees of repayment
uncertainty. In implementing policy, credit sanctioners deem
candidates acceptable or unacceptable on the basis of their esti—
mates of the likelihood of repayment, knowing that their predic-
tions of consumer debtor behavior will prove wrong in a number of
cases. In effect, the sanctioning process generates a mass of

approved credit capability which then flows into the machinery of

180

debt enforcement. The aggregate reflects the creditor's policy
standards but the performance of the individual elements is uncer-
tain. The daily Operations of the credit department are attempts
to impose order on this uncertainty.

Since credit granting organizations recognize debt collec-
tion as an inherent part of all credit operations, enforcement of
debt by creditors extends across a connected series of related
processes--credit sanctioning, controlling and servicing of active
accounts, and the initial phases of debt collection. In the main,
the creditor's enforcement function is performed through mechani-
cal, impersonal routines. While the work of credit sanctioners and
collectors is largely person-oriented and organized around the
judgments develOped out of enforcers' interaction with consumer
debtors, the account control system--the backbone of credit manage-
ment Operations--centers on the accounts of consumer debtors.
Account control is accomplished by an automatic system designed to
carry out standard maintenance procedures and to sift and sort the
indebtedness which is quantitatively represented in ledgers and
account records. The system is focused on consumer debtors as
persons only when aberrations in account behavior activate signals
built into the system.

Credit department activity subsequent to approval of the
consumer's application is governed by its procedures for monitoring
and controlling his use of the credit privilege. These include
procedures for authenticating the credit user's identity and author-

izing his transactions with the creditor to ensure that the customer

181

is not an imposter and that his use of credit conforms to the
limits established in the sanctioning process. Billing the credit
user for services or purchases at the end of each month or cycle

is also carried out as a standard credit control Operation. The
bill identifies the goods or services received and specifies the
precise amount of the obligation and the exact date on which all or
a certain portion of it must be discharged. (When identical amounts
are to be paid according to a prearranged schedule, as with instal-
ment loan obligations, a coupon book or amortization table is
understood to represent notice of expected payment.) The regular
statement sent out to the consumer debtor telling him that the time
to make payment has arrived is the formal declaration that trans-
forms his state of indebtedness from financial commitment to that
of debt Obligation. Customer billing is the final step in the bulk
of credit transactions; most obligations are paid within the time
period agreed to by the consumer debtor and his creditor and thus
most debtors will never appear as persons to be processed by the
collection system.

Debt enforcement begins in the credit granter's account
management system; the first phases of debt collection are accomp-
lished as a part of creditors' routine procedures for monitoring
and controlling accounts receivable. Although the creditor's
collection system is integrated into the general account control
Operations, only those activities which occur after the estab-
lished period has expired are regarded as collection efforts.31

The creditor's collection process involves an automatic system

182

operated daily to perform a series of functions: (1) to pick out
delinquent accounts, (2) to start immediate collection effort,

(3) to take note of and suspend further collection action when
payment is received, (4) to follow up on special arrangements made
for clearing past due accounts, (5) to eliminate accounts which
remain delinquent; it provides for a systematic procedure to write
off accounts uncollectible by regular techniques.

Debt delinquency is mechanically and impersonally defined
by the Operations of this system. An obligation which is unpaid
when the established credit period has expired is automatically set
up to receive the initial collection treatment and it thus becomes
a delinquent debt. A debt is defined as delinquent by the system
which picks it out of the creditor's accounts receivable and places
it among the accounts which are to be gently nudged with an imper-
sonal collection device routinely dispatched by the enforcement

mechanism.

The Creditor's Collection System
The collection process is a carefully contrived system of
social control designed for the enforcement of indebtedness. The
first and mildest of the sanctions available to it is the creditor's
past-due reminder. When a consumer debtor receives this message he
has entered a deliberately constructed enforcement career.
Any enforcement career is built on three crucial founda-
tions: the system of differentiation; the temporal structure
of enforcement; and the nature of the sanctions which can be

implemented. The regulation odeefauTt like other enforcement
systems, rests ultimately on what an agency can do to the

183

people it is supposed to control. A collection sequence is
a progress into controlled unpleasantness. A creditor's
relations with his weapons mould a career.
Cole has outlined the general nature of the collection system show-
ing its divisibility into four major stages and indicating the
collection devices apprOpriate at each stage together with the
classes of debtors at whom the devices of each stage are aimed.
A representation of Cole's outline of a general collection system

appears below; in it the three aspects which characterize an enforce-

ment career are clearly evident. The nature of the sanctions:

 

Cole's list of collection devices includes a set of form letters
which represent attempts to goad debtors into providing explana-
tions for nonpayment that can be used in guiding further action;
it also includes a series of messages designed to arouse vague
anxiety—-messages which contain ambiguous threats of increasingly
coercive actions which may be taken against the debtor. These are
the forms of weaponry which characterize an enforcement career:
»First, tests are successively applied to ascertain what
the most apprOpriate collection tone should be. . . . Ambig-
uous threats are a second feature. Enforcement would be
discredited if it contained falsifiable predictions about
action. Enforcement thus relies on an extensive and con-
tinual manipulation of threats.33

The system of differentiation: a differentiating process is built

 

into the collection system. "The whole process conforms to a

"34 The initial discriminations take

blueprint and is machine-like.
place when unpaid accounts are selected out to receive a reminder
notice and are thereby identified as delinquent. In the first,

"impersonal" stages of collection, differentiating among accounts

184

 

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185

is a mechanical process--paying accounts drop out leaving delinquent
accounts for further processing. As enforcement progresses, paying
debtors continue to be eliminated from the system and repeated dif-
ferentiation takes place among the defaulters, those debtors who
remain in the enforcement career. Differentiation is largely a
process of self-classification; by this we mean that by their
responses to collection efforts, debtors tend to place themselves
into the categories debt enforcers use to mete out appropriate
sanctions. Collectors' interpretations of debtors' responses to
appeals and threats of coercive action are the basis for distin-
guishing among defaulters and identifying them as unfortunate,

irresponsible, or fraudulent. The temporal structure: the time-

 

table of enforcers' organized response to debt delinquency originates
in the mechanical Operations of the creditor's account control
system.
Like most commercial activity, collection is spaced out

at standard intervals of time. Actions are taken every week,

month or year. Creditors use these intervals as the skele-

ton of the career; enforcement is likely to last for a year

or more, its stages being separated into monthly periods.
Although the collection sequence which marks the growing delinquency
of debt is directed by the conventional calendar, change in the
indebtedness condition is not strictly a function of absolute time.
The initial enforcement event and the tempo of progressive redefi-
nitions of debt as more delinquent create a mechanical, impersonal

career timetable which reflects primarily creditors' other concerns

about money and the management of capital.

186

To a creditor, a sum of money owed is a receivable and a
receivable is a tangible asset, something he can reckon into
his profit and loss statement, use as collateral for a loan,
sell to a factor at discount--or he can merely wait until he
receives it.

One thing all creditors always do with receivables is
age them--that is, they compute the length of time that each
receivable is outstanding and then use these computations as
the basis for their collection and accounting procedures.
Exactly what a creditor does about a receivable of a specified
age depends mostly on the nature of his business. As a rule,
collection is more leisurely in businesses with high markups,
large cash flows and relatively small amounts of capital tied
up in inventory. Those with low markups, small cash flows,
slow turnover and a large prOportion of assets tied up in
inventory have a harder time doing without the money so they
start working 39 collect it sooner and move the process along
more gingerly. '

The temporal basis of a career system is also revealed in
the idea of process which underlies the division of collections into
stages.38 Collection system stages emerge from the practical con-
siderations of creditors. The longer a receivable remains
unreceived the more it costs to collect, the less likelihood there
is of collecting it, and consequently the less it actually is worth.
Department of Commerce estimates show how rapidly accounts depre-
ciate in value: after it is three months late, one dollar of .
indebtedness if worth 90¢; its worth shrinks to 50¢ after six
months, to less than a third in a year, and when it is five years
overdue, each dollar in accounts is devalued to only one cent.

The more overdue, the less the debt is worth collecting; there thus
comes a point, usually after about six months of delinquency, when
a debt is charged off the books because it costs more to collect

than to write off. The organization of the collection system

enabling its division into stages is dictated by expediency; the

187

devices available at each stage have a somewhat different emphasis
and are aimed at different sets of debtors. The appropriateness of
the sanctions imposed at each stage is evaluated in terms of
enforcers' notions of what are plausible reasons for nonpayment.
Throughout the collection process the main goal is to induce pay-
ment of money owed, but each series of devices it uses gives a
different weight to its ancillary objectives--economy and preserva-
tion of good public relations.

Initial efforts take an inexpensive shot-gun approach but
they give all debtors the benefit of the doubt; a second barrage,
delivered upon debtors who fail to respond, places less emphasis on
being inoffensive since its fire is somewhat more directed. Even-
tually it becomes inexpedient to persist in attempting to collect
small sums and concern for good will is discarded in bids to recover
larger amounts of money. The later-stage devices are apprOpriate
for particular types of debtors, those to whom unacceptable reasons
for default are imputed. Thus series of devices designed to be
effective with different sets of debtors generate stages conveni-
ently subdividing the collection process and marking shifts in the
way collection objectives are balanced off by creditors. This
general view of the collection system and the claim that it is
structured around the practical concerns of credit granters find
support in the following excerpt from Cole's credit management 5
text:

A well-designed collection system may be compared to a

series of screens over which the accounts are passed for the
purpose of classification. The earlier screens are low in

188

cost and handle the customer gently to preserve goodwill.

The later screens are less routine, cost more to apply, may

be sharper in action and thus not preserve goodwill with

such certainty, and tend to classify the reluctant debtors

into smaller and more exact assortments.

The division of a general collection system into four

stages gives emphasis to the kind of devices appropriate at

each stage and self-classification on the part of debtors

is accomplished at each of the respective stages.39

We have shown that a typical collection system such as that

outlined by Cole (above) incorporates the identifying elements of an
enforcement career. Later, in the next chapter, the enforcement
activities structuring this career will be reviewed in terms of
labeling theory. There we will consider the enforcement career as a
social control system, one which functions as definer as well as
enforcer of debt default as deviance. Two essential aspects of a
social control system are its methods for identifying as deviant
persons who fail to measure up to social expectations and the sanc-
tions it uses to enforce socially acceptable behavior. We will now
examine the enforcement sanctions used in the collection system and

the way in which it differentiates among debtors who are to be

controlled by the various devices it has available.

Creditors' Collection Devices

The methods used in the first stage of collection are
inexpensive, impersonal, and designed to avoid giving offense.
They simply notify the bill payer in a gentle way that his payment
is past due without suggesting that the creditor is seriously
concerned over nonpayment. Debtors are given the benefit of the

doubt--the creditor assumes that the obligation has been honestly

189

overlooked or that the debtor is procrastinating or temporarily

low on funds. All he needs is a gentle nudge and he will come
through. A balance due statement showing the amount of the regular
bill sent previously, perhaps with "Please” or "Past Due" written
on it, may be the first gentle reminder. Larger credit operations
often have a reminder message printed on the statement or on a
separate notice as a step in computerized billing. For professional
services and smaller businesses statement inserts and stickers are

popular as a nudging device.40

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Figure 4.--Examples of impersonal routine stage reminders.

190

Whatever the medium, the message is always polite, often apologetic,
and tries to give the past due account an Opportunity to pay up
without loss of face. Reminders carrying a very general message
can be disseminated among early delinquent accounts in the knowl-
edge that those debtors with more desire and means to pay will
respond, leaving a residue of slow payers for whom more special-
ized appeals are appropriate. Creditors depend upon the Operation
of this self-selection process as they deal with past due accounts
in the early collection phases:

After the bulk of the accounts has been reduced by the
various inexpensive methods which also preserve goodwill,
higher cost methods are applied selectively to the remaining
small number of accounts which need such appeals. Harsher
devices can be employed in later efforts since the self-
classification process will already have eliminated those
accounts whose goodwill is of primary importance.41

How soon after the expiration of the credit period the col-

lection process is initiated with the sending of a reminder depends
on company policy and the type of credit involved, but most
creditors make the first move about one month after the billing.
About 50% of accounts are usually paid before they become
delinquent--within 30 days after the regular statement is received.
Typically, the sticker is affixed at the beginning of the second
month and this nudge is usually sufficient. The low cost "imper-
sonal routine" methods are effective in disposing of the mass of
delinquent acCounts; some 30% of delinquent debtors pay up in the

first stage and many others who are just straggling are caught up

in the next.

191

Second stage collection devices are still impersonal but
less routine. The messages take on more of the character of an
appeal and the appeals are addressed to the debtor's better nature.
As before, the creditor tries to believe that payment has been
delayed through oversight, procrastination, or temporary financial
embarrassment but now, since the nudge produced no results, he
allows for the possibility that the debtor has overbought, met with
illness, accident or other misfortune, or disputes the bill.
Creditors know that some of the debtors who reach this stage have
more sinister reasons, that some aim to avoid paying altogether,
but in the interest of preserving good will, collection efforts
proceed on a set of assumptions that gives debtors benefit of the
doubt. The devices of this stage are not yet personalized or
directed squarely at the debtor involved but they are often success-
ful in evoking a response from the more conscientious; peOple
unaccustomed to receiving notices take them personally and seriously.

The most common appeal medium is the form letter, usually
suggesting that the creditor is certain that there must be a
reason for the missed payment and inviting the debtor to come for-
ward with his story. The text Of a typical impersonal appeals
stage letter expresses the "Anything wrong?" tone in this way:

For some reason your account with Needham Apparel is in
arrears. We would appreciate your letting us know what the
problem is. We are confident that a mutually satisfactory
arrangement can be worked out between us. Please get in
touch and let's talk it over.

The letter may be sent by special delivery or registered mail to

achieve greater impact and to secure some indication of receipt on

192

the part of the debtor. A change of address could explain the
debtor's nonreSponse to the first reminder but there is always
the possibility that he may be deliberately evading payment and
it is important to find out early whether he is not receiving the
notices or merely ignoring them. The phone call is an effective
way of dealing with debtors who have not responded but give every
indication of living at the address they use, but it is too time-
consuming and expensive a method for most creditors to apply to
the volume of delinquent accounts in early stages. The Mailgram,
an electronically transmitted message delivered by mail carrier,
is a new medium useful for reply seeking. Some large credit
granters such as Kresge's, for example, endorse it as a collec-
tion tool more effective than letters because its distinctive
appearance compels attention and its terse telegram-style wording
conveys a sense of urgency. A typical attention-getting Mailgram
message might read:

IMPORTANT THAT YOU CALL COLLECT IMMEDIATELY (phone number)

BETWEEN 8AM AND 4PM CST CONCERNING YOUR CREDIT CARD ACCOUNT.

PLEASE TELL THE OPERATOR THAT YOU RECEIVED THIS MESSAGE.
(The Western Union Company promotions of Mailgrams for use by
collection departments refer to them as "the new art of friendly
persuasion.")

However the creditor prefers to communicate it, the imper-
sonal appeals stage message generally contains an appeal to the
debtor's sense of fair play, to his pride, or to his self-interest.
Appeal to fairness touches on debtors' honesty, suggesting that

the trust shown by the creditor when the transaction was entered

193

into should not be betrayed. Appeal to pride stresses the idea
that the debtor is a good person and good peOple pay promptly.

The message may use implied compliments to make the debtor want to
live up to the creditor's good opinion of him: "Please drOp your
check in the mail at once. Your cooperation in this way will be
appreciated and it will maintain your excellent credit standing
with us." Another version hints that failure to pay may damage

the debtor's Opinion of himself:

 

IT 18 {out SHADOW
- THAT REFLECTS HOW YOU MEET YOUR
PAYMENT PROMISES.

Don’t Lengtben Your Record of
.4 Non-Payment of Your Bills. Pay ibis
Delinquent Balance — TODAY!

     
 

 

 

 

Figure 5.--Example of impersonal appeals stage reminder.

The appeal to self-interest is widely used and very effec-
tive. It emphasizes the necessity for payment to safeguard one's
credit eligibility and to protect the availability of needed ser-
vices in the future. This appeal is especially useful to health
care suppliers since it artfully implies that essential medical
service may be withheld from the delinquent debtor: "DOCTORS

(hospitals, druggists, dentists) expect the same promptness in the

194

payment of their accounts as you expect from them in emergencies."
The value of the credit privilege and the notion that delinquent
obligations impair a good credit reputation is a theme which is
repeated often and in various modes to the very end of the collec-
tion process. "Guard Your Credit as a Sacred Trust," the ICCA
slogan, appears on much of the literature and collection devices

it supplies and on the emblem displayed in the 60,000 credit offices
of its member firms. An enclosure with an educational message about
credit and the importance of a good credit record is a typical

early stage device that conveys this theme. One such enclosure is

a pamphlet entitled, "The Good Things of Life--on Credit." Its
opening line: "Credit is the magic force which enables you to
purchase immediately and thus enjoy more of the good things of life
sooner. . . ." In the closing comments which deal with maintaining
good credit the debtor is assured that "Credit executives under-
stand that with almost everyone life takes adverse turns occasionally
and even the best of intentions sometimes cannot be fulfilled.

Under such circumstances it is wise to visit your credit executive
and talk matters over-~he can be of real assistance."

Credit granters know that marginal risks have been allowed
to use the "magic force" and many of them are well-intentioned and
will not represent a debt loss if given a bit more time and atten-
tion. Thus most granters of retail credit (not disreputable mer-
chants who Specialize in exploitative credit practices)42 are
anxious for the "unfortunates" to make themselves known; they are

usually more than willing to make liberal payment arrangements for

195

well-meaning debtors in hardship because they are heavily dependent
upon outside agencies to handle tough cases and they know that the
agency may very well end up making such an arrangement and keeping
at least a third of the collection besides. Large service credit
granters, too, are usually glad to set up special terms for those
who call in and ask, but a limited amount of time and effort can
be spent in seeking them out. The willing-to-arrange creditor is
also aware, however, that their invitation may be accepted by
experts in the art of "debtsmanship" more readily than by the genuine
unfortunate who may be too frightened and intimidated to do anything.
Seasoned debtors have a variety Of strategies for putting off their
creditors and a favorite one is masquerading as a temporarily
strapped debtor with a sad story and a convincing promise. He may
comply with his Special terms, but they nonetheless buy him some
time and in effect he is Obtaining free credit. A Show of
force must be maintained throughout the debt enforcement process
so that consumer debtors will take credit privileges seriously but
the screening process, especially the early sifting performed by
creditors, is designed to find appropriate candidates for clemency.
Although some unworthy ones may be included in the second stage
catch with reply-seeking devices, failure to fulfill promises will
lead to their quick discovery and to immediate severe sanctions.
Another version of the appeal to self-interest puts the
creditor's suggestion that prompt payment protects the credit record
as a thinly veiled threat that the credit bureau will be informed

of the delinquency:

196

 

   

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Figure 6.--Example of collection device implying threat
against credit record.

Although creditors may inform the credit bureau it is unlikely that
they will. The ICCA collections manual recommends that past-due
accounts be reported on a routine basis, suggesting that the bureau
be informed after the third notice on a monthly account or when two
successive instalment account payments are missed. Such voluntary
reporting costs too much in money and man-hours for most creditors
to bother with and should the debtor have a valid reason for not
paying, or if the accounting department committed a billing error,
they risk losing a customer or even a libel suit by turning in a
bad report. Most often information is given out only when Spe-
cifically asked for by another creditor who has been given the
firm's name as a reference. Thus the widely used and effective
threat of revealing delinquency to the business community through
the credit bureau remains merely a threat.

The devices of the second stage are generally successful

in eliminating slow-pay accounts, the stragglers; the remaining

197

accounts are assumed to be those of hard-core resisters and are
treated accordingly. The creditor has used gentle nudges and
friendly urgency to which a faceless mass of forgetful, careless,
and temporarily short-funded debtors have responded. Now he is
dealing with persons whose credit limit proved higher than their
capacity to pay, those whose debt ratio is approaching insolvency
and perhaps will lead to bankruptcy, those who have met with mis-
fortune and may go either way before the Situation is resolved,

some who still have a pending dispute and a few who are habitual
deadbeats and never did intend to pay. By the third stage the
devices can no longer be generalized, ambiguous messages sent out
to past-due accounts that many debtors can be counted on to apply
to themselves and respond to. All efforts now are directed toward
the debtor on a highly personalized basis. Personal contact, some-
times by dictated letters but usually by phone, is a costly proce—
dure but use of expensive devices with the debtors remaining at

this stage is justified on two counts. First, although the approach
is tougher now, the preserve good will policy is not abandoned so
greater selectivity is called for in applying these harsher methods;
creditors still want to avoid antagonizing debtors and their friends
and neighbors who represent future business. At the same time,
however, the preservation of good relations impedes the immediate
hard actions needed with purposeful evaders and defaulters who are
on the verge of insolvency. Personal interaction is required to
accomplish the differentiation which is now essential. With per-

sistent pushing and prodding, most debtors can be made to respond

198

in some way; their reactions are the raw materials that collectors
use in building typical debtor classifications and assigning spe-
cific debtors to appropriate categories. Their interpretations of
the debtor's responses, or his failure to respond at all, together
with whatever information they have about him form the basis of the
decision as to what action will be taken next and how soon.
Enforcement can be visualized as a series of actions and
reactions; it is a progressive interaction which mechanically
builds up a composite portrait of the defaulter. It is only

through this interaction that the defaulter emerges as a
knowable figure.

Typifications of debtors are constructed out of the knowl-
edge which is generated by collection tasks. Enforcement work
can be described as a system of coercive probes which elicit
information-bearing responses. The organization of those
probes determines the resultant image of the defaulter.43

Where earlier collection phases were represented as the

nudge and the appeal, the third stage may be characterized as the
push. The main feature of its devices is the threat and they become
progressively more dire and more specific. Since collectors do not
threaten actions that could not possibly be carried out, the first
communication of this stage usually conveys only a nebulous threat
of "drastic action."

It is most urgent that you contact us WITHIN FIVE DAYS so

that it will not be necessary to take more drastic action

to secure payment of this long overdue account.
This is the beginning of the dunning process. From now on letters
and calls go out to the defaulter in quick succession. The actions
promised if payment is not forthcoming in X-number of days become
somewhat more specific--the credit bureau will be informed, the

employer called, the charge account closed, the goods taken back,

199

the credit card cancelled. The pace of message sending picks up
and is made to appear relentless, for the constant pommelling often
has greater impact than does the message content. Finally comes

the threat that legal action will be taken or that the account will
be referred to a lawyer or collection agency, but the flow of
threatening communications is seldom replaced by abrupt action.
Before legal steps are actually taken (if indeed they are taken),
there is likely to be a period of more intensive dunning with "last
opportunities" offered and the same sort of threats repeated several
more times.

The telephone is the essential medium for the personalized
contact approach of stage three. Written communications cannot equal
the phone for immediacy or as an instrument of harassment. More
important, personal calls produce information. The caller's inter-
pretation of any outcome of an attempt to talk to the delinquent
debtor by phone generates useful knowledge that helps identify him
as one of the collection system's three working types. No answer
on repeated tries or an unlisted or recently disconnected phone
are clues to the evader. On this evidence the creditor can assume
the debtor is a skip or a deadbeat; he dispenses with further ameni-
ties and moves at once to tracking him down and imposing full-scale
coercion. A personal call can also ferret out the genuine unfor-
tunates who may have been too frightened by threatening communi-
cations to come forward and explain their story. This may be the
original creditor's last opportunity to Show them how lenient they

can be with past-due accounts. The devices of the next stage are

200

no longer tempered by consideration for good will and most creditors
prefer to dissociate themselves from that stage of collection. If
they wish the matter pursued further it is often left to a lawyer
or outside agency to be carried out. The screen achieved by the
personal call is thus of special importance, for it can both accel-
erate the processing of discovered deadbeats and offer rescue to
some salvageable debtors before they become identified and treated
as defaulters. Above all, the phone call is usually successful in
forcing the debtor to make some response and his response serves

as a test of the creditor's hypotheses about the debtor's situation.
Rock has observed that

Each stage of a career encapsulates one or more tests
of hypotheses about a debtor's situation. The results of
the tests suggest actions in succeeding stages.

The results take the form of a reasonable or an unreason-
able response from the harassed debtor. A reasonable response
leads to a temporary abatement of enforcement whilst a debtor's
behaviour is carefully monitored. The unreasonable response,
which is most often no response at all, automatically suggests
the need to pass the debtor on to a more severe stage.

We find a similar idea expressed in the idiom of the ICCA collections
manual:

One tremendous value of telephoning is that the debtor is
almost obligated to say something, even if only to offer a
vague assurance that the matter will be looked into. Once in
a while a debtor will hang up abruptly after getting an ink-
ling as to the nature of the call. This seldom happens but
even when it does, there is still some advantage to the
creditor because no clearer revelation could be made of the
debtor's attitude toward the matter. Obviously the alert
person, as a result of this lack of COOperation, will inten-
sify collection efforts. Debtors can easily ignore letters
and perhaps assert that they were never received. The tele-
phone, however, offers no such easy way out. 5

201

The calling creditor does not initiate the interaction with
an objective view of the debtor or of delinquent debtors in general.
He has formed a tentative image of the debtor and his Situation
based upon information obtained in the credit sanctioning process,
from the debtor's payment history and his record of collection
attempts, and this image generally fits a broad typification of one
or another "kind" of debtor. The content of the debtor's response
is evaluated in terms of typical responses expected from various
debtor types. The creditor has already monitored the debtor and
his account for some time and by the third collection stage he is
in effect making a decision to advance or delay the debtor's
progression through the enforcement career. The bias is toward
advancement unless the creditor can be convinced of the debtor's
sincerity since the operation of the system should have weeded out
most genuine unfortunates by this time. The validity of debtors'
explanations for delinquency is impaired by their belatedness and
by the fact that they were not Offered voluntarily. In other
words, explanations offered now are received as standard excuses.
The ICCA lecturer instructs his class on the use of phone calls
for collection in this manner:

The phone call is a good way to get promises--then you

have a commitment to follow up on and legal steps can be taken
if they're not fulfilled. Be sure you're talking to the debtor
himself and then identify yourself-~that may end the conversa-
tion and that's fine! Otherwise say something like "We

haven't heard from you about payment. . . ." And now comes the
standard excuses: number one, sickness--he plays on your sym-
pathy. Number two, a complaint--he's mad about something,

the service, the merchandise. Number three, overloaded--he

owes others, he's having a hard time, and number four, unem-
ployed. Number five, domestic trouble--separated, it's not

202

his bill, or you're collecting from both of them. Number six,

he forgot, the check is ready to mail. Not so! Tell him

you'll come by for it and he'll back down. Whatever they say,

try to get a definite commitment. Pin him down--When is pay-

day? Then tell him to write it down himself, the amount and

the date he'll pay.46

If the debtor can overcome the creditor's skepticism and

make him believe that he wants to pay and that he really has some
kind of hardship, most creditors are willing to cooperate, even as
late as the fourth stage of the process. As evidence of this we
find that extension and composition agreements are shown as types of
drastic actions available for use in the final stage (see Cole's
outline of the collection system, above). Cole, of course, is
writing for credit management students and it is from this, the
view of creditors, that these devices are “drastic." They are
forms of out of court settlements that creditors may enter into
with debtors they believe to be honest, sincere, and without intent
to defraud. Under the composition arrangement, a group of creditors
agree to accept a percentage of the amount of the debt as payment
in full. The extension agreement is a moratorium whereby the
debtor is granted up to three more years to pay off the debt. The
willingness of some kinds of credit granters to make such con-
cessions has its basis in practical considerations Similar to those
which guided their credit activities at earlier stages. As a last
resort a compromise with the debtor is preferred to the alterna-
tive of carrying out the threatened legal action which is costly,

time consuming, and detrimental to good public relations. Creditors

willingness to back down also reveals the fact that debtors

203

frequently have the power to bargain; one effective means of counter
offense is the threat of declaring bankruptcy.
The creditor knows that by going into bankruptcy the
debtor can wipe out the entire debt. The creditor knows, too,
that if he goes to court he has to spend money for an attor-
ney and court costs, as well as additional time in court away
from his business. Moreover, it may be bad publicity, espe-
cially for a certain type of bank or finance company, to
repeatedly go to court. In addition, even if he does Obtain
a judgment agalgst the debtor, he may have difficulty in col-
lecting on it.
The actual or potential threat of voluntary bankruptcy becomes an
important factor in the psychological battle waged between the
defaulters and collectors involved in the stage of drastic collec-
tion devices; we will touch on this again at the end of this chapter.
The devices we have so far described are those employed by
the original creditor to secure payment of delinquent obligations;
generally, creditors' active involvement in the collection process
ends with the third or personalized appeals stage. Most often,
particularly among retail firms and service credit granters, if
the creditor has "worked the account” through the third stage with-
out success (usually over a period of six months or more), the
system calls for it to be written off. Writing off an account is
a bookkeeping procedure which removes it from accounts receivable
and shows it as a loss, but writing off does not necessarily mean
giving up. Unless the debt is too small or too difficult to merit
any further effort, most creditors try to recoup the loss by
referring it to an agent for the next phase of treatment.

When the fourth, "legal or drastic action" stage begins,

the whole collection system shifts to a new mode of operation: for

204

debtors still remaining in it the policy of preserving good will is
now totally abandoned-~the pushing and threatening efforts are
intensified, dunning is stepped up and, ultimately, legal devices
are put to use. Typically the creditor has bowed out at this point
and turned the proceedings over to an attorney or outside agency
which specializes in dealing very firmly with defaulters on a mass
scale. As Cole notes, the debtors involved in the final stage are
the same as in the previous one except that consideration is now
given to the ownership of assets. Although the collection strate-
gies of the fourth stage utilize more powerful weaponry and are not
hampered by regard for good will, an additional information-seeking
burden is placed upon the agency collector who commonly handles the
affair at this point. Before legal means can be employed to obtain
payment, the collector must know about the defaulter's employment
and indebtedness condition, for legal steps are useless against a
debtor without a job or assets. In the event that legal steps
cannot be used, other "drastic" action may be taken by the agency
collector. Later we will describe some collection agency proce-
dures and show how the agency collector carries on the final stage
collection process as a continuation of the creditor's efforts.

The foregoing description of creditors' collection devices
(through the use of "personalized appeals") reveals the basic
strategies all creditors use to enforce payment of delinquent debts.
D1 the general case, after the devices of the first three stages
of the collection system have been applied by the original creditor

the final, severe stage, including use of legal sanctions, is

I...-

205

carried out by an agency and we will describe that part of the
collection process shortly. There are, of course, variations among
individual creditors and among granters of different kinds of
credit. Some firms forego the drastic action stage altogether
because of the ill feelings that could be created; some carry out
these measures themselves. To illustrate alternative strategies
that certain types of creditors may use, we next explain briefly
how the enforcement of delinquent accounts is handled by a few key
credit granters whose strategies depart somewhat from the general
pattern.

Some Variations on the
Basic Collection System

 

Of the several creditors any consumer debtor is likely to
have, the most formidable debt enforcers are those who can quickly
cut off needed services such as gas, electricity, and telephone;
these are also the obligations that add urgency to the problems of
overburdened debtors. The collection methods of utility companies
are particularly swift and inflexible. Because of the massiveness
of their billing Operations their procedures are highly standardized;
while other creditors may make allowances for good customers or
generally prompt payers, all overdue utility accounts get the same
notices and all progress inexorably to suspension of service if
payment is not made. The process is fully automated and involves
almost no personal contact with debtors. The statement which is
sent following an unpaid bill carries a computer-generated friendly

nudge but the appeals stage is omitted and about ten days after

206

the second bill goes unpaid the debtor receives notification threaten-
ing shutoff of service. Most companies send a second, more urgent
warning and allow a few more days, but then the service is termi-
nated. Since utility shutoff requires a premise visit by a field
man, he makes a final on-the-spot effort to collect but this is

the only personal attention a delinquent account receives. Utili-
ties would prefer not to cut off service because of the trouble and
expense it involves so they may make special arrangements with past-
due customers who call in promptly with a convincing story of hard-
ship, but they make no appeals to encourage them. Once the threat
(service cut—off) has been carried out, the usual demanding letters
and dunning calls follow. The final step is likely to be referral
to an agency and authorization for them to bring suit when large
disconnected service debts are involved.

Telephone companies also use strategies centered on the
threat of service termination but their sanctions are applied with
less uniformity and at a slower pace. They rate their subscribers
by their paying habits and are much more lenient with well-rated
customers who are having temporary difficulties. A reminder is
sent on accounts two to three weeks past due; in the next month a
five-day warning goes out, followed by a call asking what the
problem is and urging payment. When no payment or explanation and
promise results, a temporary one-way cutoff occurs and the debtor
is given two weeks to pay up and have it restored or suffer per-
manent removal. As with utilities, a cut-off service debt is much

harder to collect after the best weapon has been used. A few

207

notices and calls are made; if the debtor applies for a phone at a
later time or in another place, the delinquent final bill is pre-
sented before service is installed. The last step with defaulting
ex-subscribers is referral to the collection agency where payment
may be enforced by court action.

Banks and finance companies are also likely to be found on
almost any troubled debtor's list of creditors. The efforts of
financial institutions to collect past-due car payments, loan
instalments, and credit card accounts may differ in one or more
stages from the standard procedures of the general collection system.
With the exception of auto loans, which are enforced by tough
repossession practices, the collection of loans and credit card
obligations begin to differ only in the last stage, after routine
dunning measures are exhausted and drastic forms of action are
called for. With car loan collection, the pre-drastic stages are
accelerated and the final stage is quick and severe. Purchases of
automobiles on credit are typically governed by a conditional sales
contract which gives the buyer the right of use of the goods but
transfer of title is conditional upon full payment of the obliga-
tion. The buyer does not own the prOperty until he has made the
final payment; the seller--or the institution which buys the
contract-~can repossess its own prOperty in the event of a default
in payment by the buyer. Under present laws, a car can be repossessed
without notice or a court order; it can simply be picked up where
ever it may be found, the Single exception being that it cannot be

removed from a locked garage. With this strong sanction available,

208

the creditor all but bypasses the preliminary stages. Telephone
dunning begins soon after one payment is missed; if two go unpaid,
a creditor bank will send a field collector to see what the problem
is. If the debtor has a good paying record and can argue a tem-
porary problem such as job layoff is at fault, the loan may be
rewritten on easier terms but auto financers are rarely lenient
with delinquent debtors. Since auto loans are secured by easily
recovered property they are very liberally granted; the large
number of high-risk borrowers accepted makes the auto loan collec-
tion system follow an inflexible and tough enforcement policy which
never permits the doubt to benefit the debtor. The field man's
interview is the debtor's last chance. If his visit does not pro-
duce a payment the account goes to an independent adjustor, commonly
called a "repo company." (Many finance companies do not have field
collectors and move directly from phone calls to property seizure.)
The debtor is not advised when referral to the repo company occurs
nor is he informed about when the car will be seized. This step of
drastic action arrives swiftly and is often so unexpected that the
delinquent auto loan debtor believes that his missing car has been
stolen. The main difficulty is locating the vehicle but once it

is found the professional repo man whisks it away with the stealth
of an auto thief. Their procedures are, in fact, virtually indis-
tinguishable: he uses the same tools to Open the car and start

the motor, he prefers to work at night and usually has an accomplice;
anything short of breaking and entering the owners' premises is

permitted. When repossession is used as a device for collecting

209

auto loans, drastic sanctioning does not end with seizure of the
vehicle. After the creditor has exercised his right to reclaim the
peoperty, he is permitted by the contract to sell the car, subtract
the value realized from the balance of the debt, and hold the buyer
liable for any deficiency. (Repossessed merchandise is rarely sold
for an amount that covers the balance of the debt so a deficiency
almost always remains.) The creditor may then file suit to obtain
a deficiency judgment against the debtor paving the way for further
actions, such as wage garnishment, to satisfy the obligation.48
Repossession as a collection device is much less commonly
used when merchandise other than automobiles is involved. Most
goods bought on time (furniture, TV, and the like) quickly loses so
much value that little is gained by seizing it. In addition, even
if the buyer defaults on an instalment contract that provides for
repossession, it is difficult and even dangerous for a collector
to attempt to remove objects from the home unless he has first
obtained a court order (replevin) or the debtor's consent (volun-
tary repossession). Apart from auto loans, efforts by lending
institutions to collect on other secured loans in the three pre-
drastic stages follow the general pattern--friendly reminders
followed by personalized appeals and then dunning by phone. Threats
of severe measures such as seizure of collateral, enforcement
against cosigners, and seizure of wages or assets through legal
suit may be made, but lenders are generally reluctant to carry out
such actions unless the debtor appears to be totally unCOOperative

or dishonest. The widespread belief that lenders will take the

210

property borrowers pledge as security for loans acts as a strong
deterrent against default but banks and finance companies prefer
to avoid seizing it if at all possible. Because of the nuisance
and the legal complications involved in seizure and selling of
goods, they are more anxious to explore every reasonable arrange-
ment that would enable a well-meaning debtor to meet his obliga-
tion. In the case of cosigner loans (which are frequently made to
high-risk borrowers), if the creditor's efforts fail to produce
either payment or an acceptable arrangement, the cosigner will
usually be contacted and receive some dunning treatment in the hOpe
that he may persuade the debtor to make payment; as a last resort,
the cosigner can be made responsible for paying_off the loan.

The collection of delinquent unsecured loans (those which
involve no property or cosigner as guarantee against default) is
almost certain to have referral to an attorney as the final stage
weapon. Bankers and finance companies grant such loans on the
basis of borrowers' credit-worthiness as determined in the credit-
sanCtioning process and since it is the debtor's income and assets
which indirectly guarantee the loan, the collector's ultimate step
in the event of default is to obtain these assets through legal
action. Legal action is expensive and harmful to the lender's
public image so it is taken only after all other efforts have been
unsuccessful. Referral to a staff CH‘ outside lawyer can move
slowly but if the borrower fails to inspire sufficient trust to
justify a helpful delay, the account may be in the lawyer's hands

after about three months of missed payments. The lawyer usually

211

sends out one last form letter threatening to sue within ten days;
its purpose is mainly to frighten and it is effective in persuad-

ing many debtors to pay. Those who do not, find the threat carried
out; if the lawyer has reason to think that other creditors are about
to move in on the debtor's assets, there will be a very prompt move
to the courts.

Collection of delinquent credit card accounts, bank cards
in particular, closely resembles that of unsecured bank loans. The
main difference between the two procedures derives from the can-
cellation clause to be found in credit card agreements: This card
remains the property of (issuer bank), may be revoked and canceled
at any time, and shall be immediately surrendered to issuer upon
demand. (These words appear on the back of the Bank America cards.)
This threat of cancellation is one of the credit card collector's
major weapons. The usual preliminary steps come first (normally a
computerized series of reminders, form letters, and nominal amounts
in late charges added to the account) continuing for about two
billing periods. Then telephone collectors take over and their
first objective is to discover the reason for the delinquency.
Based on the information they obtain, together with records of the
card holder's past performance, the collector makes a judgment of
the risk entailed in allowing the debtor to continue holding the
card. Card issuers prefer not to cancel if it can be avoided; it
means losing business but more important, collection leverage is
lost with cancellation. Once the card privilege is revoked the

collector has spent the threat most useful in getting the debtor

212

to pay up, but loss of leverage has to be weighed against the risk
that the card privilege will be abused by the delinquent debtor.
Issuers treat delinquent card accounts differentially depending
upon the payment record, size of the overdue balance, and the
debtor's behavior. A delinquent card holder with an established
account who volunteers an explanation may be carried for several
months; quickest to be cancelled are high balance overdue accounts
that cannot be contacted. The type of card is also an important
factor: since T&E cards require full payment each month but set no
credit limit (while bank cards are based on revolving instalment
terms and set a ceiling on charges), they threaten cancellation
earlier and carry it out sooner. When the time comes to carry out
the threat of cancellation (usually some 90 days after the account
becomes delinquent) collectors call card holders asking them to cut
up the card and mail it back. Retrieval is not always accomplished
so easily, however, so when this action becomes necessary, most
card issuers delegate the task to an outside agency. Several large
companies specializing in credit card retrieval have developed in
recent years; the majority of their business comes from oil com-
panies and banks, although pick-up orders from retailers and T&E
card companies are increasing. The retrieval agency contacts the
debtor by mail and phone requesting the card's return, and these
initial approaches produce return of some 60% of cancelled cards.
The president of one such agency describes its dealing with debtors

who are less impressed with its early overtures:

213

There is another approach we use with the "chronic staller"
and a "belligerent" who tells you to "stick it in your ear" or
worse. For such a person, a field agent, usually a moonlight-
ing bailiff, policeman, detective or consumer credit employee,
is dispatched to the home. In these instances the most common
occurrence is for the consumer, who is just "embarrassed," to
respond, "Durn, I just mailed it in yesterday." Then after
the field agent leaves he rushes out and mails the card back.
These procedures round up another 20% of the cards.49

As might be expected, collection of the balance due on a

cancelled account is much more difficult. A few more dunning
measures are taken and then the account goes to an attorney who
makes a final demand and then proceeds to suit. This is generally
the outcome for only the most recalcitrant of debtors, for credit
card issuers prefer to use first any alternative it has available.
Banks may seize any assets it holds in the debtor's accounts by
their "right of offset" which is provided for in bank card agree-
ments; T&E companies may make arrangements such as converting the
card debt to a "note program" which can be paid off in instalments
like a loan. Because creditors will be lenient and cooperative in
certain cases is not to say that their collection procedures are
necessarily lax or painless to the debtor. It is simply that it

is often to the creditor's advantage to take whatever positive
steps are feasible and will, on balance, be the most productive

for the creditor under the circumstances. As a case in point,
credit card collections were much more swiftly and severely carried
out during the recession period of 1975, when account delinquencies
increased and collections were harder to make.

One other key creditor whose treatment of past-due accounts

differs somewhat from the general collection system we have

214

described is the medical service credit granter. The approach
taken by medical practitioners and hospitals resembles that out-
lined by Cole with two major qualifications: first, as creditors,
doctors, and hospitals are not as systematic about the conduct of
the first three stages in terms of its timing and thoroughness;
secondly, unlike creditors who can exert leverage by applying some
sort of tangible pressures, medical service credit granters have few
means of enforcing collection. Thus in this case, the mildness of
the early stage devices the creditor employs is explained not by a
desire to preserve good will but by not having anything to use as a
weapon. Hospital collection is mainly a matter of applying con-
ventional routines to motivate payment and then writing off those
that do not come through and handing them over to an agency.
Hospitals are not equipped to carry out personalized collection;
big institutions rely on the computer to handle every stage of
collection and most of the effort is made through impersonal notices
and demands. There are not routine appeals; only debtors with very
large bills receive personal letters or calls, although hospital
collectors are usually willing to work out special payment plans
with debtors who contact them. The hospital's routine dunning
process commonly requires four to six months or more, but when it
ends a large number of accounts, particularly emergency room and
out-patient bills of smaller amounts, remain for collection agency
follow-up. 1

Doctors and dentists (and medical service firms to which

patients are referred for tests and X-rays) are among the most

215

common of credit granters and the least effective of collectors.
Professional etiquette still remains to discourage cash payment or
contractural arrangements or even careful investigation of patients'
ability to pay at the time the services are received. Because loose
credit practices invite collection problems they are not infrequent--
and the load of collection chores is placed on the regular Office
secretary as part of her accounting duties. The system follows the
general collection pattern, moving from polite reminders and
inquiries to sterner threats, but the effort is disadvantaged by
lack of specialized manpower. The secretary hasn't time for syste-
matic treatment and monitoring of its effect. The first step is
usually a gently worded note on the regular statement when the bill
is two or more months overdue; the next two or three monthly bills
may carry a reminder sticker with a more strongly worded message;
eventually, usually between the fifth and eighth month of delin-
quency, a more threatening sticker may be affixed, vaguely suggest-
ing legal steps or referral to a collection agency. At this point
the secretary may phone a few times, first asking what the problem
is and then warning that legal action is forthcoming soon.

The professional service creditor is in a weak position
to enforce collection because threatening to turn the account over
to an agency is the only recourse he has to intimidate a debtor;
there is no repossessible prOperty involved and denial of future
service is not much of a threat since other sources are usually
available. The personal nature of the doctor-patient relationship

may generate guilt and embarrassment in the delinquent debtor but

216

this is not a powerful tool in competing for debtors' dollars
against creditors who can apply much more tangible pressures. The
best chance the medical professional has to minimize his delin-
quencies is to begin collecting early:
One Office assistant says, "I try to collect as near

the 'Peak of Gratitude' as possible." When peOple are ill

or in pain, relief of the trouble is the major concern but

after they are better they quickly forget. As time passes,

the fee, which first seems a small price to pay for restora-

tion of health, appears out of proportion to the benefit

received. It takes a surprisingly short time to drop from

the peak of gratitude to the valley of cost consciousness.50
Most peOple tend to pay the doctor last and the harried delinquent
debtor is almost certain to put the doctor or dentist bill at the
bottom of the pile, knowing that outside of dunning notes and phone
calls, not much will be done to him--at least for awhile. Even-
tually, but rarely before the sixth month of delinquency, the doctor
will act on his threat to send the account to an agency, although
he still might withhold permission for court action. Hospitals
and medical laboratories will command more attention for their

accounts go to the agency without delay and once there, they

receive prompt action from collectors.

Organizational Processing of Defaulters
We have reviewed the various Operations involved in
creditors' routine management of accounts receivable which take
the consumer debtor from a credit transaction through the initial
stages of the collection system. As we have seen, there are some
variations on the standard pattern of debt collection, but for

most creditors the final step in this routine processing system

217

is a systematic write-Off procedure which eliminates the delinquent
accounts that are uncollectible by regular techniques. After
charging it off, the account is handed over to a collection agency
and action on the part of the creditor is suspended. (Since the
debt has already been taken as a loss anything the agency may
recover, minus a substantial fee, is profit for the creditor.)

When a debtor's account has arrived at this, the fourth stage of
the collection process, and is about to receive the drastic treat-
ment a collection agency typically affords it, we regard the indebt-
edness condition as ”default" and the debtors with whom the col-
lection agency deals may be termed "defaulters." We now turn our
attention to the devices and strategies agencies use to collect
default debts for their credit granter clients.

Collection Agency Strategies
and Proceduresbl

 

Until the time arrives for the account to be passed on to
the collection agency, the efforts put forth by the original
creditor are always tempered by the need to preserve good public
relations. For most credit granters, the debtor represents future
business which should not be discouraged by ruthless or offensive
collection tactics, but agency collectors are not hampered by such
considerations. When the debt reaches the final stage of collec-
tion the policy of preserving good will is totally abandoned. This,
in fact, is the characteristic that differentiates the stage of the

collection system commonly carried out by independent collecting

218

organizations from the stage that precedes it, even though the
debtors involved are essentially the same.
The independent collector has several advantages over the

52 One, the advan-

original creditor in enforcing payment of debts.
tage just mentioned, is the freedom to disregard debtors' feelings
and attitudes. The actions of agency collectors are bound only by
concern for laws governing property ownership and personal rights
and by the need to give consideration to debtors' possession of
assets before legal steps are undertaken. Consequently their means
for accomplishing collection are far less restricted; the range of
devices available to agency collectors includes all those used by
the creditor and an array of more drastic sanctions as well.
Moreover, the agencies do not share creditors' compunction about
applying severe measures without delay, for they can assume that
creditors' previous repeated appeals and threats have screened most
well-intentioned debtors out of the enforcement process leaving the
hard resisters for them to deal with. By the time the obligation
turns up as an agency "collection account" the debtor rarely gets
the benefit of doubts, particularly as to the reason for his failure
to pay. In his relationship with the creditor's agent the debtor
is definitely on the defensive. The series of threats the creditor
has used as sanctions against him during the preceding collection
stages also work to the agency's advantage; debt collectors have a
fearsome reputation among the general public and creditors' refer-
ences to the consequences awaiting the nonpaying debtor magnify his

fears and increase the effectiveness of agency strategies.

219

When the line to debt default has been crossed and col-
lection messages have begun to arrive, the consumer suffers
intense guilt and experiences great fears of things he can-
not name. He imagines that a powerful, authoritarian mechan-
ism has been set to work but precisely what this power can
and cannot do to him he is unable to say. He may suspect
that his credit rating is in jeopardy and he may have vague
apprehensions of legal consequences. Innocent of specific
knowledge, he generally assumes the worst, but he does not
know what that is.

Every creditor and collector knows that his main weapon
is this shapeless anxiety and the credit-collection world
has found it in its own best interests to nourish this dread.
Collector's threats imply awesome legal power . . . [but]
the collector's clout is derived mostly from subtle manipu-
lations of the debtor's fears.53

From an administrative viewpoint the independent collector has
another advantage: all credit granters have some delinquent
accounts and some system for collecting them, but beyond a certain
point their own system is seldom efficient enough to justify the
costs of perseverance. Agencies, on the other hand, are geared

for processing delinquent accounts on a bulk basis and for con-
tinuing the collection effort long after the creditor's system
finds it economically unfeasible. Although their operations center
exclusively on accounts that creditors have given up on or declared
inexpedient to pursue, collection agencies' average success rate

of about 30% attests to the potency of their methods. We will be
looking at some of those methods as we examine the general pattern
of the agency debt collection activities which follow the original
creditors' efforts.

Recalling our discussion of the part played by the original

creditor in debt enforcement, we explained that the collection

process has its beginning in the account control system Operated

220

by credit department personnel. It automatically selects past-due
obligations out of the bulk of credit transaction records, identi-
fies them as delinquent accounts, and sets the collection system

in motion with the application of a first-stage collection device.
It was noted that the communications of early stages are designed
to be very general and impersonal because there is considerable
diversity within the debtor group at which they are aimed. The
innocuous messages sent early in the delinquency period tend to
activate a self-selection process by which most honest but forget-
ful or procrastinating debtors are eliminated from the system. As
collection activity proceeds, collection efforts necessarily become
more personalized. After the debtor group has been narrowed down
by elimination of most "circumstantial" cases, creditors turn to
harsher devices apprOpriate for hold-outs who require such measures.
Because these devices are more severe, differentiation among
debtors then becomes more important; the aim is to avoid coddling
recalcitrant debtors and at the same time to avoid antagonizing
well-intentioned debtors with unnecessarily harsh treatment.

By the time the third collection stage is under way a far
less heterogeneous group of debtors is represented in the creditor's
delinquent account file. The majority of those involved are now of
the irresponsible-indifferent type, mismanagers and imprudent
consumers who overbought on their credit privileges, but this
group also includes that one debtor in a hundred who never had
planned to repay. Among the debtors referred to an agency there

will be some "unfortunates" who were not so identified by the

221

creditor's sifting system or whose financial situation only just
emerged as a desperate one (possibly leading to eventual insol-
vency) due to the occurrence of an expected calamity. This, in
general, is the aggregation whose defaulted obligations are to
become the raw material of agency debt processing. Insofar as
debtor differentiation is based upon reasons for default (actual
or imputed), agencies begin their part of the process with a debtor
group considerably more uniform and more difficult than that first
encountered by the creditor's collection system. As one writer
observes,
About 95% of the U.S. population pays bills on time, 4%

pay late, and only 1% are total stiffs. By the time a debt

gets into the bill collector stage, the collection process

deals less and less with the easy 95% and more and more with

the recalcitrant 4% and the 1% incorrigibles. As a result,

more and more time and effort must be spent to produce results

from a more and more difficult group of debtors.54
While there is more uniformity among the defaulters they represent,
there is a great deal of diversity within the collection accounts
that are continuously pouring into the agency's collection system.
There is considerable difference among them in terms of the diffi-
culty of collection they present as a consequence of their age and
the amount of effort already expended on them. It is the general
practice of some credit granters (hospitals, for example) to refer
accounts to the agent after giving them only perfunctory treatment;
other creditors submit accounts after having worked them thoroughly
over a long period of time and after every feasible means available

to creditors has already been brought to bear against the debtor.

Hence collection accounts may cover fairly recently defaulted

222

obligations or they may be as old as a year or more when they
arrive at the agency. In some cases creditors provide a good deal
of information about the debtor and details about the debt trans-
action and their own efforts to collect; just as often they supply
very little help to the agency, some accounts are even without a
currentaddress.55 Collection accounts vary widely in size; the
indebtedness may be only a few dollars or it may be in the thousands.
There is also considerable diversity in the nature of the merchan-
dise from which the debt originated. A very large part of collec-
tion accounts represent unpaid service credit transactions, particu-
larly doctor and hospital bills, but accounts come from many other
kinds of service establishments such as employment agencies, veteri-
nary clinics, utility companies, modeling schools, lawyers and
morticians, to name but a few. Accounts are referred from many
kinds of consumer goods sellers as well, including retail outlets,
mail order houses and door-to-door vendors, and they represent a
broad variety of goods. Unpaid debts in agency files cover every-
thing from jewelry, furs, flowers, and home library sets to clothing,
auto parts and eye glasses, to home repair materials, fuel oil,
and occasionally even foodstuffs charged at the neighborhood
grocery. It goes without saying, that while all agency accounts
require some effort to collect, the difficulty varies considerably
with each of these factors we have mentioned.

Organizational processing of this account melange obviously
requires the Operation of a system for sorting out debts and debtors

to be approached with different techniques. With the tremendous

223

volume and variety of collection accounts, and the need to treat
them promptly and inexpensively, fine-screened sorting and careful
investigation of debtors' reasons for default are ruled out. The
agency's differentiating system closely resembles that used by

the original creditor; it relies on the same crude typology by
which debtors are relegated to one or another of the three classes
recognized by enforcers at other stages. Although the creditor and
the agency, occupying successive roles in the collection process,
employ the same basic strategies with the same general aim, their
procedures differ somewhat in content and timing. As we have seen,
the aim of the general collection system is to process huge num-
bers of debtors with efficiency and economy that precludes cus-
tomized treatment. Although the circumstances of individual
defaulters may vary widely, enforcers work with a crude typology
that can sort out debtors only by segments. Each stage represents
a specialized form of collection effort found to be effective with
the debtor segments who have progressed to that point in the system.
The differentiating process, which appears at each enforcement
level, is most efficiently Operated when it serves to select out
debtors who can be identified as exceptions to the type prepon-
derant at each stage. During the creditors' collection stages
forgetful and unfortunate debtors are the greater in number, so

it is the tough cases that are picked out and for them the enforce-
ment process is accelerated. Their failure to respond identifies
them to creditors as irresponsibles or evaders; they are moved

swiftly into severe sanctioning while the remaining bulk of

224

delinquent debtors continue to be treated routinely with appeals
and mild threats. Similarly, the efficiency of the agency system
requires that the standard pattern of enforcement be that which

is most effective with most cases, with a means for picking out
exceptions. Since collection agencies deal mainly with recalci-
trant defaulters, the strategy is worked the other way: it selects
out the remaining few with whom some lenience or forbearance
produces results-~principally the debtors c0ping with misfortune--
and all others become candidates to receive the harsh treatment
designed for the types of debtors who respond only to drastic or
legal actions.

The stage of the general collection process manned by
agency personnel constitutes a new dunning and aging cycle. The
agency's sequence of efforts moves toward severity at a faster rate
than the creditor's cycle and is normally not as drawn out,
although its treatment of insubmissive debtors can extend over
months or even years. The new sequence begins with a brief form
letter (or a notice resembling a computer punch-card) that bears
a brisk announcement to the debtor that his account is now in the
collection agency's hands. The message is typically some version

of this:

THIS ACCOUNT HAS BEEN ASSIGNED FOR COLLECTION
PAY IN FULL AT ONCE

WE WILL WITHHOLD ACTION FOR SEVEN (7) DAYS

225

This first notice, which begins a new phase of collection, serves

as the primary screen for sifting out those unfortunates and less-
resisters whose delay in paying has caused them to be propelled to
this stage of enforcement. Evidently it is sufficient to convince
many of them that the creditor had not been making hollow threats,
since a high proportion of agencies' 30%successful collection results
from this initial effort.

Although legal measures are the main strength of agencies,
particularly those which have legal sanctions built into their
collection system (and they will indeed put them to use), psycho-
logical pressuring is an essential feature in their strategies.
Apart from actually taking court action, the agency's strongest weapon
is the appeal to fear and the threat is their most frequently used
collection device. Much of the success of agencies' psychological
warfare approach is attributable to the effectiveness of two propa-
ganda themes which usually accompany and support collectors' threats
and emanate in countless forms from every other organization in the
credit world as well. One is the importance of credit to the con-
sumer, the value of a good credit rating, and the certainty that a
poor payment record, or an unpaid debt, will destroy it. A second,
related, set of ideas seeks to create an image of credit-collection
organizations as awesome, powerful, omniscient, and somehow inter-
linked as part of a universal credit-collection network. (One wag
observed, “Consumers are led to believe that all the nation's
credit bureaus, collecting agents, banks, finanée companies, credit

card concerns, and major retailers are interconnected like ICBM

226

sites.")56 There are, of course, elements of truth in these themes
but credit organizations are not all-knowing or nearly so accurate
and thorough, and they are not part of an instant-action linkage

as many people believe; nor are collection agencies vested with

such awesome powers as they imply.

The agency's appeal-to-fear messages (almost always accom-
panied by some positive propaganda) are conveyed in a variety of
ways--sometimes as intimidation by suggestion, often as explicit
threats. The message of the announcing notice shown above provides
an example of the use of threats (for which there are no solid
grounds). Its order, "pay in full at once," is meant to intimidate;
it belies the fact that this notice actually serves the same purpose
as the creditor's appeals, to encourage debtors to volunteer reasons
and request special arrangements. Moreover, the exactness of the
stated grace periods-"seven (7) days"--is incongruent with the ambig-
uous threat of what the consequences will be--unspecified "action."
This notice resembles a computer card (and some agencies actually
send punched cards as notices whether or not there is a computer to
go with it); such devices hint that the card can be fed into a
computerized system, necessarily huge, and bring instant termination
of all credit privileges. The group of agencies which subscribe to
the automated notice service which we describe below send a series
of dunning messages on a form designed to communicate an oblique
threat to the would-be evader: on the reverse side of each card is a

design featuring a United States map covered with tiny dots repre-

senting affiliated collection agencies; far distant places are

227

identified around the map--Newfoundland, Sweden, Hawaii, Australia--
and superimposed on the map is the trade association symbol which is
based on a world globe figure. Below the map is a clear warning
that the debtor cannot hope to escape the ubiquitous collector:
DISTANCE MEANS NOTHING TO US. Beside the map are statements com-
municating positive rewards--PAY TODAY SO YOU CAN CHARGE TOMORROW!--
and implied threats of credit annihilation: 'Wknn*credit record is
available to any one of our 4,000 ACBofA member offices throughout
the United States and Canada."

The agency's collection system can conveniently be viewed
as two strategy phases: the first is the pre-legal strategy phase;
it consists mostly of dunning by mail and telephone and relies
primarily on appeals and threats; the initial part of this phase
(now conducted as an automated process in many agencies) begins with
an announcing notice and continues through a series of tersely
worded preliminary notices sent out over a short period after which
the individual collector takes over. The second is the legal
strategy phase which includes steps taken to secure court judgments
and to implement such actions as wage garnishments. The pace at
which these devices are employed is somewhat inexact and they are
not applied routinely to all debtors arriving at this most severe
stage of enforcement. The incidence of legal steps and the default-
ers against whom they are taken are determinations made as part of
the individual collector's work; it is the person in the debt
collector role who makes decisions, on the basis of training,

experience, and personal judtment, as to which debtors receive legal

228

sanctions and when and how often they are applied. The actions of
individual collectors "my' be regarded as part of the pre-legal

phase although they actually constitute a bridge between the two
phases. In the next section we describe the pre-legal strategy

phase of a typical agency using an automated preliminary notice
syStem; after that we look at the procedures of individual collectors
in such an agency and the kinds of devices available for use through
the remainder of the pre-legal strategy phase. Finally, we will
describe the last available collection measures, those which may be
carried out against defaulters who remain in the enforcement career

at the legal strategy phase.

Pre-legal Phase Collection Devices

Announcement of the account's arrival at an outside agency
is the signal that the creditor's final effort has been spent. To
debtors who have been receiving and ignoring threats and appeals for
some time it appears as a definite turning point; for most of them
it is the first instance of a promise actually carried out, and
from this experience they (except chronic deadbeats and frauds)
are likely to make the generalizing assumption that all future steps
will be actions rather than words. This, together with the frighten-
ing and stigmatizing specter that bill collectors represent to most
people, probably explains why most collection accounts are paid
immediately after the first notice. In effect, the first agency

effort reactivates the self-selection process; it eliminates the

229

debtors who are most easily intimidated and those who are having a
hard time but can somehow come up with the money.

Despite their fearful assumptions, the debtors who capitu-
lated at once could easily have put off paying for at least another
month without suffering anything worse than coercion by written word.
In most agencies the announcing notice is followed by a reminder
letter and one or more final demands. Although the final notices
always carry strong implications, if not explicit threats, that legal
action is about to be taken, this first series of agency communi-
cations is usually only a continuation of the creditors' psychologi-
cal pressuring. The final notice is seldom final because the steps
provided by law to recover money can rarely be taken until a judg-
ment is obtained in court, and this necessarily gives debtors more
time and further warning. Until government regulations covering
debt collection deception were enacted in recent years, agencies
used practices and devices that made this stage more convincing to
debtors. These restrictions prohibit many devices that agencies
found effective, such as designing notices to resemble legal docu-
ments, adopting lawyers' phraseology, and using agency names and
addresses made to look like government organizations or law firms.
The ethical firms now avoid practices that are outright deceptive
but all means within the law are freely used. At this stage it is
mainly written communications but the messages they carry are intended
to be intimidating, demeaning, and even insulting; their purpose is
to provoke defaulters into paying or at least making themselves

accessible to receive further inducements.

230

The actual notice series used by one agency group through
the pre-legal phase provides an illustration. This series of notices
constitutes an automated program designed to "work the account" for
a six-week period; accounts remaining at the end of the series are
assigned to individual collectors for further treatment. It is a
standardized routine performed on a specific schedule by an outside
finn; agencies from around the area which subscribe to this "pre-
treatment" service send their incoming accounts to a central loca-
tion each week where the notices are made up and returned to the
agency for distribution. Designated agency personnel use a standard
control mechanism to alter or stop the routine for specific reasons
such as the receipt of partial payment, special terms made with
debtors, bankruptcy filings, discovery of erroneous information,
and so forth. The announcement notice that begins the series is
followed in two weeks by five other notices sent at weekly inter-
vals. Debtors who failed to pay upon learning that the agency had

received his account are soon confronted with this message:

LET'S FACE FACTS

THIS IS AN URGENT MATTER.
THIS AFFECTS YOUR CREDIT RECORD.

Your continued silence will not help you. The only
thing that will improve your credit record is to
pay this NOW (if necessary contact us
and we will help you).
Although it arrives two weeks after he has been warned of "action"

forthcoming in seven days, it offers to help the debtor and thereby

to improve his credit record. Then, in exactly seven more days, he

231

is advised about the importance of the credit privilege with notice

number three:

URGENT--PAY TODAY
THIS MATTER CAN NO LONGER BE NEGLECTED.

In an emergency or whengyou need credit will
you be able to get it?
Do not let your credit suffer!
Protect your credlt and it will protect you!

 

 

 

 

One week later a different approach is tried--this an attempt to
goad the debtor into making some sort of response by antagonizing

him:

YOU ARE EITHER HONEST 0R DISHONEST
YOU CANNOT BE BOTH.

Your creditor
believed you to be honest
when credit was extended.
Mail or bring payment to our office
TODAY.

Next comes the nearest thing to a threat of legal action; most
debtors have heard of wage garnishments and the disfavor that debt
problems cause with employers, so the implication is not lost on

them:

WILL IT BE AGREEABLE WITH YOU--

If we make arrangements with your employer to deduct

money each payday from your salary?

WE MUST HAVE YOUR IMMEDIATE REPLY.

232

Six weeks after the collection account has entered the system, and
five strong statements have been delivered upon the defaulter, the

agency limply proclaims--

FURTHER DELAY CANNOT BE TOLERATED.
We will resort
to other measures
if we do not receive payment
by return mail.

This ends the pre-treatment series. The account will now be put
in the form of a debtor file and sent to the desk of the collector.

Although the content of these messages may seem trivial and
hackneyed in the context of this analysis, they effectively accomp-
lish the tasks for which this series of notices was designed: they
are inexpensive devices which flush out those debtors who can be
induced to pay in response to vague impersonal threats. They also
serve certain practical purposes and thus expedite organizational
processing by eliminating accounts which are unsuited to standard
agency treatment. Disputed accounts, for example, are culled out
and referred back to the client to save collectors wasting valuable
time with them; most small debts are cleared up; in addition,
valuable information about debtors' whereabouts is turned up during
the PT program (through the post office address correction service)
and this is incorporated into the debtor files to be used by col-

lectors. Most important, the automated notice series identifies

(and prepares) debtors who will go on the next stage of the

233

collection process. In the user's manual prepared for agencies sub-
scribing to the service we see this idea expressed as folloWs:

PT softens up the debtor for unit collectors. If the

debtor has received the six notices and made no response,
then the unit collector can be assured no dispute or hard-
ship is involved, the address is good, and normal "soft sell"
methods will NOT collect the account.

In general, whatever the style and form of early treatment,
it accomplishes the important screening and sorting function. In
using such devices with all their incoming accounts, the agency is
administering still another in the series of debtor tests. Those
debtors who make an acceptable response are not passed on to
immediately receive drastic or legal sanctioning; but those who do
not pay the debt or reach an understanding about it with the creditor

or his agent have failed the test and they are progressed to the

next step in the enforcement career.

The Collector's Work

The individual collector's handling of default debts rep-
resents a step in the collection process which bridges two signifi-
cant stages in the career--the period of routinized "private"
enforcement by creditors (frequently including a reiteration of
their efforts in agencies' initial screening) and the period of
"public" enforcement wherein legal remedies are used on the
creditors' behalf. For some defaulters this step is merely a brief
prelude to the legal action stage of the collection system while
it may be a protracted period of treatment for others. Which route

a given debtor takes is largely, but not entirely, up to the

234

collector. The collection agency's function is generally organ-
ized around the assumption that all debtors (save those who arranged
special payment plans in response to initial notices) are enroute
to the courts and hence the collector's principal function is to
carry out the processing necessary to implement legal steps; this
includes such tasks as obtaining creditors' written consent to
start suit, verifying the debtor's whereabouts, and determining
whether he is employed or has assets. On this assumption, all
debtors with whom the collector deals are candidates for legal
sanctioning so collectors' work is largely routine processing, but
it in fact involves still further screening and filtering out of
defaulters who will receive alternative collection treatment.
Although some defaulters are indeed whisked through a preliminary
processing and sent off to the courts, a great many others continue
to receive threats and appeals directed to them by collectors via
mail or phone-~primarily because legal measures cannot be used
against them for one reason or another. In still other cases the
debtor is able to gain a temporary reprieve from legal enforcement;
collectors often reassess defaulters on the basis of their responses
to the personalized probative measures directed to them in this
stage.

In the next section we look into the interaction that takes
place between collectors and defaulters as we consider the way in
which collectors carry out their part of the serial testing and
identifying system that structures the collection process. Before

examining the phase of debt enforcement manned by agency collectors,

235

however, I would like to describe something of what collectors'
work entails in order to Show how certain features of the job
itself affect the collector's handling of debtors, and influence
their decisions to immediately graduate certain defaulters to

the next enforcement level while others are detained for milder
control and monitoring. This characterization of the collector's
work is based on my own experience as an agency collector; it is
intended as illustrative rather than representative of all col-
lectors' jobs. Obviously there are many variations among agencies
and their procedures, but all agency collectors are similarly guided
in the performance of their work by structuring procedures and
surrounding circumstances. The collector's function is an inte-
gral part of the enforcement process but the decisions collectors
are required to make as part of that process are not entirely
impersonal or mechanical; objective weighing of factors pertaining
to the debtor and the debt is never solely the basis for defaulters'
assignment to the severe collection regimen. I have selected three
aspects of collectors' work which seem to have particular impor-
tance in this regard: the first one is the way in which collec-
tion agency Operations make it possible for agency collectors to
use (or convincingly threaten to use) measures that are unavailable
or impractical for individual creditors; the second has to do with
the essential importance of information about debtors and the way
in which it is obtained and utilized by collectors; the third is
the factor of work incentives and their influence in terms of

collectors' differential treatment of defaulters. The first two

236

features make themselves apparent in the work collectors do imme-
diately following the initial agency treatment described earlier.
When the pre-treatment series ends, a debtor file is pre-
pared for each collection account and sent to the collector's
desk. It takes the form of a large manila folder suitable for
containing whatever relevant materials are accumulated through the
various phases of agency treatment (bills and memos describing the
indebtedness and the agency's agreement with the creditor-client,
copies of any legal documents as may be originated, letters from
the debtor, and the like). The outside bears the debtor's name,
address and phone number, and data pertaining to the debt--the
name of the creditor-client to whom it is owed, the amount, and
when it was incurred. There are also places provided for the dif-
ferent agency personnel to record subsequent activities concerning
that account: in one area the cashiers post the dates and amounts
of payments received; in another (headed "Suit Memorandum"), the
supervisor records the dates of summonses issued, dates and amounts
for which judgments are obtained, the details about court costs
and garnishment fees as they are incurred and paid off. There are
four sections for collectors to record information generated in
the collecting process: one for updating the data on the debtor's
whereabouts and employment status, one for revisions in his indebted-
ness, one for listing notices sent to him, and a large area (headed
"General Information--Promises, Etc.") in which the collector keeps
a history of collection efforts and the debtor's responses to them.

The hundreds of debtor files covering active collection accounts,

237

alphabetically ordered, are kept in a bank of file cabinets; each
collector is assigned an alphabetical segment of debtors from whom
collection is to be made. (In my work experience, each of the six
collectors was responsible for eight drawers full of debtor files
representing an unknown number of debtors and accounts to be
processed; the mandate is given collectors in terms of dollar
amounts, not numbers of debts. Each collector was expected to
produce $5,000 to $6,000 in collections per month.)

Since a folder is prepared for each account as it leaves
the "pre-treatment" series it would appear that each debtor has but
one account, but by no means is this always the case. Hence when
folders reach the collector's desk, the first task is to remove
those belonging to debtors for whom there is already an active
account in file; the information and account data on the new folder
are then consolidated with that of the existing file. This proce-
dure pools all the indebtedness of the individual debtor which is
held by this agency, whether owed to one or many different creditors.
By lumping together all of his debts to be treated as one, the
agency brings a drastic change to the situation of most defaulters;
it often paves the way for immediate use of legal actions which were
unavailable or unjustified before, but are now warranted by the
substantial total of the accumulated debts.

Apart from this direct effect resulting from the input of
new indebtedness data, the file-consolidating procedure also pro-
duces new information which is an important aid in making the

collection. It is immediately useful for updating files and to

238

provide new leads for locating and contacting debtors, but fresh
information also carries as a bonus the capacity to generate addi-
tional knowledge. Collectors always work under the handicap of a
paucity of information about debtors; peOple in debt trouble are
understandably reluctant to reveal facts--for some it is a necessary
protection against harassment and a way to buy themselves some

time and for deliberate evaders withholding information is the prime
device. Trying to obtain facts about debtors' whereabouts, assets,
and jobs is almost as large a part of the collector's work as is
performing the dunning Operation. Collectors have at their dis-
posal the credit bureau files and various directories, but the
information contained in these sources is never complete and often
obsolete. To establish a useful documentation that will lead to a
successful contact and collection, the collector must piece
together whatever facts can be gleaned from a variety of sources;
typically, where no current facts are at hand few can be obtained,
and the collection effort is at a dead end. The arrival of a batch
of new folders brings a change of pace to collectors' work; this
fresh information, introduced as the files are consolidated, often
makes it possible for the collector to immediately resume treatment
or put to use measures which had been stymied by lack of knowledge
about the debtor. At the very least, even a fragment of new infor-
mation can begin a chain of events leading to contact with the
debtor or making his assets accessible. To make this more clear,

I will illustrate using an example from my experience: a major

client, a hospital, made a practice of submitting the debtor's

239

patient admitting form to serve as a document of its debt claim
and commitment to the agency. These forms contain a wealth of per-
sonal data incidental to the debt iself--including the debtor's
address, employer, phone number, social security number, and the
like--which are immediately useful. What is not so obvious is the
fact that bits of this data can be put together with existing facts
that had thus far proved inadequate; for example, the debtor's
birth date, middle initial, spouse or parent's name often supplies
a link to identifying him as a listing in other information sources.
It also proved helpful to know the date of the hospital admission
in association with a given address or employer, for this revealed
whether these facts could be used as revisions in current files;
since hospitals typically submit unpaid accounts promptly, their
data are frequently more recent than most creditors'. This hos-
pital's collection accounts were referred to the agency in large
batches and almost always included the names of many debtors whose
files were already active; when a block of these accounts, rich
with information, had finished the PT series and reached the col-
lector a flurry of collection activity ensued. In effect, the
input provided by this one client permitted the successful col-
lection of the debts submitted by a number of other creditors
(many of whom had contributed little helpful information).
Information is also an important factor in collectors'
choices among the various measures available for inducing default-
ers to pay. The strongest of devices agency collectors may employ

(i.e., legal means) cannot be put to use unless certain essential

240

facts are known about the debtor; a summons cannot be served without
a complete and accurate address, a wage garnishment order cannot be
issued (with large industrial employers) unless the debtor's identi-
fying social security number is known. Thus defaulters can resist
collection efforts and protect their assets by withholding knowl-
edge about themselves-—and those who know this and make it a prac-
tice are the "won't pay" debtors. By the same token debtors who
are not incorrigible, those who evidence a willingness to pay as
their circumstances permit (over longer periods), typically reveal
a good deal of information about their affairs. As a result they
make themselves accessible to harsh measures that could not other-
wise be used. In many cases the agency collector can and does work
out special payment arrangements with willing unfortunates--for

the practical reason that such arrangements will produce payment.
Special terms, however, require more of the collector's time and
attention and for this reason work incentives attached to agency
collectors' jobs become a factor. Agencies refer to their collect-
ing personnel as "professionals" but they treat debt collection as
a menial production job. The job is very simply structured:
workers are employed on a (low—scale) hourly-pay basis, they are
provided raw materials in the form of collection accounts, and they
are expected to produce collections that meet sizable amount
standards. I again draw illustrations from my own observation to
show how this aspect of collectors' occupational role affects their

treatment of defaulters.

241

As a positive inducement to produce, we were paid a monthly
percentage commission on collections over $1,600 but there was
stronger incentive in the fact that our daily receipts were tallied
and reported to us every day--with a strong rebuke if the day's
collections failed to meet the minimum expectation of close to $300
(and collectors could expect dismissal if their production was con-
sistently low). Collectors have little alternative but to pass
this pressuring on to debtors; despite their personal willingness
to extend more time to unfortunates making genuine efforts to make
and abide by special terms, the small periodic payments they could
manage seldom add up to the daily quota set for the collector.
Consequently, the agency collector frequently finds it necessary
to resort to drastic measures (usually court action) which result
in immediate collection of large amounts--and they, of course, fall
first upon debtors who are most accessible. Doubtlessly there are
many cases in which this upsets the efforts of people attempting
to work their way out of a precarious debt condition by paying
small amounts on several accounts; one can assume that some debtors,
who would eventually have paid all their creditors, are forced
deeper into trouble, if not insolvency, by the aggressive collec-
tion activities of one. In general, the defaulters who are quickly
progressed to advanced enforcement levels are not invariably the
recalcitrant; genuinely well-intentioned unfortunates can be
dramatically thrust into the role of insolvent (or bankrupt) by

an incidental feature of the enforcement process.

242

Advanced Stage Enforcement
by_Collectors

 

Using the outline of a general collection system to guide
our discussion, we have described the strategies and devices avail-
able for use by creditors in carrying out the role of debt enforcer.
Debtors not eliminated from the enforcement career by their efforts
are automatically defined as recalcitrant or incorrigible and
designated to receive further sanctioning. For lack of large col-
lection facilities, and to preserve a good public image, creditors
typically abdicate the process after its third stage, leaving it
to the independent collection agency to utilize more drastic or
legal actions on their behalf. Debt enforcement at the new stage
manned by different personnel is a continuation of creditors'
efforts and in many respects it is a reiteration of the creditors'
three stages at a more intense level; an abbreviated and less
decorous version of the creditors' early filtering process initiates
agency collection activities, after which the debts of remaining
defaulters become the individual collector's responsibility.

Advanced stage enforcement directed by individual col-
lectors, in sharp contrast to the pre-treatment process preceding
it, is neither impersonal nor mechanical and routinized. That is
to say, collectors do not use identical devices with each account
and the timing of treatments applied to any one defaulter is
indefinite, almost erratic. (The collector's orientation is toward
collections in terms of dollar volume--his concern is not with

equality or regularity of debtor processing. This, in fact, is a

243

dysfunction of agencies often criticized by their clients, that
collectors "cream the accounts," i.e., do not give them equal
effort but elect to work with the easy ones, the newer debts and
accessible debtors.) The tactics and devices collectors use during
the enforcement period between pre-treatment and the legal strategy
phase closely resemble the personalized appeals methods employed
by collectors. Advanced stage strategy involves probing and incit-
ing communications, persistent dunning, increasingly severe
threats-~all highly personalized-—directed to debtors by mail and
phone. These overtures, the mailings sent out to debtors, the
content of phone calls, and whatever responses are made to them
("Promises, Etc."), are recorded on the debtors' files. This
chronicle of collector-debtor interaction, together with the records
of any payments credited, additions to the indebtedness, legal steps
initiated, and address or employment changes, form a history of
the collectors' "working the account" from which emerges a general
image of the defaulter.
Enforcement can be visualized as a series of actions

and reactions; it is a progressive interaction which mech-

anically builds up a composite portrait of the defaulter.

It is only through this interaction that the defaulter

emerges as a knowable figure. What is identified by the

bureaucracy as a debtor is no more than what the enforcement

process itself can create. Typifications of debtors are

constructed out of the knowledge which is generated by col-

lection tasks.57

Files that have been of concern to the agency for some time

become tangible representations of debtors; the history provides a

basis for collectors to build a composite picture of the defaulter

and, as new information is added, the picture is rounded out and

244

the debtor's identity grows to conform more and more to one of the
three stereotypes that guide enforcers' activities. A voluminous
file bearing a history of recurrent defaults on many creditors,
several judgments, and frequent garnishment, for example, betokens
a deadbeat--the incorrigible debtor; one Showing repeated fruitless
efforts to ascertain the debtor's address or phone and nonresponse
to inquiries and probes identifies a Skip--the evader, who is often
a fraud. (The collector monitoring files such as these is watch-
ful for a lead that might provide the opportunity to move promptly

with the most drastic measures that can be brought against a

debtor.)58 Although the "feckless" (i.e., mismanagers and indif-

ferent and irresponsible debtors) constitute a large element of

the raw material of agency processing, and deadbeats and evaders

are commonplace, many of the files represent debtors who are identi-
fied, as least tentatively, as unfortunates.

The threefold classification scheme that stems from
routine collection work is applied throughout the career; at
every stage of enforcement, three types of debtor are regu-
lated. At every stage, the unfortunates are eliminated and
the professional and feckless debtors are passed on to the
personnel who man the next phase. The unfortunate defaulter
is resurrected afresh with each movement.

All enforcers work in the same world of a few social
types because they have a common need to explain why some
debtors never pay, why some pay immediately after coercion
is applied, and others pay after protracted enforcement. As
a result the threefold typology is systematically used through-
out the whole enforcement. Each group of enforcers takes up
its predecessors' feckless and professional debtors and
redefines them; peOple who respond to collector's letters are
labelled unfortunate despite earlier classifications. There
is a constant process within and between stages, an oscilla-
tion between dichotomous and trichotomous classifications. A
collector's typology thus closely resembles a creditor's

typology.59

245

The history-bearing file never produces a total image of
the defaulter. Organizational procedures provide neither adequate
time nor a place to record a thorough investigation; the image
must therefore be constructed out of fragments of information from
which collectors infer other qualities to help in building a pic-
ture sufficiently complete to support the debtor's placement as a
type, but the assessment is rarely final. The defaulter identity
which the file symbolizes is always in the process of "becoming."
The developing record of the collector's interaction with the
debtor, the devices he uses and the responses they elicit, repre-
sents a continuously forming and often a changing debtor image.

AS the career progresses, the collector's definition of inaccessible
and unresponsive debtors as frowardly and errant becomes more firm
while on the other hand, identifications of debtors who actively
participate in the interaction--who respond with plausible explana-
tions and Show evidence of good intent by cooperating in arranging
terms and making payments--tend to become more tentative. Hence
enforcement by collectors must necessarily constitute sequences of
actions carefully styled to Optimize the chances of making collec-
tion from the unfortunate and at the same time to test the validity
of his provisional placement as such. Much of collectors' activity
is directed toward developing more complete pictures of the

debtors who go with the files that cross their desks--images that
reflect probable causes of default, thereby suggesting enforcement
strategies which strike an appropriate balance between excessive

leniency and alienating coerciveness.

246

The devices available to agency collectors are ostensibly
direct demands for payment, but they also constitute the means for
generating knowledge about the debtor. "Enforcement work can be
described as a system of coercive probes which elicit information-
bearing responses. The organization of those probes determines the

60 It is the collector's task

resultant image of the defaulter."
to orchestrate these "coercive probes," to use them creatively in
forming strategies that will both produce an image of the defaulter
and appropriately sanction him. The collector's function is thus a
creative one; it is based on artful manipulation of the debtor but
it can only be performed as an interactive role for it is the
responses of the debtor from which the image is built. Collectors
may use a variety of approaches in interacting with defaulters,

but the strategies they devise must allow for at least the three
contingencies which the enforcers' typology provides.

A collection strategy must recognize that some debtors
default for innocent reasons and that they would be alienated
by tactics that impute dishonesty to them. Other debtors are
considered too insensitive to appreciate the significance of
what is done to them. A third group is defined as evasive
and dishonest.51

The parsimonious classification scheme used by enforcers thus
requires that collectors address their collection of raw materials
with circumspection, differentiating among the debtors they sanc-
tion and applying to each of the three types the apprOpriate
measures.

In effect, the collector plays both an enforcer and a

gate-keeper role in the enforcement process. Defaulters who have

247

progressed in the career so far as this are all potential candi-
dates for legal actions because drastic measures are standard
routine at this stage. As long as the requirements for them can

be met, i.e., the indebtedness is large enough, the creditor gives
his consent, and the debtor is accessible and known to have assets,
the collector may (and is instructed to) order legal action started
at once--no warning need be given. In many cases, however, these
requirements cannot be met and other measures must be used, or the
collector may opt to try another approach; frequently debtors inter-
vene in an attempt to stop or delay immediate referral to the
court. In such cases the collector has a discretionary function.
The role of collector as enforcer may entail no more than prelimi-
nary fact-finding and paperwork preceding legal steps or it may
involve screening and monitoring and sanctioning activities over a
period of time. Collectors may impose continuous sanctioning on
recurrent defaulters who have become known as deadbeats or they
may pilot debtors through a prolonged period of constructive
rehabilitation--but they can bring enforcement to an abrupt turn-
about if legal steps become warranted or feasible. The ways in
which collectors create different enforcement strategies by vary-
ing the use and sequencing of the devices they have available can
best be explained through illustrations; I will draw again upon my
participant observation experience recognizing, of course, that
there are differences among agency office practices and wide varia-

tions in the styles of individual collectors.

248

As new files arrive from the pre-treatment series to be
merged into the mass of existing ones, the collector puts them
through a modest screening process to bring to light those that
appear to be easy collections. If a working phone number or current
address is shown or can be quickly located in a directory, the
account receives prompt attention. If the matching check shows
that no previous file had been originated, the first device will
be a diplomatic but firm notice (in the form of a business reply
envelope) bearing a message reminiscent of earlier reminders but
of somewhat greater urgency as, for example, in the notice shown
below. Where a phone call is possible it is the preferred medium
for the initial overture and generally the idea expressed is the
same.

THIS ACCOUNT
HAS BEEN RECEIVED FOR IMMEDIATE COLLECTION

Perhaps you have not intentionally neglected this
obligation, but it is seriously past due and it
must have your immediate attention.

You can do one of two things if you desire our
cooperation:-—

1. You may enclose payment in full, payable to
the undersigned, and mail in this envelope
immediately.

or

2. Contact the undersigned at once either by
personal call, telephone or letter and arrange
for settlement.

The debtor's reply, duly recorded on the file, becomes the foundation

of his emergent debtor identity. If he pays, of course, he leaves

the career; if he accepts instead the second condition of agency

249

c00peration (arranging for settlement), the collector will nego-
tiate an agreement, thereby conferring on him the identity of
"unfortunate." Debtors who make agreements and stick by them over

a time can earn the collector's confidence so that a payment missed
or delayed may go unheeded. If, however, the debtor soon appears
capricious about the agreement, the tenuous trust is shattered; the
collector's strategy immediately takes on the tone of one who has
been personally betrayed. Provided the prerequisites can be met
(the client agrees, indebtedness is at least $50., the debtor appears
to have assets), the collector needs only to rubber stamp the file--
SUE—~and the debtor's fate is sealed. If that alternative is pre-
cluded the collection strategy becomes a dunning sequence, the

mailed version of which begins with:

Y()[I HIIV'E I“A.II;EID
TO KEEP YOUR AGREEMENT

 

YOUR PAYMENT OF S WAS DUE

According to our records, neither payment nor
valid reason for non-payment has been received.

We ask that you send us the amount in today's
mail.

Don't lay this addressed envelope aside.

Attend to it right now.
Depending upon the size of the indebtedness and the assets and accessi-
bility of the debtor, it may be continued in call after call,
notice after notice. One strategy builds on debtors' guilt resulting
'From the promise broken: "YOUR PROMISED PAYMENT on this account has
IIOT BEEN RECEIVED. Bear in mind that installment privileges were

250

agreed upon AS A FAVOR TO YOU, NOT US. We agree to such settlements
ON YOUR FAITHFUL PROMISE TO PAY REGULARLY." Another tack is directed
to fear; despite the fact that legal steps are ruled out (else they
would have been used), threats of legal steps are the warhorse of
this strategy. Curiously, in most such warnings of legal actions

the badness is expressed not in terms of stigma, but as a reasoned

statement about their money costs--for example:

COOPERATION COSTS LESS THAN LEGAL PROCEDURE

Would it meet with your approval if the amount of
$ was added to this account?

That is the estimated costs for process server's
fees, court costs and Other charges, if legal
procedure is instituted by your creditor to col-
lect this claim.
You can save considerable money by paying this
account now.
Several such notices may be sent, but unless some turn of events
makes legal action feasible continued efforts are likely to be
unproductive. The file, no longer representing an unfortunate, will
soon be left to reside in the drawer until happenstance turns it
up again. Eventually it will resurface in the irregular follow-up
procedure known in agency parlance as "working the bins." The col-
lector always has one file cabinet drawer at desk-side; these files
are reviewed and treated as an activity interspersed between more
urgent matters. Some accounts are eliminated--as when the debt is

voided by the statute of limitations, the debtor has completely

disappeared, or it is conceded that he actually is penniless--the

251

account then is returned to the client as uncollectible; accessible
debtors will at some time by surprised to receive another call or
stern note long after the matter appeared to have been ended.

Now let us consider debtors who, in response to the col-
lector's first contacts, decline both conditions for agency coopera-
tion. This is the modal case, the debtor who professes an inability
or unwillingness to pay either in full or in substantial partial
amounts. A number of such defaulters express this choice of action
by simply not responding and many (particularly those beseiged by
several collectors) deliberately make themselves inaccessible. The
strategy for these debtors usually involves considerable sleuthing,
for no action can begin until the collector turns up enough informa-
tion to utilize appropriate sanctions. Very often the phone will be
unlisted so notices must be used, but so long as they are not
returned by the post office a form of interaction ensues; gg_
responses to strategically sequenced appeals and threats display the
defaulter's refusal to cooperate and pose him as deserving of the
harshest of measures at any opportunity. Typically, the unwilling
debtor can be reached by telephone at least once, and the general
agency strategy aims at making that_call productive. Materials
prepared by a national credit management trade association for use

in indoctrinating collectors illustrates the approach:62

MOTIVATION IN COLLECTING

 

The first telephone contact gives you your best chance to
collect the balance in full. Make the most of it! Remember,
you're competing for the debtor's money. To succeed as a pro-
fessional collector you have to beat the competition. . .

252

Every account turned over to the collection service by
a credit granter is a difficult one. All the creditor's
efforts have failed to produce payment. He employs the col-
lection service to COLLECT IN FULL AT THE EARLIEST POSSIBLE
MOMENT--and that's the business we're in. The name of the
game is money today.

How can a colTector making a phone call convince a debtor
to pay now when he wouldn't pay the creditor? The collector
has to motivate the debtor, to MOVE him--that's what motivate
means. As a collector, what motivating appeals do you have
to work with? Debtors are people and people are different,
but all individuals are governed by a number of INNER DRIVES.
There are seven inner drives in most debtors: he has an
inner craving for SELF-RESPECT; a longing for FREEDOM FROM
WORRY; a compulsion to SAVE ADDITIONAL EXPENSE; a need to BE
KNOWN FOR FAIR PLAY; an aspiration for THE SECURITY OF HIS
FAMILY; an instinct to DO THE RIGHT THING; and a desire for
freedom TO BUY ANYWHERE OR ANY TIME ON CREDIT.

 

The collector is given suggested phrases directed at each of the
"inner drives" and told to "probe the debtor for that motivational
key which will unlock payment." Another of these agency collectors'
training manuals deals with telephone collection techniques. In
this one the collector is given tips on how to put motivation into
action through effective use of telephone strategies. First the
collector is put in the proper frame of mind; then he is provided a
list of common excuses he might expect in dealing with debtors and
given suggestions on how to answer them:

Get a definite promise for payment of the balance in full.

Demand payment in full--today. SELL the consumer on the

benefits of paying off this debt. MOTIVATE!

Be prepared for an excuse and have an answer ready.

Remember--today is the day to collect the account. Make
this first call count. Motivateli GO FOR THE GREEN!!

 

Common Excuses and How to Answer Them

SAYS HE NEEDS MORE TIME:
"You have had enough time to pay this, now it is all due
in full."
"The time is up. We must have the money today."

253

SAYS HE IS NOT WORKING:
"Mr. , you didn't pay when you were working."
"Who is supporting you now?" (Use this answer to probe
for someone who will pay for him, or for assets he can
use to raise cash.)

 

USES ILLNESS AS AN EXCUSE:
"I am sorry to hear about your problem."
"Who is ill? Are you affected? Why didn't you let us
know? How long will you be unable to work? DO you
have compensation? When do you get paid?"

SAYS HE HAS NO MONEY:
"Your employer will advance you the money. Ask him today."
"Arrange to borrow the money at the loan office. I will
call and make an appointment for you."
"Send me a check postdated to the date of your next payday."

COMPLAINS ABOUT GOODS OR SERVICES:

"I'm sorry about that but you had plenty of time to settle

it before the account was turned over to us."
TRIES TO ARGUE:

"You and I have no argument. This matter must be resolved
and it is to your best interest and mine to work it out
as soon as possible."

REFUSES TO NEGOTIATE or SAYS HE WILL CALL THE CREDITOR:

"There is no need to call the creditor. You know that
you owe this bill.”

"How long do you think you can keep putting this debt off?"

Debtors display a variety of reactions to the first personal

contact by a collector. As the list of "expected excuses" suggests,
many are caught off guard, as the collector hoped they would be,

and the call frequently ends with the debtor promising to send
money (though some simply hang up the phone). Once again, many
debtors--the ones who act on their promise--are exited from the
career, leaving those who refused or reneged to be moved along.

With these debtors the strategy is essentially a progression to
legal remedies by which payment is extracted rather than demanded,

and the immediate objective is to get the information to make these

254

actions possible. At this point an element of gaming frequently
enters the collector-debtor interaction, with the debtor attempting
to forestall the actions and withhold useful knowledge, and the
collector trying to ferret out facts and impose legal sanctions.
The debtor's gaming tactics include refusal to answer notes and
calls or unlisting his telephone number, and such maneuvers as
sending occasional small payments that keep the situation ambiguous;
in the collector's arsenal are the standard dunning devices, a few
good information sources, and a number of ploys developed from his
experience. As a general rule, knowledge of the location of a
debtor's residence can be obtained (from creditors' statements,
special directories, or credit bureau files) and this is enough to
permit the legal strategy phase to be launched.

The first step is to obtain a judgment. When the collector
indicates that the account is ready for court (with the clients'
written consent), the agency's lawyer files a complaint and a
summons is issued and served. This step in itself is an effective
collection device; people who have never been in court become fear-
ful when a summons is served on them and many immediately contact
the agency and arrange to pay. Upon receiving the summons, the
debtor has 15 days to decide upon one of four alternatives: he
can answer, affirming or denying the claim (the latter leading to
a legal fight which may bring the case to trial); he can arrange
a settlement by immediately paying in full or making acceptable
terms (either informally with the agency or as an instalment agree-

ment enforced by the court); or he can do nothing. With failure

255

to answer the summons, the plaintiff (client-creditor) is auto-
matically awarded a default judgment; this is the outcome of almost

63 A judgment is simply a

all suits not resolved by a settlement.
court decree stating that the debtor does indeed owe the money as
the creditor and his agent claim. After it is obtained there must
still be collection of the debt named in the judgment, but the
collector now has a new set of weapons available that can be
effectively used both to seize the debtor's assets and as the basis
for further threats.

With the sending of the Official Default Judgment Notice
the defaulter is given the new identity of "judgment debtor," and
at this time several Significant changes are brought to his situa-
tion. For one thing, his indebtedness has been increased by the
amount of the court costs (about $30); in addition, he is now
subject to the possibility of legal seizure of his assets by
attachment and/or execution on his prOperty or, as is usually the
case, garnishment of wages or bank account holdings; moreover, such
actions can be taken repeatedly on the same judgment and it remains
in force for ten years unless the debt is cleared.64 The legal
strategy phase, however, is not necessarily characterized by action
alone; this stage of enforcement is just as likely to be a pro-
longed psychological battle, and one in which the defaulter is not
always a completely passive adversary. All of the steps required
to Set in motion the legal'machinery that actually procures payment
take considerable time: after the collector stamps "SUE" on the

file it is usually several weeks before a summons is issued and

256

then the process server has as long as six months to serve it on

the debtor; after service there are two more weeks before the date
returnable, and the collector cannot order a garnishment for another
20 days after a judgment is granted. During the periods between
each of these steps the collector utilizes the leverage potential

of the next event in attempts to get payment and thereby makes its
occurrence unnecessary (and to get information so if attempts fail,
its occurrence is made possible).

Some debtors can be expected to take the offensive and
these, the ones who typically call the agency to express outrage
when the summons arrives, are the most likely to scrape up the
money or work out a plan with the collector and, at the last moment,
escape the judgment debtor role. With the nonacting debtors, the
use of coercive probes--communications that both threaten and
elicit information--becomes more important than ever. The decided
change in his position viS-a-vis the creditor's agent calls for
a new strategy direction on the part of the collector and one
which is harder to implement. In this, the final stage of debt
enforcement, the collector is confronted with a debtor group that
has made its way through a series of increasingly stigmatizing
debtor identifications-~from delinquent debtor, to defaulter, to
judgment debtor. The judgment has made his indebtedness state a
matter of public record and in addition, the debtor now faces the
imminent possibility of wage garnishment which is not only disrup-
tive of an already precarious financial position, but may very

likely cost him his job. It is safe to speculate that, while

257

certain debtors in this group could be viewed as irresponsible or
dishonest by almost any standards, some undoubtedly came to this
unfortunate situation through events not of their own doing, but
they nonetheless share the judgment debtor identification and the
sanctions that go with it. At this level of enforcement the col-
lector finds it very difficult to accept debtors' explanations as
grounds for reassessing their debtor identity; only in rare cases
can negotiations be opened and then it takes an extremely convinc-
ing display of good intentions backed up with a substantial partial
payment. Unfortunate debtors who lack the resources or are too
confused and frightened (or simply lack the social skills) to come
forward and present their case, appear to the collector indistin-
guishable from the debtors who make no constructive response because
they have no will to pay. Since all debtors, whatever their intent
and however desperate their personal situation, are now candidates
for the same enforcement measures, the differentiating process no
longer sorts the well-meaning from the deadbeats; the principal
purpose of the probing devices used now is to distinguish the judg-
ment debtors who have jobs or assets. The strategy incorporating
these devices is directed to learning the location of these resources
and gaining access to them or convincing the defaulter that his
best course of action is to relinquish them voluntarily.

Some defaulters, skilled in the art of debtsmanship, are
able to elude the collector or make their assets inaccessible to
him; but those who do not cover their tracks become participants

in interaction episodes in which the collector normally has the

258

advantage.65 With the accomplishment of each step toward the

employment of collection devices provided by law (usually garnish-
ment), the collector can make the threats of the next step's
occurrence more frightening and the need to act more urgent. If
the summons has not yet been served, the collector's tactics focus
on the costs of court action and the adverse effect of a judgment
on the debtor's credit record; these reasons are presented as more
pressing after summons service in attempts to persuade the debtor
to opt for a settlement before the grace period expires. (There
is great power in the warning that a judgment will appear on the
debtor's record, making it hard for him to get credit, and that it
will remain there for ten years.) Even with the judgment in hand,
the collector may exploit the psychological clout it carries before
actually resorting to the legal remedies for debt recovery that it
permits. Seizure of assets makes the collection, but several
garnishments may be necessary to clear the indebtedness (and each
one adds more back on it); more importantly, with the debtor's
situation worsening as a result of wage seizures (especially if
it leads to job loss) his likelihood of making voluntary efforts to
pay is considerably reduced. Thus the dreadful eventuality of
garnishment remains the best weapon, unless the collector is con-
vinced that there is no other way but to actually carry it out.

If all the preliminary steps in the legal strategy phase
prove fruitleSS--the debtor is not heard from or last ditch efforts
to negotiate are unsuccessful--the collector is empowered to bypass

the judgment debtor and move directly against his assets. It may

259

require some detective work, putting together whatever pieces of
information can be turned up to discover the defaulter's place of
employment, but once this is known the collector need only verify
that he is currently working (by contacting the employer) and a
wage garnishment can be ordered. (This is a legal process served
on the employer requiring him to make payment of a portion of the
debtor's wages directly to the judgment creditor or his agent.)
Because of limits placed by federal law on the amount of earnings
that can be taken, the first garnishment seldom satisfies the debt,
but it has a strong impact upon the debtor; coupled with the dis-
tasteful fact that he unwillingly gave a fourth of his paycheck in
payment of one indebtedness, and some $10 more was added to what he
already owed, the debtor now has reason for concern about his job
future.

Employers resent garnishment. They resent the legal
responsibility and the extra paperwork required to hold wages
as security or to route wages to a collector. And the
employer may personally resent the delinquent debtor, char-
acterizing him as a deadbeat (often without investigating his
reasons for indebtedness). Some companies fire for a single
garnishment; others tolerate a limited number over a Speci-
fied period.

Threat of job loss is usually enough to make the most
indigent debtor scrape up the needed funds--often through
desperate means. But if the funds cannot be found and he is
dismissed, his troubles have just begun. Not only is he
likely to go even deeper into debt, but with a dismissal for
garnishment 0% his employment record, another job will be
hard to find. 5

The debt enforcement career has its terminus in the agency

collection phase which derives its coercive powers from the legal
system, but where it will end for a debtor is hard to say. Most

debtors pay up, sooner or later, and thus take leave of the career

260

somewhere along the way; a few manage to slip out of the career--
they flee their creditors or stay under cover beyond collectors'
reach. There are some people who never clear up their default
obligations and they may remain of concern to collectors indefi-
nitely, or until the indebtedness is no longer legally collectible.
The differentiation of debtors which takes place throughout the
system is, as we have seen, an essential feature of debt enforce-
ment; dispensation from routine sanctioning is granted debtors
enroute whenever they are recognized as having defaulted unavoidably
and evidence the will to pay. The debt enforcement process pro-
vides for this contingency by accepting and often encouraging
settlement arrangements but some "unfortunates" remain in the
career at its final coercive stages nevertheless, their egress
precluded by their inability to raise the funds needed to make
payment as demanded.

A collection system armed with strategies for mgkjug_people
pay, confronted with defaulters uggblg_to pay, poses an impasse
which can only be resolved by one or the other selecting another
course of action. When the repeated sifting, typifying, and sanc-
tioning of debt enforcement has propelled defaulters to the status
of judgment debtor, the collection system has about Spent its
productive efforts--little is to be gained by continued use of legal
force if the debtor is without assets to seize (or if seizure
renders him void of an income source). Patently, enforcers at this

point have little choice but to watch and await the debtor's move.

261

Several avenues of escape or relief from collection pressure
are Open to the unfortunate debtor: as any debtor, he might con-
sider fleeing or eluding collectors as logical possibilities--
actions leading to imputed (socially unacceptable) identification as
a deadbeat or skip. More likely, he will elect to occupy one or
the other of two roles that are available to debtors by choice: he
can depart the enforcement career through bankruptcy or he can
take the role of ”help seeker” and continue his efforts to pay
over an extended period by enlisting the aid of an organization
which can give him some guidance and protection. We will conclude
our examination Of the structural side of consumer indebtedness
by considering a few aspects of these alternative default debtor
roles as they bear upon the person-structure relationship between

debtors and credit-debt organizations.

Default Debtor Alternatives

Bankruptcy has relevance for every sector of American
society at every social level. It is a matter of concern to
institutionS--government, the law, the economy; it involves organi-
zations of business, finance, the legal system, and social welfare;
and affects people in the social roles of credit granter, consumer
debtor, adjudicator, enforcer, and counselor. Most of all it
impinges upon the affairs of creditors and the lives of debtors.
A summary explanation of bankruptcy is not possible because for
every social element bankruptcy takes on a somewhat different

meaning. In this discussion we attempt only to indicate a few of

262

these diverse views of bankrupty, suggesting the kinds of conflict
they have inspired and the implications this has for debtors seek-
ing asylum from collection pressures. That our examination may be
informatively grounded in as objective a description as is possible,
we will first present portions of a Simplified explanation of bank-

ruptcy prepared by the Brookings Institution to preface a recent

monograph on this subject.67

The bankruptcy process was established to resolve in a
fair and orderly manner the conflicts in interest that arise
among the creditors of a debtor who cannot pay his debts.
Other legal remedies are available that enable creditors to
attempt to recover their claims from the property of the
debtor; but if that prOperty is too meager to pay all claims
in full, one creditor's success in satisfying his claim causes
loss to another creditor.

The object of the bankruptcy law is to ensure that all
creditors are treated fairly. . . . For centuries bankruptcy
law served this Object above all others. At the end of the
19th century, however, another object became equally important
in the United States. The bankruptcy process became also a
method of granting relief to the honest but unfortunate
debtor, who through ill luck or bad judgment was burdened with
more debt than he could afford. The earliest bankruptcy law
contained no provision for discharging the debts of a bankrupt
debtor; if the proceeds from the sale of his estate fell short
of meeting all his creditors' claims, the bankrupt remained
in debt for the unpaid balance. Today, however, not only
does bankruptcy law allow discharges to be granted, but they
are granted practically as a matter of course. The bankrupt
is relieved of all liability for any balances that remain
after his prOperty has been sold and the proceeds applied
against his creditors' claims. He is said to be "discharged
from his debts."

Bankruptcy proceedings begin with the filing of a petition
in court asking that a debtor be declared a bankrupt. Usually
a petition is filed by the debtor, who is seeking the benefit
of a discharge from his debts; this is voluntary bankruptcy.
An involuntary bankruptcy may be filed by creditors to force
liquidation of the debtor's estate and the application of the
proceeds to the payment of their claims.

It used to be that a bankruptcy proceeding could be
instituted only by the second of these methods. The idea that
a person might procure his own bankruptcy would have seemed

263

preposterous in view of the suggestion of past misdeeds or
irregular conduct that clung to the condition. But attitudes
changed, and finally debtors were empowered to file their own
petitions in bankruptcy. Today such voluntary bankruptcies
outnumbgg involuntary bankruptcies by more than one hundred
to one.

As this excerpt suggests, the rationale behind bankruptcy legisla-
tion has changed over the course of its development; the present
Bankruptcy Act (enacted in 1898 and amended more than 90 times
since) has come to reflect the interests of debtors as well as
creditors. While no formal statement of objectives is contained
in it, the present law is now generally accepted as having two
purposes:

The primary purpose of bankruptcy is to take over the
assets of the insolvent debtor, reduce them to money and
distribute the proceeds (after satisfaction of secured and
priority claims) among the general creditors in proportion
to their respective claims as filed and allowed by the bank-
ruptcy court.

Another purpose of the present bankruptcy law is to
relieve unfortunate but honest debtors of the unsatisfied
portion of their debts, with certain exemptions, after they
have surrendered all of their assets, in order to afford
them an opportunity to reinstate themselves. . . .59

 

 

The history of bankruptcy legislation ending up in today's
basic law is marked by years of struggle as to whose interests
should be served, and controversy continues to surround this issue.
The causes and effects of bankruptcy are extremely complex matters
and they are of far broader concern than to the creditors and
debtors immediately involved but, at the risk of over-Simplification,
it can be said that a main set of battle lines has been drawn
between these two interests. One side, the credit-debt structure,

tends to regard bankruptcy as a license to cheat; undeniably, the

264

Bankruptcy Act, like most any piece of legislation, has been abused
in some instances, but many creditors consider all bankruptcies

to be abusive. The general sentiments of this side reflect the
assumption that the bankrupt is wholly or largely responsible for
his bankruptcy and that he is freely and willfully taking the easy
way out of fiscal difficulty. This side harbors the notion that
presently high bankruptcy rates are attributable to a decay in the
moral fiber of our citizenry; it sees bankruptcy as a growing social
ill with direct adverse effects felt most by the creditor. It

does not regard creditors' lending policies as primarily responsible
for increased incidence of default and bankruptcy. This view is
illustrated in remarks by a bank executive which appeared in a
credit management publication:

Why bankruptcies are rising is a question that is absorb-
ing lawyers and economists, as well as creditors who are foot-
ing the bill for these losses.

Many observers place the major blame for bankruptcies on
the retailers and lenders. In some cases this blame might be
justified, but it is my opinion that most credit granters
carefully screen their individual credits to the best of

their ability, weighing the facts and credit information
available at the time.

Let's work together to stOp_this bankruptcy cancer before
it becomes even more prevalent.707
This, the creditors' perspective, is largely a product of
the growth and scale of bankruptcies since the end of World War II.
In the years 1899 to 1920, the annual rate ranged around 20,000;
between the two world wars some 50,000 cases were filed each year;
in 1946 the loweSt number in this century were recorded--10,l96

cases, but a sharp increase occurred thereafter that was truly

alarming to the credit industry. Bankruptcies hit an all-time high

265

in 1967 with over 200,000 cases, and nine out of ten of them were
filed by individuals, not businesses. This trend is not likely to
change; business filings have increased little and they account for
fewer than 1 in 12 of total cases in recent years, but personal
bankruptcies continue to rise. There were some 156,000 cases in
1973, about 169,000 in 1974, and the 1975 total is expected to be
near 200,000. It must be conceded that creditors have some reason
to take a dim view of personal bankruptcy on this scale, for they
get little out of most proceedings. Unsecured creditors (who
represent 80% of the claimants) receive about 7¢ on the dollar in
asset cases, and three-fourths of all straight personal bankruptcies
are no-asset cases in which there is no return to creditors.
Proponents of the Opposite view hold that responsibility
(or blame) for the bankruptcy boom belongs to the credit-collection
system and that debtors who take relief in bankruptcy are only
using the Bankruptcy Act for its intended purpose. Since the
Constitution does, in fact, empower the Congress to "establish laws
on the subject of bankruptcy throughout the United States," some
have even built the argument that consumer debtors have a "consti-
tutional right" to bankruptcy, i.e., to discharge their unpaid
debts. In general, the rationale of those whose leanings construe
the bankruptcy law to favor debtors lies in the bias and injustices
found in the consumer credit-debt system. A representative expres-

sion of this view runs as follows:

Against the depredations of collection agencies and their
attorneys, against the blandishments of easy credit and the
"never-never" payment plan, and against the financial pitfalls

266

of heavy medical bills, divorce settlements, business reverse
and lawsuits, the consumer's final protection is his ability
to take his financial woes to the bankruptcy court.

In our system of checks and balances, bankruptcy is the
check against the tendency of merchants to load the consumer
with impossible debt, and it is the balance against the legal
right of the lender to collect his debts by every means short
of extortion. In the business world the balance has swung
heavily in favor of the debtor; it is just the opposite in
the world of personal finance. Creditors have all the answers
and the muscle to support them. (They know the "signals" of
a debgor about to go under before he realizes his plight him-
self.

If we therefore seem to be advocating bankruptcy, it is
only because the weight of public Opinion and moralizing has
from our earliest Puritan days been all but overwhelming on
the other side of the scale. It is time the consumer had
his day in court.71

Understandably shocked by the bankruptcy statistics and

the apparent shift in consumer debtors' attitudes, the credit-
granting interests have been moved to find explanations for the

high bankruptcy rate and to discover ways of stOpping it. Their
concern is shared by those who, taking a larger view of the problem
from the standpoint of economics and social welfare, fear its
effect on the stability and Operation of the consumer credit system
and the difficulty bankruptcy creates for the debtor and his family.
Some put the blame on the bankruptcy law and its administration and,
claiming bankruptcy has been made too easy, urge its revision or
the abridgment of consumers' right to bankruptcy. Many place the
cause in changed attitudes of consumers about using credit (i.e.,
expecting credit, regarding it as a right and not a privilege),

in their excessive optimism and ignorance as buyers and borrowers,

and in their irresponsible attitudes toward their obligations as

debtors. Others hold the hard-sell practices of merchandisers

267

and lenders to be the source of trouble, and there is growing popu-
larity for the notion that the problem lies in the credit institution
itself, particularly in the liberal credit-strict collection policies
of many credit granters.72
These speculations became hypotheses for a number of studies,
many sponsored or conducted by credit and business-related organi-
zations: they explored the implications of changing or doing away
with bankruptcy provisions permitting discharge of debts; they
examined the debt structure and the personal and social character-
istics of discharged cases hoping to identify the culprit among
creditors and debtors; they looked into the reasons why debtors
turned to the court for relief in an attempt to discover whether a
specific feature of the credit-debt system (e.g., harsh collection
measures or garnishments) had put them over the brink; in general,
they represent a concerted effort to determine the causes of bank-
ruptcy with the aim of finding cures and recommending alternative
courses of action that debtors might be encouraged to take.73
If there is a cure for high bankruptcy rates it obviously
has yet to be found, but a clearer understanding of the problem
and the peOple it affects has come out of these investigations.
From them has emerged a picture of the default debtor who resorts
to bankruptcy and the sort of circumstances that lead him to adopt
this role; for the most part, the evidence points not to people
deliberately setting out to defraud their creditors or "take" the

system, but to consumer debtors who failed to realize where their

spending and borrowing was leading them until their financial

268

Situation became so hopeless there seemed no other way to go.

Brosky, for example, concluded this from his study: "The findings
of this report show clearly that many, perhaps a majority of bank-
ruptcies are the result of dilemma, not choice, on the part of the

74 That is, bankruptcy was not used as a device enabling

bankrupt."
wily debtors to repudiate their obligations while they retain sizable
asset holdings. Matsen arrived at a similar conclusion: "Peti-
tioners, on the whole, are not trying to 'take' anyone. They are
in Bankruptcy Court because there is no other way out of their finan-
cial dilemma." She found "a lack of orientation toward the future
and an inability to identify financial danger signals and know
what to do about them" to be crucial problems for the bankrupt.75
What, exactly, are the conditions which pose so great a
dilemma for debtors as to lead them to step voluntarily into the
stigmatizing role of bankrupt? Why debtors go to bankruptcy court
is a question addressed repeatedly in bankruptcy studies; consider-
able insight is provided by the findings of the Brookings Insti-
tution research, one of the most recent and comprehensive works in
this area. In interviews with a random sample of 400 cases in 8
federal court districts across the country, debtors were asked (in
Open-ended questioning) about the underlying afld_immediate reasons
for their action. In responding to the first question, why they
were in financial difficulty--

The leading reason, given by 31%, was poor debt management--
too many debts, unwise refinancing, overspending. Their deci-
sions about borrowing or buying depended only on whether or
not they thought their current income could support another

monthly payment; all too seldom did they evaluate the total
cost involved or their future prospects.

269

Next as underlying causes were family health reasons
(sickness, injury, babies, death), 28%, and job problems like
layoffs, strikes, and loss of overtime, 20%. Then 13% cited
threats of legal action or hounding by creditors, followed by
10% who mentioned actual legal action-~suit, garnishment,
repossession. Another 10% referred to emotionally based
problems such as marital troubles, drunkenness.

The debtors were asked about immediate causes--specifically,
why they went into bankruptcy court. Their reasons naturally
overlap those above, but the main cause is clear: 43% men-
tioned threats of legal action. . . . Typical comments were:
"I knew I had to work and this was the only I could hold my
job." "All I was getting was threats every way I turned." 5

It is important to note that while studies find that peOple who
become bankrupts are uuablg_(rather than unwilling) to pay, they are
not without resources. Brookings researchers report: "Bankrupts
are not destitute. The typical personal bankrupt is a blue-collar

worker with an 11th grade education who is earning more than $100

a week."77

Not by any means do all troubled debtors turn immediately to
bankruptcy, but to understand why any take this route when they
have income and a willingness to pay we must consider what other
alternatives are open to them and look at some factors that affect
their choices among the alternatives. First it should be noted
that, in the United States, bankruptcy provides an avenue to complete
and legitimate release from financial distress and it is the only
means by which insolvent debtors can have most of their obligations
wiped away; all other alternatives (aside from recourse to criminal
or deviant behavior) require at least partial payment of debts.
What is unique about the American system of bankruptcy
is that it grants the honest debtor a release from his obli-
gations, an unconditional release.

The United States is wholly atypiOal in its attitude
toward the debtor. But this is not to suggest that our

270

system is at all improper. The pressure of debt is fierce and
persistent. Bankruptcy, while often described as a "last
resort," is not; it is only one of a number of courses an
insolvent may choose. Some appeal to their families for help.
Some skip, abandoning their families and jobs along with
their problems. A few steal. A good number adjust and remain
in involuntary servitude to their creditors for all of their
lives. Bankruptcy is the humane way out.78
Although some debtors can entertain the possibility of a "paying
alternative" (even though their financial affairs are so badly out
of hand as to make them eligible for bankruptcy). there is little
likelihood of their being able to carry it out without some help.
Indeed, this is precisely what is "desperate" about their Situation--
the debt problem created by ineptness or inexperience in money
management and compounded by collection pressures is more than
debtors can normally handle, however good their intentions. Those
distressed debtors who choose to continue trying to meet their
obligations must deal as best they can with repossessions, judg-
ments, and garnishments as they arise, and the debtor who can
manage his daily affairs and cope with repayment under these con-
ditions is a rarity. Repayment out of future earnings is essentially
contingent upon the debtor having some counseling and protection;
he almost invariably has need for a go-between who can negotiate
Special terms with his creditors or hold them off with legal force.
Thus it can be said that choosing the role of "help seeker" is the
defaulter's principal alternative to filing bankruptcy. The two
most important sources of help for debtors who want to try to pay up

their obligations are the remedy available under federal law

through Chapter XIII of the Bankruptcy Act, and the counseling and

271

prorated-payment services provided by debt pooling and credit

0 ' 7
counsel1ng agenc1es. 9

Chapter XIII, the Wage Earner's Plan, originated with the
Chandler Act of 1938 which added important rehabilitative features
for individuals to the bankruptcy laws during the Great Depression.
It provides for a program of repayment conducted under court pro-
tection and supervision; the plan, which must be agreed to by the
creditors, usually calls for a time extension to permit payment to
be completed over a longer period and may also involve a composi-
tion whereby only a portion of the indebtedness is paid off, but
this is seldom used. Although part of bankruptcy law, what the
Wage Earner's Plan provides for is financial reorganization and not
discharge of debt, hence peOple filing under Chapter XIII are known
as debtors rather than bankrupts.

The Chapter XIII petitioner (who must have a wage, salary,
or commission income) works with his lawyer to draft a budgetary
plan to be proposed to the court and his creditors. It must show
how he expects to disburse his income to cover necessary living
costs and repay each of his creditors by spreading the indebted-
ness over a two- to three-year period. (He must also agree not to
incur further debts beyond a limit set by the court.) If the
court and a majority of the creditors accept the plan it is carried
out under the supervision of a court-appointed trustee; he sets up
arrangements for the debtor to turn over the amount of his income
due under the terms of the plan (about 25%) and makes whatever

disbursements are called for. Most creditors are willing to give

272

their agreement, knowing that the alternative will be a loss to
them in straight bankruptcy; those who wish not to be included
must be dealt with through separate arrangements. In any case,
with the filing of the petition the debtor gains immediate relief
from garnishment and other forms of collection harassment. The
court cannot force debtors to comply with their repayment plan,
but if they find it to be too stringent the plan can be revised
or the debtor can convert it to straight bankruptcy. The debtor
who Simply stops paying finds his case reverting back to where it
began, with creditors demanding their money and employing every
legal means to collect--and straight bankruptcy is the usual out-
come. As a rule, about half of the Chapter XIII petitioners do
carry out their arrangements; for those who fail there is often a
compelling reason such as illness or the plan they formulated
turned out to have been unrealistic to begin with.

The foremost advantage of Chapter XIII is that it provides
the debtor the help that he needs--it gives him added time to pay
his debts, guidance in managing money affairs, and assurance of
relief from collection pressures. (Garnishment, repossessions, or
any legal proceeding against the debtor or his property are pre-
vented by the power of the court.) Unlike most other helping
alternatives, Chapter XIII gives the debtor training in good money
management; it imposes on him the duty of devising a practical
repayment plan and helps him develOp self-discipline by putting a
check on injudicious spending and requiring him to scale down

expenses and live within his income. The Wage Earner Plan does not

273 '

carry the stigma of bankruptcy nor does it have the same effect on
the credit rating. (When a credit or job application asks, "Have
you ever been adjudged a bankrupt?" the Chapter XIII petitioner is
entitled to answer "No.") As Chicago attorney Melvin Kaplan, a
strong advocate of the plan, has noted, ”Chapter 13 preserves the
debtor's self-image and that, in the judgment of many consumers,
gives the plan a meaningful advantage over bankruptcy. Old-
fashioned values like dignity, honesty, and integrity are the real

80 This

concerns of most of the people who come to this Office."
alternative, of course, is Open only to working debtors (not self-
employed) with steady incomes who can feasibly pay their creditors
out of future earnings. For these people, who come increasingly
from the ranks of the middle class, Chapter XIII has an important
advantage over bankruptcy in that it gives the same protection from
collectors but allows them to keep most of their assets. Finally,
Chapter XIII is not without benefits to creditors and the public
good; creditors get their money, although they must wait longer

for it, and millions of dollars are salvaged in repayment plans
that would otherwise disappear from the economy.

Despite these obvious potential benefits, only a fraction
of the thousands of consumer debtors in serious financial trouble
make use of the Wage Earner Plan. (Somewhere around 20,000 peOple
filed under Chapter XIII in 1974, a figure some authorities believe
is ten times too low.) It is widely used in only a few states,

namely Alabama and North Carolina where about 75% of personal

bankruptcy cases are filed under Chapter XIII; it is uncommon in

274

most (e.g., Michigan which had 400 cases in 1973), and in half a
dozen states this alternative is all but unknown. The main reason
for its infrequent use lies in the attitude of debtors' attorneys
and bankruptcy referees (federal officials who preside over bank-
ruptcy cases).

One reason so few people use the plan is that so few know
about it. And one reason for that is that many of the offi-
cials who are supposed to pursue and administer the law are
instead ignoring and even hiding it. The government doesn't
publicize it for fear big creditors will grumble, the federal
bankruptcy judges don't push it because it is a complicated
process often involving lengthy demands on their time, and
lawyers often fail to inform clients of the alternative
because it offers minimal attorney compensation.

In some state (such as New Hampshire) cases for the Wage
Earner Plan are rare as fingers on a worm. Many lawyers
actually direct eligibles away from it by lying. They claim
it will destroy a client's credit rating forever. Other
states, Maryland and Indiana to name two, discourage Chapter
13 participation by insisting that courts reduce applicants
into poverty (by, say, taking their homes) before allowing a
debt-payment plan. Maine is an exception; bankruptcy judges
there believe the best way to protect debtors and creditors is
to catch the trouble early. People are encouraged to bring
their money woes to the courts early, creditors are receiv-
ing full balance (if tardily) and some 90% of those on the
Wage Earner Plan are discharging their debts with honor. In
Maine Chapter 13 is presented as a responsible plan and it
disassociates bankruptcy from hoary stigma. When it works
right it affords a rare opportunity for people, capitalism and
government to work together in concert.8

This, a columnist's view, is supported by Brookings Institution
findings: they report that, with the exception of a few states
such as Maine where referees encourage Chapter XIII, "we found
little interest in it from bench and bar." Ideally, a debtor with
his attorney should choose between bankruptcy and the wage earner
alternative after determining which is more apprOpriate for his

situation, but the debtor's choice is more often biased by the

275

attorney's personal opinion. He may be persuaded to take straight
bankruptcy if the lawyer believes that it is better for the
debtor to get cleared up and out, or if he views Chapter XIII as
depriving citizens of their legal right to discharge; on the other
hand he may be discouraged from bankruptcy if his lawyer feels
that Chapter XIII is the morally correct way out.
The attorney's choice is also influenced by knowledge
of a referee's basic attitude toward Chapter XIII. If the
referee strongly Opposes it he can cause or permit various
obstacles to arise. Some lawyers told us of being handicapped
by clerical red tape, inordinate delays, and excessive com-
pensation to the Chapter XIII. Others said they did not file
Chapter XIII cases because referees would allow such brief
time periods for repayment that there would be little improve-
ment in their clients' situation. At the Opposite extreme are
referees so partial to Chapter XIII that they encourage this
choice even when a debtor is in such straits that an attempted
repayment plan is unlikely to succeed.82
These Brookings Institution findings are based on interviews with
attorneys who are experts in bankruptcy and are thus knowledgeable
in this area; more often, debtors considering bankruptcy are repre-
sented by lawyers who know little about Chapter XIII (Sullivan
claims that quite often attorneys are not even aware that the

83 Whether from lack of knowledge or personal

statute exists).
disinclination to use it, there can be little doubt that for the
most part, debtors (and their lawyers) fail to make use of Chapter
XIII as an alternative to bankruptcy; this is borne out by the fact
that in 40 of the states, 500 or fewer cases were filed in 1973.
(I talked with 40-odd Michigan debtors in researching this study

and none of them had heard of it.) In sum, it can safely be said

that Chapter XIII does not represent a true alternative to

276

bankruptcy for most distressed debtors, even in those cases where

the income and debt load are such that repayment would be feasible.
Another possibility for help-seeking debtors may be found

in the services of debt-pooling and credit-counseling agencies.84

The function of these organizations is roughly similar to that of

the Wage Earner Plan in that they enable the debtor to pay debts

out of future income at a rate which allows him to retain a suf-

ficient amount of his earnings to maintain a decent standard of

living. As with the Chapter XIII arrangement, the debtor supplies

the agency with an itemization of his creditors and amounts owed

and works with the agency counselor to compile an accurate listing

of his living expenses; the counselor then evolves a budget for the

debtor and contacts each creditor advising him of the rehabilita-

tion plan and the amount he is to receive in regular partial pay-

ments on his account. Each payday an agreed-upon portion of the

debtor's earnings is turned over to the agency and it disburses

this money to the creditors. Since the budgeting and supervision

provided debtors by counseling services are effective in produc-

ing repayment that might not otherwise have been made, many creditors

are generally willing to go along with such arrangements, but there

is no guarantee that all of them will do so. This is the important

difference between agency assistance and Chapter XIII--agencies

have no legal power with which to protect their clients from col-

lection pressures or to stop creditors from taking legal actions

against their prOperty. For some agency clients a major purpose of

help-seeking may be defeated by this shortcoming, since the help

277

financially troubled, willing-tO-pay debtors need most is in get-
ting creditors to cease harassment by persuading them to accept
pro rata payments at periodic intervals and allow an extended
period for repayment. As I discovered in my interviews with
agency clients, many are not aware that it is very possible for a
creditor to proceed with legal action or issue garnishment orders
against them; a creditor may drop out of the budget plan at any
time and try to collect the debt directly, leaving other creditors
accepting piecemeal payments. Evidence that this indeed occurs is
found in remarks of the head of CCC, Inc., in his "Open letter to
the credit community," which appeared recently in the CCC Newsletter:

As more and more consumers are unable to meet their

financial obligations as they come due because of the present
depressed economy, creditor pressure is increasing. There
has been a noticeable difference in creditor COOperation on
our client programs in the past couple of months. Some
creditors are using the "get there first" method of collect-
ing outstanding debts, and this probably works effectively
with some debtors. However, families do not normally resort
to outside help in resolving their debt problems until their
financial situation is completely unmanageable. Therefore,
this method of "getting there first and putting on the pres-
sure" is not effective with clients who are in a debt repay-
ment program with our service. In fact, it destroys an
otherwise workable program and may cause the debtor to file
bankruptcy because he has no other alternative.

On the plus side, counseling agency services represent an
alternative for a large segment of debtors to whom the Wage Earner
Plan is, for various reasons, not available or appropriate. People
whose incomes derive from private business or professions and
those whose earnings are erratic or very low in proportion to their
debts are not eligible for Chapter XIII; debtors who realize a

need for help in organizing and controlling their spending and

278

debt-burdened wage earners who prefer not to deal with courts and
lawyers (or can't accept the costs of these services) would all be
candidates for help from counseling organizations. In view of the
diverse needs of troubled debtors, credit counseling agencies'
services have been structured accordingly and, in effect, consti-
tute three separate phases or types of activity: (1) counseling
only, in which the debtor retains responsibility for managing his
financial affairs including possible discussion with creditors
regarding payment adjustments; (2) budget counseling with payment
adjustment, a three-party arrangement whereby the agency nego-
tiates with creditors and handles the pro rata distribution of
debtors' funds following a review of his financial condition and
preparation of a budget. A third aspect of counseling agents'
activity might be viewed as an extension of the sorting and filter-
ing processes that characterize the debt collection career--the
initial screening (known as the "work-up interview") results in
rejection of a number of debtors who cannot be helped because they
lack income or have insufficient income in relation to debts; in
addition, some applicants decline to accept agency help after
learning how it works and what sacrifices it will require of them,
and others drop out or are eliminated from the program before its
completion for failure to continue their payments. According to
findings of the Family Service study (Hall, 1968), the agency
rejectee group is substantial, ranging from 15 to 50% of the

applicants.

279

To get some idea of how much value agency assistance has
for debtors in general, I have evolved estimates based on informa-
tion made public by CCC, Inc., of Michigan for the year 1975, which
suggest the number and percentage of persons involved in each
aspect of agency activity. Statewide, the CCC reports a total of
5,683 clients interviewed (including budget analysis and counsel-
ing) and 3,677 clients set up in a debt-management program.
According to Hall's study, about 10% of agency applicants use the
counseling-only service and a third to a half of the number
initiating prorated payment plans discontinue them before comple-
tion; a spokesman for the Meridian CCC Office claims that about
35% of those starting repayment programs "have to be judged
unsuccessful," which is consistent with Hall's estimate. (”Some,
the counselor admits, have slipped in the door just to dodge

5 With these estimated percentages we

creditors a bit longer.”)8
might expect the disposition of Michigan applicant cases to have

been distributed in somewhat the following manner:

Total number of applicants reported
by CCC for 1975: 5,683

 

Number of clients in debt
management programs: 3,677

Clients discontinuing repayment plan
(estimated 1/3): 1,213 (21% of total)

Clients successfully completing plan: 2,464 (43% of total)

Applicants using counseling-only (Hall's
10% estimate): 568

Number assumed to have been rejected
(remaining 25+%) 14438
100% = ' 5,683

280

Assuming that these estimates are fairly close to the true
picture, it appears that, first, one out of ten agency applicant
debtors either is unwilling to accept the restrictions required
by an adjustment plan or else needed only a “pep talk" or advice,
perhaps the recommendation that they contact creditors and work out
an extension agreement. If the debtors in question are under
severe collection pressure austerity would seem the lesser of
evils, thus it is quite possible that most counseling-only clients
are not in extremely serious debt trouble; it also suggests that
few debtors seek help before their situation has become deSperate
(consistent with what we have already observed, that over-indebted
consumers typically fail to "see it coming" before it is too late).
A second conclusion we might draw from these figures is that, for
many debtors, there is actually no alternative to bankruptcy; it
represents the only option which does not require paying and for
debtors with inadequate or nonexistent income it may simply be the
only way out. (It might be added that an agency counselor's own
assessment of the situation as "unworkable“ lends great credibility
to a debtor's claim that he cannot pay for, as we shall see,
agencies are dedicated to prevention of bankruptcy.)

Further insight about agency assistance as an alternative
to bankruptcy can be gained from the estimates of debtors in debt»
management programs; about two-thirds of all applicants undertake
a debt-repayment plan under counselors' supervision, but less than
half of all who Show up at the agency requesting help carry such

plans to completion. We can surmise that some of these debtors

281

may lack one or more of the qualifications needed to enable them to
act on their counselor's advice--adequate income to make repayment
feasible, the personal characteristics necessary for carrying out
agency directives (e.g., requisite social and intellectual skills,
a strong desire to repay and reluctance to pursue less acceptable
alternatives, a capacity for tolerating budgetary restrictions);
it is also possible that the plans developed for them may not have
been feasible in view of their debt load in relation to their
income. Dropping out of a plan is related to rejections of appli-
cations for help; Hall, in interviews with 65 families who had
tried counseling services, reports that "fifteen had received a
varying degree of service, ranging from one interview (in which
they found the proposed plan unacceptable) to a period of trial of
a payment adjustment plan which they found untenable." In connec-
tion with rejection of client applications he then says,
Figures of the agencies are inadequate since many do not

keep accurate count of those who are not accepted. However

the answers to the questionnaire (submitted to 32 agencies)

showed that a sizeable number of applicants are "not accepted"

and the usual reasons given were: "debt too great, no realis-

tic answer;" "family unwilling to accept the plan," which

meant unwillingness to accept the proposed payment plan.86

In fairness, it must be said that for many peOple plagued

with debt problems and the pressures of collectors, agencies repre-
sent an invaluable source of aid; Hall's interviews with counselees
indicated that, although they had not developed new money management
skills, the experience had produced a marked improvement in the

finances of many of the families and most spoke favorably or highly

of the service. (My interviews with agency clients generally

282

confirm this.) These, however, are the views of "successful"
clients and there remains some question as to the merit of agency
service for debtors midway between successful rehabilitation and
those the counselors regard as "too far gone"--in the gray area
where neither bankruptcy nor a debt-repayment plan is clearly
contraindicated. There is evidence to suggest that many of these
borderline cases are prescribed the debt-management service of
counseling agencies--which results in repayment of creditors--and
counselors lend support and guidance to keep them on the plan and,
not incidentally, out of bankruptcy court.

It appears to be practically universal that the possible
use of bankruptcy is not discussed even though the credit
counseling service counselor may believe it to Be the only
possible sOlution. The absence of any factual discussion of
bankruptcy is heavily related to the desire to avoid the

appearance Of promoting bankruptcy with the resultant poten-
tial criticism of the service from the creditors.8

 

 

The proliferation of community-supported counseling agencies since
the 1950's (concomitant with the expansion of consumer credit and
rising bankruptcy rates) is no accidental coincidence. Their
develOpment has been aided and encouraged by social workers, labor
unions, and the like, but the financial support essential to their
founding and functioning comes primarily from the business sector;
with few exceptions, credit granters are the major source of income
for nonprofit counseling organizations--the largest contributors
are consumer finance companies, banks, and retailers, with support
also coming from credit unions and some medical or hospital sources
and utilities.88 As originally conceived, community-supported

counseling services were to be helping organizations in a broader

283

sense than merely an aid in debt repayment; i.e., they were to
provide various functions including the guidance-only needed by
some debtors (ideally those who discovered or were referred to
agencies before their trouble had grown too serious), the debt-
management service for those whose Situation had deteriorated or
who lacked self-discipline, and education for all clients and the
general publicin the wise use of credit and good money management.
Experience has shown, however, that the bulk of agency staff time
goes to administration and guidance in connection with repayment
plans, the rest is used in counseling-only, and almost none to
educational efforts. "This emphasis on payment plans suggests that
these offices are more collection agencies than public service
organizations."89
Obviously the motivations of supporting creditors are not
altruistic. Although counseling services benefit the debtor by
giving him the help he so desperately needs, "the reason that
creditors hail debt counseling is no mystery: they receive the
money that is due them without having to institute legal action.
And the fact that billions of dollars are washed down the drain
every year through bankruptcy is a major factor. In most cases
where counseling agencies have been established it is the finance
companies, local retailers and banks--the credit granters-~who

90

have been the prime movers." Within the agency, creditors'

support has the expected effect:
Within the credit counseling services, there is confu-

sion about the role the agency and the counselors have in
assisting people with their problems. Who is the "client”

284

of the agency--the creditor or the debtor? Does the counselor

primarily represent the creditor community which largely sup-

ports his agency and usually pays his salary? Or is he similar

to a counselor-at-law or a social worker who considers the

person who comes to him as his "client," and sees his role as

an advocate of the person in trouble?

There is evidence that the major portion of the time of

the counselors is devoted to one problem: developing a pay-

ment adjustment plan for the family. The number of rejections,

the number of persons who "drop out" from these payment adjust-

ment programs as well as the statistics of services given, are

the evidence of this one absorbing direction of effort.91

What this concept of the role of the agency counselor implies

for marginal debtors committed to debt-repayment plans bears some
consideration. It would hardly be reasonable to expect that
creditors would recommend agency help to their default debtors
before every other means of collecting had been tried--until coun-
seling had become ipso facto ppg_alternative to bankruptcy. At
best, early referral would produce pro rata payments to all
creditors but there is a good chance that one might seize the
debtor's assets, leaving the referrer out in the cold. Late
referral is more realistic and, although not conducive to the
success of either debtors or agency programs, not sending debtors
for help before they are hopelessly entangled is the norm. It
goes without saying that all interests on the "creditors' side"
of the picture discourage bankruptcy by every means possible, most
of all by emphasizing its attached stigma of shame and by present-
ing it to the public not as a means to a fresh start but as per-
sonal and moral failure. Thus the near—hopeless debtor (who might
well be a "legitimate" candidate for bankruptcy) is typically

deterred from this option and shunted to the agency for "help."

285

Once there, the counselor who appraises his situation will never
mention bankruptcy, but if the debtor's financial condition is
utterly hopeless he may be rejected as a client. The likely out-
come, as we have seen, is that the applicant will be put on a
repayment plan if there is any possibility at all that he can make
some payments on his debts.

Hall's analysis gives us some insight on how this situa-
tion works for the counselee: he notes first that the most frequent
cause of debt problems among agency clients is "poor judgment"
compounded by misfortunes resulting in reduction or loss of wages.
(The term "poor judgment" applies to the poor shOpper, the compul-
sive buyer and one with low sales resistance; it also refers to
overloading of the buyer by high-pressure salesmen.) Although a
large debt load is the immediate problem, a reduction in income,
due to a variety of causes, is typically a large part of its being
a problem--the problem which the applicant lays before the coun-
selor. In order for clients to make payments on past debt their
incomes must be budgeted to cover both the payment plan and daily
living costs; the living scale must of course be adjusted to
accommodate the debt payments, but with marginal debtors (whose
difficulties were partly caused by a shortage of income in the
first place), there may be little room for the necessary "adjust-
ment." Hall found that "payment adjustment plans commonly called
for between 30 and 60 percent of family income to be paid on

92

debts." Most of the families he studied were expected to live

for a period of 12 to 36 months on amounts inadequate to meet their

286

basic necessary family expenses; such severe restrictions would,
if-carried out, result in inadequate diets, omission of health
care, and damage to family patterns (e.g., participation in educa-
tional, religious, or community activities). He notes, however,
that some agencies discontinue their service if clients cannot
maintain sizable payments of income on debts and he reports that
"many of the interviewed families who dropped out of a payment
adjustment plan before its completion said they had discontinued
because they could not endure the cutback in living standards which

was required."93

 

In sum, the debtor who opts for the role of "help-seeker"
and looks to debt-counseling agencies for a solution to his dilemma
may or may not find this an alternative to bankruptcy; for those
who do, it means essentially that they remain in the collection
career and potentially subject to all the pressures their creditors
can bring to bear. The ones unable to pay Simply do not qualify
for agency counseling; Since help-seeking is no alternative for
them, their only exit lies in choosing the stigmatizing role of
bankrupt. That this in fact is what happens in such cases as we
have described, is seen in the quotation below. This is an
excerpt from the conclusion to a paper reviewing several bankruptcy
studies for the purpose of pointing up what information they pro-
vide about the "reasons for the choice of bankruptcy over other
alternatives." The author first notes that in all these studies
bankrupts were found to be young, married blue-collar workers;

money owed to commercial lenders made up most of their total

287

liabilities but debts to retail credit granters and medical ser-
vices were also a significant part of their debt load. While large
medical bills and declines in income that interfered with debt-
carrying capacities were a partial factor, "the financial distress
of the bankrupts appears to have been primarily the result of debt
loads which had grown to unmanageable size." As for the reasons
such consumer debtors end up as bankrupts,

Several factors apparently motivated persons to choose
bankruptcy as a solution to their financial problems. Bank-
ruptcy appears to have been more attractive than other alter-
natives because it affords protection from wage garnishment
and lawsuits and because many of the bankrupts had debt
loads so large that they could not have been repaid in any
reasonable length of time. The available evidence suggests
that the desire to escape debts considered unfair and the
desire to defraud creditors were not important factors in
motivating the choice of bankruptcy.94

In a more recent study, Sylvia Lane (an economist) performed

a comparative analysis of the characteristics of three groups of
submarginal credit risks--bankrupts, petitioners under Chapter XIII,
and debt counselees--and her findings shed additional light on the
issue we have been discussing here, how defaulters come to be

sorted into "help seekers" vs. bankrupts. In this report Professor
Lane confirms the commonly held prototype for the bankrupt as that
of a young, married head of family with a blue-collar job, but she
finds that it fits the petitioners and counselees as well. As
might be expected, Chapter XIII debtors had the highest job sta-
bility and the highest median income, but all groups had similar

incomes-~between $400 and $500 a month, above the poverty level

but below the average for the area in which they lived. AS for

288

debts, she 'fimuui that the specific types of debt most frequently
reported by all three groups were those owed to retailers, consumer

95 Her most interesting

finance companies, and medical services.
findings have to do with relative values of these subjects' debts,
assets, and income. In terms of total debt as a percentage of gross
annual income, a gradient appeared across the groups as she
expected it would: bankrupts were highest, petitioners (under
Chapter XIII) were next, and counselees lowest. However, a clearer
picture of their actual debt condition emerged when ratios based

on short-term debt (excluding mortgage) were computed. These

ratios (adjusted for tax obligations) indicated that "the bank-
rupts would require 6 years to repay their debt, which may be why
the Situation appears to be hopeless. The petitioners and the
counselees would on the average require 3-1/3 and 3-1/2 years,
respectively, to repay and this may be why they attempt to repay."
Further understanding about the debt conditions of bankrupts vs.
counselees came to light with the comparison of the debt-to-asset
ratios (debt as a percentage of total assets). These ratios (493%
for the bankrupts, 692% for counselees) illustrated the technical
insolvency of the cases under study. Since 100% denotes solvency,
the counselees were furthest from this condition (where debts are
exceeded by ownership of assets, liquid or property such as house-
hold goods, car, and real estate) but, as Professor Lane points out,
"the potential value of earning power is not included among the

assets, and for households this is the most important asset of all."

289

In other words, the availability of current income for debt repay-
ment, rather than prOperty ownership, counts heavily in making the
decision among alternatives. In concluding her study, Professor
Lane writes,

Judging by the debt to income ratios, the sample sets
[representing the three debtor alternatives] have apparently
been classified, or have classified themselves accurately.
Those who on the average were least able to pay chose bank-
ruptcy. Those for whom the Situation was not as hopeless
financially chose to repay."96

Thus, for some consumer debtors (about 200,000 each year),

the enforcement career which began with the acceptance of their
credit application has its end in bankruptcy and all the others

(save those who escape) find exit only by paying up.

Conclusion

 

We have attempted, in this first phase of study, to depict
the structural side of the credit world occupied by the organiza-
tions that lend and collect and represent sources of help to
defaulters. In the next chapter we turn to the consumer debtors
who are participants in the activities of credit-debt organizations
to examine this world as it appears to them. There we will try to
understand how it feels to be a consumer debtor who, in carrying
out what seems to him an ordinary daily consumer's life, has
Slipped into a problem that comes to affect virtually every aspect
of his existence. We will see how he faces the dilemma with which
he is presented, how he tries to resolve it, and what the experi-
ence may do to him. In considering the changing situations of

consumer debtors traversing the route from credit applicant to

290

possible bankruptcy we will try to keep the whole picture before

us, remembering the perSpectives of the total society and the
organizations that function to make the consumer credit system

work. Since we are ending this, the structural-view portion of
study, by looking at bankruptcy as the eventual outcome of indebted-
ness for many American consumers, it is fitting to conclude this
phase with a thought on how bankruptcy itself fits into the bigger

picture:

Bankruptcy is bad by definition--a negative concept con-
noting failure and broken agreements. Bankruptcy is bad for
the debtor: he loses property (if he has any nonexempt
property); he may feel stigmatized; and he has difficulty
obtaining low-cost credit. It is bad for the creditor, who
loses money he presumably expected to collect. It is bad
for governments and taxpayers: losses are written off and
potential revenues unrealized.

But the results of bankruptcy are not necessarily all bad
for all creditors and debtors. Creditors have anticipated
bad-debt losses in their pricing, and they receive the tax
advantages of write-offs. Debtors get rid of their unsecured
debts--unless they revive them--and are occasionally rehabili-
tated under the provisions of Chapter XIII.

On balance, however, the high tide of bankruptcies has
properly been viewed as unfortunate. The losses of property
and income are aggravated by costs of collection efforts and
later of bankruptcy proceedings. The social and emotional
costs are also significant: frustration, fear, mistrust,
anger, broken relationships.

Yet we have seen that bankruptcy is inevitable and neces-
sary. The process ends a deteriorating but unresolved situa-
tion so that those involved can make a fresh start. As long
as there is a large volume of credit, some credit will go bad
and formal remedies will have to be sought. Any nation whose
trade is based on credit, eyen in part, must provide for legal
recognition of insolvency.9

291
FOOTNOTES

1Robert Cole, 1976, p. 33. The comment is attributed to
Ernst Dauer who is a consulting economist and visiting professor of
finance at Loyola University at Chicago.

2David Stanley and Marjorie Girth, 1971, pp. 39-40. (Empha-
sis added.)

3George Belden, 1974, p. 16.

4Reavis Cox, 1950, pp. 194-95.

5Lewis Mandell et a1., 1973, pp. 5-6.

6George Katona, Lewis Mandell, and Jay Schmiedeskamp, 1971,
pp. 125-26. These data do not reflect the inflationary conditions
prevailing after 1970; the ratio of instalment debt to disposable
income for the average family rose to 17% in 1973, although 20% was
still used as a maximum in the rule of thumb for debt safety.

7Deborah Rankin, "Americans Failing to Pay Their Debts,"
Lansing State Journal, April 21, 1974, p. 0-14,

8"00 you Owe too much?” Changingylimes, June 1974, pp. 6-7.
Gwen Bymers' vulnerability criteria are usedTin a pamphlet entitled
"Your Credit Health," prepared by Credit Counseling Centers, Inc.,
for distribution to their clients. Some of the information in this
section is taken from that pamphlet.

9Sylvia Porter, "How Much Debt Is Too Much?" Lansing State
Journal, September 13, 1972, p. C-l6. Miss Porter points out that
with weekly take-home pay of $200 ($9,600 a year), the safe limit
for instalment debt would be about $200; this is not including
mortgage payments or utility and medical bills.

10

 

"Do you owe too much?" Changing Times, June 1974, p. 6.
11

12John Moorehead (Christian Science Monitor), "Credit Card
Computer Gets Nasty," Lansing State Journal, January 22, 1975, p. 0-6.

13Lee Wedemeyer, "Going for Broke," Lansing State Journal,
July 2, 1972, p. C-1.

14

Richard Stinson, 1974, p. 29.

Wallace P. Mors, 1972, pp. 134-35.

'5Ster1ing Speake (ICCA Manual), undated, p. 73.

 

292

16Ibid., p. 104. Bad debt losses vary among credit granters;
in 1966, the latest year for which figures are available, bad debts
averaged about .23% of sales for corporate retailers and about .40%
of sales for service establishments. Delinquencies on bank loans
to consumers ranged from .97 to 2.19% of loans outstanding in
September 1967, across five types of loans. The latest report of
the American Bankers Association indicates that for eight types of
loans outstanding in December 1973 the delinquency ratio was 2.53,
the highest level reached Since a 2.19 was recorded in 1972.

17Robert Cole and Robert Hancock, 1960, p. 326.

18Sterling Speake (ICCA Manual), undated, p. 72. I have
underlined Speake's references to debtor types. This basic typology
appears in most writings on debt problems and credit management.
Speake identifies prompt payers, deliberate evaders, and slow
payers; the latter include the unfortunate debtor (whom we described
earlier as having been pushed over the line to default by an unex-
pected crisis) and the indifferent or irresponsible debtor. These,
together with evaders (often referred to as "deadbeats"), comprise
the three types of defaulters of concern to debt enforcers. The
quotation from Cole which appears below suggests a similar classi-
fication system. Mors speaks of certain types of bad debts as
"procrastinatory write-offs" and identifies them as follows:
"Internally oriented write-offs result largely from debtors who do
not have the requisite capacity or temperament to manage their
debts or who lack motivation to pay whether from ineptitude,
indifference or hostility. Externally oriented write-offs represent
debts which debtors are willing to pay in the main but cannot do
so because of too great a deterioration in their financial position
resulting from the occurrence of unforseen events after the debts
were incurred." Wallace Mors, 1972, pp. 121-22.

Rock also describes a typology generated by the English
debt enforcement process which is essentially the same one--the
unfortunate, the feckless, and the professional: "Collectors Oper-
ate with a threefold classification of defaulters which is linked
to two features of enforcement: the need to predict a defaulter's
intentions and the particular information that a process involving
variable amounts of time and effort generates. . . . [The career]
must be both complicated and simple. It must be complicated enough
to cater for a variety of types of default and response. It must
differentiate between the feckless, the unfortunate and the profes-
sional. Having established a means of differentiation, it must
further incorporate appropriate strategies for each type. Yet it
must be simple enough to proceed smoothly, cheaply, rapidly and
with little attention." Paul Rock, 1973, p. 294.

19

 

Robert Cole, 1976, pp. 370-71.

20Paul Rock, 1973, p. 92.

293

2‘lRock's descriptive analysis of the English debt collec-
tion system is contained in his paper, "Observations on Debt Col-
lection" (1968) and his book, Making PeOple Pay (1973). These
works are reviewed in the introduction to the present study. It
is important to understand that I do not regard my investigation
as an attempt to replicate Rock's findings but rather to build upon
them. Rock concentrated on the debt collection process, character-
izing it as a social control system designed to manage the unique
problem of debt default; his descriptions of debt collection pro—
cesses are presented as evidence for his argument that this social
control system shapes and defines and imposes a career-like struc-
ture on indebtedness. I am describing debt enforcement only
insofar as is necessary in order to establish a firm link between
_this investigation and that of Rock because my focus is not on the
collection process per se but on the consumer debtor who is exposed
to it. I regard his work as a useful foundation for this analysis
of debtors' self-concepts; I see this not as a replicating study
but as contributing to a line of research in which the findings of
previous work serve as grounds for new and different areas of
exploration.

22

 

Paul Rock, 1973, p. 26.
23

24
25

Ibid., p. 48.
John Whalen, 1976, p. 109.
Sterling Speake (ICCA Manual), undated, p. 49.

 

26Earnings to be made on lending is also a strong influence
in credit policy making; debt merchandisers have this in mind with
liberal lending standards. John Whalen writes, "In the pure, clean
fantasy world of credit theory the amount of credit made available
and to whom is determined by perceived risk. Criteria determining
the applicant's place on the risk scale include income, residential
and occupational stability, debt load anui credit history. In the
real world the risk scale becomes warped. Prudent credit-granting
policies fall victim to other considerations. Interest or finance
charge income is perhaps the most powerful modifier.

Retailers who run revolving charge programs can accept
applications from the lower middle of the risk scale because markup
on merchandise plus income generated by an 18% finance charge will
more than offset anticipated bad debt losses. Retailers who finance
on instalment contracts or sell their paper to finance companies
accept even worse risks because of 21.6 to 27% annual interest.
Small loan companies can afford to deal with people barely clinging
to the last rung of the risk ladder because they charge up to 30%
on the money they lend." John Whalen, 1976, pp. 108-109.

294

27These remarks are recorded in my notes on a lecture pre-
sented by Sterling Speake at a consumer credit course I attended on
May 13, 1974. The course is sponsored by the International Con-
sumer Credit Association and made available in various communities,
usually under the co-sponsorship of the local credit bureau. They
are attended by persons engaged in credit and collections depart-
ments of credit-granting retail firms and financial institutions.

28From remarks by ICCA lecturer Sterling Speake. May 13’
1974.

29Robert Cole, 1976, p. 247.

30Ibid., p. 248.

31Cole Observes that the meaning of "collection" is variously
interpreted; it may refer to the efforts which start when the cus-
tomer is reminded of his indebtedness, thus defining the routine
"bill" stating that the amount will be due on such a date as part
of "collection." Cole prefers to adopt the convention of applying
the term to efforts made after the agreed-upon credit period has
expired. See Robert Cole, 1976, p. 364. (The five major functions
of the collection Operation which are identified in this paragraph
are also taken from Cole, p. 384.)

A similar ambiguity exists in the use of the term "enforce-
ment." Because the general account control Operations of credit
granters include procedures for picking out past-due accounts, I
regard this initial identification of an account as delinquent as
the beginning of the collection system. I have shown how the
collection system, which begins with credit granters and moves to
the hands of agency collectors, is a system of social control,

i.e., a system for "enforcement" of debt. The term may be generally
equated with "collection" although I extend it to include the
earliest of collection steps, those which identify an account as
past due as part of the creditor's routine account-handling system.

32pau1 Rock, 1973, p. 65. I have added underlines to point
up the three characterizing aspects of an enforcement career.

33

 

Ibid., pp. 70-71.

34Pau1 Rock, 1968, p. 178.

35This outline is adapted from Cole. See Table 16-1 in
Robert Cole, 1976, p. 373.

36Paul Rock, 1973, p. 72. Rock goes on to say that enforcers
also use time intervals as measures of deviance: "A debtor who has
not paid for three months is 'obviously' more deviant than one who
has missed two payments. A debtor's deviance thus develops in a

295

manner which is highly organized and calculable." This, of course,
is the idea behind our description of the (American) debt collec-
tion system and one which will be developed in the chapter to
follow.

37Bruce Goldman et a1., 1974, p. 49. "Account aging"
refers to the standard business practice of reviewing periodically
(by various methods) the status of accounts receivable. Age analy-
sis, one method, is something like an inventory of all money owing;
it reveals whether the creditor's current collection rate is satis-
factory and also highlights particular accounts that are due for
collection treatment or which should be eliminated from the creditor's
collection routine.

38Rock suggests that the idea of process is mechanically
written into the sequence of enforcement measurings and he cites
Roth's argument that "long stretches of time may be made more
'psychologically manageable' by being broken up into smaller seg-
ments. When the markers used to divide periods of time into seg-
ments are also Signposts of progress in a given direction, we have
the foundation of a career timetable." Julius Roth, Timetables,
Indianapolis: Bobbs—Merrill, 1963, p. 115, in Paul Rock, 1973,
p. 71.

 

39Robert Cole, 1976, p. 372.

40The lecturer at the ICCA Credit Course displayed a variety
of available collection devices to credit personnel attending the
class. He emphasized that the color of such devices, apart from
the messages used at each stage, had important effect; he also
advised his class not to paste stickers flat on the statement--
"50 he can remove it, and he will. This allows the debtor to save
face."

The idea of early stage stickers as "nudging" devices is
'taken from Belden. He identifies the steps or stages in a col-
lection system as the Nudge, the Appeal, the Push, and the Squeeze;
I have adOpted these terms in describing collection stages in this
section. See George Belden, 1974, pp. 22-26.

4'Robert Cole, 1976, p. 372.

42It should be noted that while I do not raise this as an
issue in the present study, the credit world is not without credit
granters who use deceptive and exploitative practices in transac-
tions with consumer debtors. Caplovitz' investigation into the
problems of (and reasons behind) debt default provides a general
understanding of how such creditors operate. David Caplovitz,
1974. (See especially pp. 27-46.)

43Pau1 Rock, 1973, p. 268.

296
44Ibid., p. 58.

45Sterling Speake (ICCA Manual), undated, p. 92.

 

46Excerpted from ICCA Credit Course notes. See footnote 27.

47Sidney Sherwin, 1974, p. 79.

48"In too many cases the car seized is not sold at market
value. A reputable bank will see that it is sold for the best
price at a public auction, but many repossessors sell cars back
to the original dealer at a rigged 'bargain' price. One study
cited by the National Commission on Consumer Finance which held
hearings on the problem in 1970, found that repossessed cars were
sold back to dealers at an average of only 51% of their actual
value." George Belden, 1974, p. 108.

For a discussion of shady repossession and deficiency judg-
ment practices, see David Caplovitz, 1974, pp. 183-89 and 295-97.

49David Garino, "Getting Credit Cards Back From Deadbeats
Is a Booming Business," Wall Street Journal, March 24, 1975, p. 1.

50Physicians and Dentists Credit and Collection Manual,
St. Louis: National Retail Credit Association, 1953, p. 26.

51There are about 5,000 collection agencies in the U.S.
and there are considerable differences among them-~in size, organi-
zational structure, and in the methods and quality of their work.
There are some very large collectors but the small organization is
the norm; the member agencies of the American Collectors Associa-
tion, for example, Operate with an average staff of 6.3 persons
and they accept an average of 670 new accounts per month, totaling
some $48,000. Agencies vary in their practices: some organizations
employ marginal, often illegal, practices regularly, although most
conform to varying degrees with the ethical practices guidelines
set by trade associations and the FTC. Agency procedures differ
also in terms of the differences in state laws; in states where
measures such as garnishment are available, such steps are commonly
incorporated into the standard collection routine. Agencies which
operate as collection service departments have more direct access
to information about debtors than unaffiliated collecting firms; it
can be assumed that collectors with legal collection steps and
more information at their disposal rely less on continued dunning
and threatening than do those who lack these resources.

Despite these variations, the strategies and procedures of
collection agencies can be described in a general way. In this
section I am attempting to portray the functioning of a "non-
exceptional" organization, i.e., one which uses procedures which
might be used by most American collecting firms. It assumes a state

 

297

in which legal measures can be used, an ethical manner of doing
business, and an organizational size and structure which is typical
of a great many agencies.

52The term "independent" refers here to collection agencies
which operate as separate business enterprises versus the personnel
or departments which carry out collecting activities as part of the
original creditor's organizational structure.

53George Belden, 1974, p. 17.

54Bruce Goldman et a1., 1974, p. 134.

55A debtor who cannot be located by the creditor is, in
collectors' parlance, a "skip." In some cases failure to supply a
forwarding address is unintentional, but it is not uncommon for
debtors to relocate (or change their name) to escape paying debts;
a whole branch of the collection business, known as "skip tracing,"
is devoted to finding such persons. The credit industry has
developed techniques of skip tracing which are described in detail
in the instructional materials used in the training of collectors.

56
57

George Belden, 1974, p. 17.
Paul Rock, 1973, p. 168.

58An incident in my work experience provides an illustra-
tion: among my accounts was a very large indebtedness upon which
a judgment had been obtained but the debtor (who was "known" to
veteran collectors in the office) could not be located. One day
a picture of the man in question appeared in the local newspaper
in connection with an accident he had suffered in his work (he
had been overcome by toxic fumes while doing commercial carpet
cleaning) and the story included his address and the name of his
employer. I was given the clipping and told to prepare a garnish-
ment order the next week, as soon as he was out of the hospital.

59Paul Rock, 1973, p. 271 and p. 85.

60Ibid., p. 269.

6'Ihid., p. 271.

62The material which appears below and on the following
page is a general representation of selected portions of the text
contained in a series of manuals designed for use in training
people to be effective bill collectors.

63Caplovitz presents an excellent account of what tran-
spires when creditors who have exhausted extrajudicial collection
methods seek a judgment in court. In his examination of the role

298

of the courts in the collection process, based on his analysis of
debt cases in Chicago, New York, and Detroit, he finds support for
his claim that courts Operate as collection agencies for creditors
irrespective of the debtor-defendants' defenses. See David
Caplovitz, 1974, pp. 191-224.

64Attachment and execution are remedies granted by state
law that enable creditors (or the collection service acting as
agent) to tie up or seize judgment debtors' prOperty. With attach-
ment of property, the creditor does not actually take possession
but arranges for it to be held as security against payment of the
debt. Execution is the procedure by which property is actually
seized and liquidated by public sale to satisfy a judgment. Laws
governing these procedures vary widely from state to state.
Attachment in most states has limited use, mostly in cases where
the debtor threatens to conceal or dispose of his property with the
intent to delay his creditors; execution may or may not involve
attachment as a first step. In general, garnishment procedures,
by which the creditor can reach funds of the debtor held by his
bank or employer, is the most commonly used measure.

65The credit system is heavily biased toward creditors and
this bias has its basis largely in the legal system which tends to
be skewed in their favor. This theme is expanded in Caplovitz'
study of judgment debtors. (David Caplovitz, 1974.)

While this is generally true, debtors are not altogether
without means to play an active part in the psychological battle
waged by enforcers. There are any number of delaying tactics and
counter-measures that can be effective responses to the coercive
efforts of collectors--if the debtor is not too awed or intimidated
to use them (e.g., proposing a settlement, keeping assets out of
reach, making small payments to placate and delay the collector).
Debtors can counter collectors' threats with threats of their own
as, for example, to contact the FCC or postal authorities and
complain of harassment, or to claim some injustice about the debt
will be reported to a consumer protection agency or taken to court;
the threat of filing bankruptcy is particularly useful in discourag-
ing collection efforts.

In the past few years an undercurrent of sympathy for
debtors has been revealed in the appearance of much popular litera-
ture on the art of debtsmanship (techniques for countering or out-
witting creditors) and "how to" books on bankruptcy-filing and
payment-delaying strategies. Examples include George Belden's,
Strategies for the Harassed Bill Payer; Jerome Meyers', How to
Wipe Out Your Debts and Make a Fresh Start; Sidney Rutberg's,

Ten Cents on the DOTlar; Robert Burger and Jan Slavicek's, ng_
Lgymanls Guide to Bankruptcy; and Bruce Goldman's, Your Check Is
in the Mail: How to Stay Legally and Profitably in Debt.

299

66There are wide differences among state garnishment laws:
in Texas, Pennsylvania, Florida, and North Carolina this measure is
prohibited or severely restricted so as to discourage its use;
laws of other states vary in several respects, particularly in the
amount of earnings exempted and the duration of a single garnish-
ment order. The Consumer Protection Act which became effective
in 1970 reduced some of these variations by requiring all states to
exempt at least 75% of the debtor's income.

‘ Michigan is noted for having one of the harshest garnish-
ment laws in the country, although its severity has been mitigated
somewhat by the exemption requirements of the new law. In some
states a garnishment order remains in effect until the debt is
settled but in Michigan the order applies to only a single pay
period; where several orders are needed to satisfy the creditor,
the costs (almost invariably passed on to the debtor) are repeatedly
incurred. In addition, multiple garnishments increase the debtor's
risk of job loss. Caplovitz comments on this: "Because of the
nuisance and expense that garnishment represents for employers,
many will fire a worker rather than tolerate garnishment. Most
employers have rules that specify the number of garnishments allowed
before the employee is dismissed. The Federal Consumer Protection
Act prohibits the dismissal of an employee for a single garnish-
ment, but such a rule is difficult to enforce, and debtors sub-
jected to multiple garnishments are not protected at all. Thus,
apart from its direct role as a collection device, garnishment is
a powerful threat forcing debtors to resume payments rather than
risk job loss."

He goes on to note the difficulties this presents to
creditors: "On balance, the Michigan law is much harsher than that
of Illinois or New York but it must be judged in the light of the
employer's garnishment rule. Any Michigan creditor who relies
solely on garnishment to collect a large debt is apt to find that
his multiple garnishments are self-defeating, for they result in
the debtor's dismissal from his job.” David Caplovitz, 1974,
pp. 229-30.

On the whole, the severity of Michigan garnishment law makes
it very effective as a threat to force debtors to reach settlements

or resume payments.

67It should be noted that some chapters of the Bankruptcy
Act deal with business bankruptcies and reorganizations; my concern
with bankruptcy is limited to its application in cases of volun-
tary petitions for discharge of personal indebtedness.

A treatment of the procedural and legal details of bank-
ruptcy and its social and economic ramifications Obviously cannot be
contained in this paper, but a large and complete literature in
this area is easily available. I have included in the list of
references several works dealing with the three main alternatives
Open to default debtors (bankruptcy, the Wage Earner Plan, and
credit counseling services) and descriptions of the bankruptcy pro-
cess and major studies of its use may be found among them.

300

68David Stanley and Marjorie Girth, 1971, pp. 9-10 and 12.

69Jules Bogen (ed.), 1965, pp. 22-19. (Emphasis in
original.)

70

Cyril Jedlicka, "What Credit Granters Can Do to Reduce
Bankruptcies," Management (ACBofA publication), Credit Granter
Issue, 1964, p. 6.

71Robert Burger and Jan Slavicek, 1971, p. 2.

There are much more extreme statements to be found in the
media, this, for example, from a pulp magazine: "For as little as
$65 you, too, can go into bankruptcy if your liabilities exceed
your assets by $1. You'll be able to wipe out thousands of dollars
in accumulated debts, keep upwards of $20,000 in personal assets,
regain your peace of mind, and--here's the best part-~pull off the
same thing six years later. In fact, every six years. It has been
your constitutional right to do so as far back as 1787; only it's
the best kept secret Uncle Sam has left. The credit industry
would much prefer the debtor without assets be sent to Devil's
Island for rehabilitation; or at the least, be stigmatized and
shamed. So, right off, Shake that loser's attitude. You're not
poor, you're simply broke and there's a difference in attitude
between the two which truly separates the winner from the loser.
So, if you're going to bomb, bomb for something worthwhile."

Max Irgang, "Bankruptcy: Boom for the Busted," Capitalist Reporter,
December 1973, p. 43.

72The discussion (in Ch. 2) of inter-industry competition
for consumer credit market shares, and lenders' aggressive cam-
paigns to broaden their customer base and include more marginal
risk borrowers should have salience in the present context. The
quandry to which these activities lead is nicely summarized by a
popular media writer as follows: "PeOple are going bankrupt
because credit is easy to get. Credit is easy to get because we
pay high interest rates. Why do we pay high interest rates?
Because so many people are going bankrupt." John Whalen, 1976,
p. 104.

 

73The following titles are indicative of the direction
taken in these efforts: W. Mors, "An Argument Against Abridging
Consumer Right of Bankruptcy"; R. Dolphin, An Analysis of Economic
and Personal Factors Leading to Consumer Bankruptcy; W. Harms,
Some Aspects of Business POTTcies and Procedures in Relation to
Personal Bankruptpy in Wichita; H. Mathews, Causes of Bankruptcy.

74
75

 

John Brosky, 1965, p. 70.

Suzanne Matsen, 1967, p. 75.

301

760avid Stanley and Marjorie Birth, 1971, p. 47.

77

78George Sullivan, 1968, p. 22. AS Sullivan points out, the
legal systems of most Western European nations provide that non-
business debtors can be granted a discharge but only if he enters
into an agreement to pay his creditors part of what he owes or to
pay a reduced amount over an extended period.

The statement that bankruptcy "wipes away indebtedness"
Should be qualified. In the first place, certain debts are abso-
lutely not dischargeable: all taxes, alimony and child support,
debts resulting from intentional injury to person and prOperty or
through fraud. Furthermore, the bankrupt does not get rid of
Obligations secured by liens (i.e., when the creditor holds an
interest in collateral as security). Secured creditors have the
right to repossess property purchased on contract, e.g., cars,
appliances, personal durables, house, but they prefer to have pay-
ment continue and debtors are usually under pressure to pay outside
the bankruptcy process or to have the debt revived after bankruptcy.
In addition, stores and lenders (especially those with whom the
debtor wishes to have future dealings) put strong pressure on the
bankrupt to reaffirm discharged debts. (Debts are reaffirmed if
any amount is paid or if the debtor agrees to have the debt included
in a new account.) Also, the bankruptcy lawyer typically recom-
mends that certain debts be cleared voluntarily, e.g., credit union
loans (because they survive on the good faith of their members)
and back payments on a home mortgage (because the bankrupt retains
the prOperty against which they apply). By the same token, not
all of a debtor's assets are taken in bankruptcy; although bank-
ruptcy laws are established by Congress, states determine what
properties may be seized and sold to satisfy creditors. State laws
vary widely on the matter of exemptions but most include all or
portions of earnings, personal prOperty, items needed in a trade
or occupation, certain kinds of savings, and the home. (The value
of items exempted ranges from a few thousand up to $45,000.)
Technically, bankruptcy does not erase debt but gives debtors a
legal defense (bankruptcy discharge) which he may raise in the
event that an unpaid creditor tries to bring suit after bankruptcy.

791n addition to these, a few states provide for a formal
payoff process for wage earners (Michigan statutes allow wage
earners to seek assistance and protection from municipal courts
through receivership and Ohio has a similar procedure known as
Wage Earners' Trusteeship). Typically, these arrangements require
the debtor to send all or part of his nonexempt earnings to the
court for distribution to creditors and the court gives him pro-
tection against legal actions (e.g., garnishment) by creditors.
These formal means of dealing with personal insolvency provided
under state law and the proceedings under Chapter XIII of the
federal Bankruptcy Act have some similarities; for discussion of

Ibid., p. 2.

302

these plans and comparison with Chapter XIII, see Stanley and
Girth, 1971, p. 72 (Ohio trusteeship plan) and Robert Dolphin,
1965, pp. 23-25 (Michigan receivership plan). In Michigan and a
few other states the instalment agreement (discussed earlier,
see Chapter 2) is another way for wage-earning debtors to obtain
protection from garnishment through municipal courts (see also
George Sullivan, 1968, p. 164 and Robert Dolphin, 1965, p. 22).
There are also informal out of court arrangements to help
debtors who want to pay in the form Of state-sanctioned common-law
devices such as the composition or extension agreement (described
_ in Ch. 3 under Creditors' Collection Devices), but these remedies
are most likely to be used when the debtor appears to be in tem-
porary trouble and creditors expect to do satisfactory business with
him in the future; they rarely represent viable alternatives for
defaulters in or near insolvency.

80John Whalen, 1976, p. 219.

8lTom Tiede (NEA syndicated columnist), "Debtors Discover
an Honorable Solution," Hendersonville (N.C.) Times-News, July 18,
1974, p. 2.

82

 

 

David Stanley and Marjorie Girth, 1971, pp. 73-74.

83Sullivan discusses reasons for the use and nonuse of
Chapter XIII. See George Sullivan, 1968, pp. 86-93.

841 use "debt pooling" to refer to agencies engaged in
repayment and counseling services as a commercial business enter-
prise and "credit counseling" for those offering these services
as a nonprofit agency. (The former go by other names as well,

e.g, debt management, budget adjustment, debt liquidating, debt
counseling.) Debt poolers became popular in the postwar credit
boom but they fell into disrepute because of the abusive practices
of unscrupulous agencies (excessive charges, misuse of clients'
funds, etc.) and are now outlawed in many states and tightly con-
trolled in those which permit them.

Credit counseling agencies receive support from community
enterprises and the credit industry; they are regarded as nonprofit
agencies although they do charge fees from clients other than those
on welfare. (These organizations also have other names: consumer
credit counseling, budget service, family debt counseling, finan-
cial counseling service, and others.) The counseling program
Operating in Michigan originated as a subsidiary of the Michigan
Credit Union League, a state federation of credit unions; it became
a separate organization in 1968 and now Operates 15 offices across
the state under the name Credit Counseling Centers, Inc., a non-
profit corporation. An information pamphlet distributed by CCC is
reproduced in the appendix; it explains the "Why, What, and How"
of this organization as presented to its clients. (For a

303

comprehensive study of such services in general, their organization,
settings, and clients, see Perry 8. Hall, 1968. This study reports
an examination of eight representative programs in various parts

of the United States.)

Michigan statutes permit commercial pooling agencies
although they must be bonded and licensed and are carefully regu-
lated. The functions these agencies perform with respect to rehabili-
tation of debtors are essentially the same as the nonprofit agen-
cies, although they differ in their organizational structure and
financial arrangements. My description of counseling and prorated
payment services by Specialized agencies therefore pertains to both
forms of organizations, but the reader should be aware of these
differences between them.

85Beverly Hall, ”Credit Counselor Must Wear Many Hats,"
The State Journal, October 22, 1972, p. 0-2. This article also
contains the statement (made by a Meridian CCC counselor) that
"At CCC clients seldom get turned down. An occasional client
(5 out of the 350 handled last year) will be turned down because
he's so far into trouble that the only solution is bankruptcy."

We find, however, that our estimate of 25% applicant rejections is
consistent with the number (15 to 50%) reported by 32 agencies

in the Hall study. The information used in this section is taken
from the following sources: Perry 8. Hall, 1968, pp. 20 and 22;
CCC, Inc., "Newsletter" (Winter) 1976; Beverly Hall, 1972.

AS a matter of interest, the counseling-only service is
provided free (and made prominent in advertising) by all agencies,
including the commercial firms. This is because laws in most
states prohibit charging for budget advising and in any case it
COWES'UMJCIOSE to "practicing law without a license" to be risked.

86

 

Perry 8. Hall, 1968, p. 120.

87Ibid., p. 21. (Emphasis added.)

88Community—supported counseling agencies are financed in
various ways: some conduct annual solicitations among local busi-
nesses and institutions; some receive payments based on the amount
of funds distributed to the individual creditor through debt
adjustment plans operated by the agency (creditor support derives
mainly from consumer finance companies, retailers, and banks,
with lesser contribution from credit unions and medical and hospital
services); some exist as subsidiaries of organizations such as credit
bureaus, credit union and lender associations, etc. Many agencies
also receive income from debtors' fees.

The Michigan CCC program originated as a subsidiary opera-
tion of a state-wide league of credit unions; it became a separate
nonprofit corporation in 1968, and now is financed through a com-
bination of client fees (about $3.50 a week for debt management
services) and "voluntary contributions" from the business community.
In a recent public statement the organization announced that as of

304

January 1975 they were asking their financial supporters from the
credit industry for an increase in the rate of contribution to

7% of amounts received on behalf of their clients. (During 1974
they had paid over $11 million to creditors on behalf of clients.)

89David Stanley and Marjorie Girth, 1971, p. 54.

90George Sullivan, 1968, pp. 137 and 186.

9'Perry B. Hall, 1968, pp. 124-25.

92Ibid., p. 118.

93Ibid., p. 119. (Italics in original.) In my interviews
with agency counselees in Meridian, I inquired about reducing their
living standard and most indicated that no appreciable reduction
had been required by counselors; this would be the expected response
in these cases, however, since I was talking with "successful"
clients who were presently in or had recently completed debt
management programs.

94Robert O. Herrmann, 1966, p. 330.

95In this study retail debt was found to be the more common
with Chapter XIII and bankrupt debtors while consumer finance
company debt was highest with the counselee group. This would sug-
gest that consumer debtors who end up at the counseling agency had
been trying to COpe with mounting debt problems by taking out
consolidation loans and finance companies, especially, push them
since their market share is drawn largely from people with money
problems (and because it is the common practice of collection agen-
cies to direct debtors to taking out or extending finance company
loans so collection accounts can be "paid up TODAY in full").
Appealing-sounding consolidation loans are advertised as a means
of reducing obligations to single "easy" monthly payments spread
over a long period, but in most cases they must be secured by the
borrowers' property (car, furniture and appliances, or home equity)
because their credit standing is usually bad and interest rates
are high. Some lenders extend interest-only secured loans and if
the final balloon payment on principal cannot be met the loan has
to be refinanced or the debtor loses his prOperty. Belden advises
against this as a strategy for harassed debtors: "However ethically
the consolidation loan is handled by the lender, it is a dubious
course of action for the harassed debtor. The consolidation loan
offers an illusory sense of security and simplification. Lenders
advertise energetically to promote this illusion of an easy out:
Throw all your money troubles into one pot and pay your way out in
painless installments. Instead of being an escape hatch, the con-
solidation loan often only compounds and prolongs the debtor's plight,
and it blinds his imagination to other strategies he might be using
to cope with his creditors." George Belden, 1974, p. 71.

305
96 .
SyIV1a Lane, 1971, pp. 19-26.

97David Stanley and Marjorie Girth, 1971, pp. 196-97.

CHAPTER 4

THE EXPERIENCE OF INDEBTEDNESS

Introduction

 

In the preceding chapters we have attempted to present an
objective portrayal of the "credit world" in which most Americans
take an active part through their role as consumers. We have des-
cribed the essentials of the institutional system which has made
personal credit widely available and outlined the process by which
debt is sanctioned and enforced, showing how this complexity of
structure evolved largely out of mass participation of individuals
in credit and consumption activity. We now turn attention to the
other side of the picture, to the credit world as perceived by
individual consumer debtors.

This chapter brings the focus to the person, to the consumer
who has incurred a debt burden beyond his ability to promptly
discharge. The objective here is to understand the experience of
being in financial trouble and to describe how the structural con-
text of indebtedness which we have outlined appears to individuals
in the role of default debtor. In order to see the operating situa-
tion from the perspective of one engaged in on-going interaction
with debt enforcers and to ascertain the meaning of this experience
for him, we look to expressions of subjective feelings and descrip-
tions of episodes reported by persons actually going through an

306

307

indebtedness career. The reflections of financially troubled con-
sumer debtors and their accounts of personal experiences as related
to me in unstructured interviews are the basis of the examination
contained in this chapter. These persons, each of whom had some
degree of difficulty with over-indebtedness, had all chosen the
"help-seeking" alternative as the means of solving their problem;
at the time of the interview they were receiving guidance and using
the debt-prorating services provided by credit-counseling agencies.
Of the 42 counseling agency clients interviewed, 31 were
married and reported their experiences as family units, 8 identi-
fied themselves as presently divorced, and 3 were Single or widowed.
In each of these categories the subjects divided evenly by sex:
15 of the married and 4 of the divorced interviewees were male.
Although no attempt was made to determine specific characteristics
of these subjects, all of them volunteered information about them-
selves that suggests a considerable diversity in age, educational
level, and occupation within the group. Several of these debtors
were evidently quite young, Since they mentioned having recently
finished school, leaving the military, or having very small chil-
dren; some, on the other hand, told of having had debt problems
throughout many years of marriage (18 years in one case, over 20
in another) thus indicating their age to be near 40. One male and
one female subject made direct reference to racial characteristics,
describing themselves as black. Several subjects spoke of attend-
ing or graduating from college and most gave indications of high

school education although a few had apparently not achieved that

308

level; two women, for example, told of marrying at age 16 and
having children early in their marriage. According to the comments
they made about their work, these debtors seem to represent a
broad range of occupations: among the male subjects, three des-
cribed themselves as life insurance agents, three related experi—
ences as owners of small businesses (such as gas stations), several
had sales or service occupations (barber, truck driver, carpet
cleaner, TV repairman, door-to-door salesman), a few held white-
collar jobs or did construction or shop work (plastering, sheet
metal work, welding), and one was a farm laborer. Most of the male
subjects (or their wives) made reference to the head of family's
employment in one of the large local industries. Among the women
interviewees who mentioned their own employment most had office
jobs; others said they worked as a practical nurse, a retail sales-
person, and as a factory worker, but most of the women interviewed
seemed to regard the duties of wife and mother as their principal
occupation.

In terms of their socioeconomic level and debt condition
at the time of the interview, these subjects represented a broad
range of financial circumstances. In some cases the debtors talked
about their continuing struggle to meet their obligations with very
low earnings and extended periods of unemployment, while others
gave indications of having high incomes and standards of living
well above the average. In about one-fifth of the interviews, some
8 to 10, the subjects revealed a long history of financial diffi-

culty (several reported having been in and out of serious debt

309

trouble as many as four times in the past). An equal number felt
that their situation was now under control and they expected to

be free of debt (no longer in arrears) within a few months. The
remarks volunteered by the debtors also suggested some variability
in the nature of their personal relationships with others during
the period of their financial distress, both with peOple involved
in providing them the help they sought and with family members who
shared their predicament. Most subjects spoke favorably of their
counselors and the assistance they got from agencies, but there
were a few cases at each extreme; some were highly dissatisfied

and about to leave the agency and some revealed a heavy and often a
personal dependence upon their counselor. Among married subjects,
only a few spoke of receiving strong support and COOperation from
their spouse during the course of the develOping debt problem
while several attributed the financial difficulty directly to their
husband or wife. Marital problems, which they believed were
related in some way to the debt problem, loomed large in the lives
of many of these people; of the married subjects, five mentioned
previous marriages that were fraught with debt troubles and had
ended in divorce and many others described discord and disagreement
with their present spouse over money matters.

While this group may resemble a cross-section of the general
public of American consumers in many respects, the importance these
respondents have to this study is as spokesmen for a much smaller
segment of credit users, those who turn out to be troubled debtors

and defaulters. Despite their apparent diversity of background,

310

these people are in every case ordinary consumer debtors who were
unable to stay abreast of their debt obligations and found them-
selves confronted with a serious financial problem. Contained in
the interviews with these persons are self-reported accounts of
the difficult and Often traumatic experiences to which they were
led as a consequence of their over-indebtedness. We attempt here
to construct a composite picture of the indebtedness experience as
it appears to those for whom debt has become a problem, drawing
upon these debtors' first-hand descriptions of events in their
lives and their feelings about themselves at different stages in
their progress from credit user to defaulter. Our objective is to
understand how such a problem looks "from the inside" and, more
importantly, to Show how the debtor, the actor in this situation,
interprets and gives meaning to events and constructs lines of
action in responses

This chapter takes the form of an ideal-typical account of
the debtor's progress from consumer credit user to defaulter. It
traces the debtor's path through three distinguishable phases in
the course of the indebtedness experience. The grounds for the
structuring of debtors' subjective experience in this particular
manner lies in research findings on the temporal patterning of
abortion-seeking behavior, a form of deviance which in many ways
is similar to that of the debt defaulter. "Sensitizing hypotheses"
about stages in the debtor's subjective experience were developed,

suggested mainly by the works of Manning (1971) and Henslin (1971),

311

and empirical support for the posited stages was subsequently
found apparent in the interview data.1

In the first Of the stages which we have identified in the
experience of the consumer debtor, we focus on his activities and
attitudes as a "normal” consumer credit user; the second phase,
which begins when the consumer debtor has incurred a burdensome
load of debt obligations, takes him through a period marked by
struggles to c0pe with his problem and his difficulties with debt
enforcers. The debtor enters the third phase at the time he finds
it necessary to alter his course of action and turns in this case to
the counseling agency for help. The two important turning points
by which these phases in the debtor's experience are delineated
also figure importantly as we examine the route to default. The
first is identified in terms of the events or circumstances which
bring the debtor to define his debt condition as a problem; the
second occurs when the debtor perceives the problem as one he
cannot handle and feels that he must decide upon a specific course
of action that will solve his problem or bring it under control.

As we walk the "typical debtor" through these main stages
and turning points, our attention will focus on three major themes:
‘one is the debtor's conception of himself as he moves through the
stages of indebtedness. We are particularly concerned with under-
standing the way debtors view their situation and feel about them-
selves as they try to cope with two particularly difficult aspects
of debt trouble--being subject to the intensifying demands of

their creditors and coercive sanctions of collectors, and having to

312

make adjustments in their spending habits and alterations in the
family lifestyle as required by the counselor from whom they have
sought help. Another main theme is that of debtors' expressed
reasons for their inability or failure to pay their debts and their
explanations for having become over-extended users of credit in
the first place. One thing we will be looking for in this connec-
tion are the "motives” debtors have for the conduct which led them
to trouble with debt--that is to say, we intend to examine the
terms with which debtors interpret the courses of action they have
taken in matters involving credit and debt. -We will look as well
at the notion of blame, the extent to which defaulters are able

to rationalize unacceptable conduct by projecting blame for their
over-indebtedness to forces outside themselves.

A third and very imporant theme has to do with debtors'
responses to the collection efforts of debt enforcers. In recon-
structing debtor-collector interaction episodes, this time from the
debtor's side, we will concentrate on the actions debtors take in
response to the sanctions brought against them by debt enforcers
and the feelings these measures generate toward creditors and col-
lectors. It is in this area that we consider the default debtor
in the light of deviance and deviant labeling. Earlier we outlined
the main features of the debt collection process to explicate the
manner in which it functions as a system of social control whose
agents identify "offenders" among consumer debtors and effectively
regulate their behavior; we showed that it is from the workings of

the collection process that debt default derives its career-like

313

structure and explained its characteristic sorting and typing pro-
cedures which are essentially the mechanism by which deviance is
imposed on default. Now, looking at debtors' overt and covert
reSponses to debt enforcement measures, we will be addressing the
important issue, Does the debtor as labelee "fight back" and reject
the deviant label? When the defaulter has been labeled and sanc-
tioned as a deviant, does he construct his actions as a conforming
member of society? Or does he respond as a secondary deviant, one
who has accepted the social control agents' definition and applied
it to himself.

This chapter is concerned with indebtedness, not as a
financial condition or a social problem but as a human experience,
and it will focus on the actions and feelings of persons involved
in that experience. In short, we will be looking at the debtor
in terms of the uniquely human process of self-interaction:

The process of self-interaction puts the human being

over against his world instead of merely in it, requires
him to meet and handle his world through a defining process
instead of merely responding to it, and forces him to con-
struct his action instead of merely releasing it. This is
the kind of acting organism that Mead believed man to be
as a result of having a self.2
Protocols of interviews with debtors are the basis of this examina-
tion; it will show the consumer debtor in the process of "construct-

ing his action" through a series of changing situations as he goes

from credit user to defaulter.

314

The Consumer Debtor in Changing Situations

 

Phase 1: The Drift
to Financial Trouble

 

 

The first steps of these debtors who eventually made their
way into serious financial difficulty are not unlike those of any
ordinary American consumer. Nearly all of the 42 persons inter-
viewed traced the beginnings of their problem back to the time when,
as young married couples, they had acquired a car and the furnish-
ings and appliances they wanted for their home by using instalment
credit. This step, taken by vast numbers of Americans, enables them
to accumulate and enjoy the use of conveniences and capital goods
while paying for them out of current income and, as we have seen,
it proves to be a misadventure for only relatively few. Those for
whom such debt commitments eventually lead to a financial crisis
most Often attribute the difficulty to some unexpected event which
threw the family's income-payment scheme out of balance and set them
on the road to default. The misfortunes most frequently mentioned
by agency client debtors were those that led to diminished earnings--
illness of the wage-earner, job layoffs, or the loss of a second
income produced by the wife. A somewhat smaller number (several
of whom reported periods of reduced income as well) identified
unanticipated events, often an unexpected medical problem of a
family member, that upset the debt-income balance by adding to the
debt load.3 Although a few believed that had not such an event
occurred they never would have had a problem, the typical situation

described by these subjects was almost exactly that described in

315

the previous chapter (see Consumer Debt as an Individual Problem).
It is the classic story of the young, middle-income couple whose
consumption behavior gradually leads them to a vulnerable financial
position; when any unforeseen event puts additional strain on the
family budget they quickly fall behind in their debt payments and
are soon over the line to default.

The process of drift to over-indebtedness is characterized
by a disinclination to act circumspectly with respect to the future
and euphoria about money affairs in the present that brings debtors
to overlook their growing problem, to discover their plight
belatedly and often with surprise. In the general case, three
factors contribute to the develOpment of a financial crisis situa-
tion: failure to stay within a safe debt limit and proneness to
commit too much of the family income to debt repayment; lack of an
adequate money reserve as protection against unexpected events,
and failure to adjust Spending to changing conditions--reduced
earnings or increased demands on the budget; low sales resistance
of the consumer and encouragement by credit granters which leads him
to over-buying and heavy or unwise financing. This pattern appears
in all of the interviewees' descriptions of how they first came to
be financially over-extended. There are several variations on the
basic theme, but in virtually every case the problem is one which
the debtor perceives as “creeping up on him" and one or more of
these prevailing factors is always evident in the situation he
describes. Most often the debtor's perilous situation culminates

in the occurrence of a family crisis:

And:

316

We felt when we first got married that we'd have everything
our parents did. Well, everything seemed OK, you know, and
then my husband got hurt. . . .

I'd say it kind of creeps up on you. It's, ah, well you need
one thing and another and you go out and get it and the next
thing you know you just. . . . Well, my trouble was I got
sick and was laid off a lot--but otherwise I wouldn't have
had any trouble paying my bills.

Sometimes the drift to debt is a recurring process:

The

man

And

Well, some of it was because of what newlyweds would need and
then later it was things for the kids, and a lot of it was
personal. You know how it is, you like to keep up with the
Joneses--I guess that would be the best way to describe it.
Of course this isn't a one-time thing with us. Another time,
I had been working then, and we got used to having two '
incomes. Well then when I quit we were, you know, over our
heads. After we sold our other place and got this one, two
or three years ago, we got all caught up but . . . well, my
husband wants to live over his income and now we've sort of
drifted back in again.

pattern also appears among unmarried debtors. A young single
says,

I guess it really started when. . . . Well, first I wanted

a car, you know. And they just make it so easy . . . you know,
to get stuff, until you get way over your head and that's

when they lay it on you. In other words, you buy something

and make a down payment and then buy something else and so Oh,
that's the way it goes. I was living with my sister at the
time but--well, they made it sound so easy. I got, you know,

a stereo and things for my car and stuff. . . .

in the case of a divorced woman debtor:

I guess I'm not a good money manager anyway but, well I was
making a really good salary and then my son became ill. He
had leukemia and for five years I was putting out--the medi-
cal expenses were huge and I don't know where in hell. . . .
You know, it added up and added up. I just wasn't aware of
it adding up. It crucified me. And I got no support from
my ex-husband. My son died three years ago and I still owe
$400 on his funeral.

317

In some cases there is only the insidious growth of a debt problem

without a crisis event that brings it to a head:

The

Well I guess it all started when we got married. You need
so many things and you don't want to wait for them so you

go out and charge them. That was our problem. I think you
just kind of go overboard, you know. You don't realize that
the finance charges amount to when you do it and. . . .

Like when we bought our furniture, ah, three or four years
ago--I'm not sure it's paid for yet, you know? And it's just,
um, well you just don't realize how much you pay for that
time that they're giving you. And, well, it just got so it
was getting harder and harder to make the payments and have
anything left over for groceries.

following comments, by two debtors of contrasting income levels,

show that credit buying can be as pernicious for those with high

earnings as it is with less affluent consumers. A debtor who was

apparently not well off explained:

The

I think our biggest problem was when we got married neither

of us was working. We lived with my in-laws for awhile but--
he'd gotten a job by then-~but we had a squabble with them

and moved out. Well we didn't have furniture so we had to

get furniture on time and TV on time and all that stuff.

And after about two years I got pregnant, and it seems like
that this, this pattern, it carried through until we just got
more than we could handle. We need something, we'd just go get
it on time. Heavens, this has been . . . well we've been
married thirteen years and we're just now starting to get our
head above water. It's, I don't know, I think when peOple

get married they should have, ah, more of an idea of how their
money is going to be spent and what it's going to take. You
don't pay any attention because you're so young and immature
it doesn't really matter.

explanation of a once-prosperous debtor is not much different:

Well mostly there was the pressure to buy things. It was
there unconsciously, you know, to fill my needs and her [his
ex-wife's] needs. I guess probably some of it was needing
things when we were first married. Plus we were both working.
Together we were making over $25,000 so we had plenty of
money. It was no one big thing, you see, just that things
kept building up. We bought a home in the country that we
totally remodeled and, well my wife couldn't wait to gradually

318

do things and I just kept buying things and putting them on
charge, you know, to bring the house up to the way she wanted
it. When we separated I ended up with the bills.

From the scenario that emerges in the protocols of these
interviews we can draw some tentative conclusions about the way the
consumer debtor views himself during this first stage of his
indebtedness career. As a social actor in this phase, he is con-
ducting himself as a "normal" credit-using consumer. He is opti-
mistic about his future earning prospects and confident of his
ability to honor his debt obligations. By giving him extended
payment terms his creditors are demonstrating his credit-worthiness
and thus enhancing his self-esteem; with credit available to him,
he is cast in the role of buyer and customer and the positive regard
of merchants and lenders with whom he does business makes him a
man of importance. The acquisition of goods which elevate his
lifestyle and Show evidence of success gives him a sense of achieve-
ment. As Chinoy has pointed out, peOple, especially those who
have unrewarding jobs offering little hope of advancement, typically
look upon buying a new car or conveniences for the home as "getting

ahead."4

The drifting which leads to debt may be overlooked, as

many of the interviewees have suggested, because the debtor is

anxious to receive recognition and the approval of significant others;
he can do this by accumulating possessions and showing that he can
provide his family with "the good things of life." The desire to
"keep up with the Joneses,“ which is so frequently mentioned, sug-

gests this to be an important facet in the "normal" consumer

debtor's self-concept. Buying consumer goods as a means of meeting

319

the need to measure up to others' expectations and to confirm one's
view of himself as a worthy and successful person is virtually an
intrinsic part of the American scene. A great many, perhaps most,
Americans are moved to consumer buying for these reasons and commonly
much of such buying is done on credit. It is safe to say that even
though some consumer debtors eventually come to grief in this way,
their feelings about themselves at the time were generally positive;
this assumption finds support in the debtors' descriptions of their
Situation, the way they viewed their consumer activities at the
outset of the problem. Their decisions to make long-range commit-
ments to creditors attest to their belief in their own ability to
perform on them.

As their career of interaction with creditors progresses
and the extent of their debt commitment starts to become apparent
to them, this positive self-image would be expected to change. Our
examination of debtors' feelings about themselves after the serious-
ness of the situation has been recognized will reveal the contrast
between self-concepts of credit-using consumers and those who know
themselves to be defaulters.
Turning Point: Defining
Indebtedness as a ProbTem

So insidious is the problem of over-indebtedness that,
although it may have been months or years in the making, the debtor
is likely to be taken by surprise--as much so when it is his own
discovery as when it emerges as part of another crisis event. As

we have just seen, when the debtor starts out it is as a consumer

320

using credit for the purpose of obtaining goods that he is unwilling
to wait and save up for. While some may tend to be irresponsible
about financial management or make purchasing decisions they later
regard as foolish, only a few people set out with a deliberate
intention of avoiding repayment. Debtors generally expect to repay,
and those on the course leading to default continue to hold to the
belief that the debt is their obligation and that it will be
honored, although perhaps belatedly.

The shift from credit-user to troubled debtor is usually so
gradual that the line of transition may be imperceptible to the
person involved at the time. He begins with an acceptable credit
rating and a positive outlook on the future which invite him to
make promises in the sincere expectation of fulfilling them.
Somewhere along the line his circumstances begin to change, but
the debtor may be in dire trouble before the whole picture is
brought into awareness. Many times it is only by hindsight that
troubled debtors can identify the point where a change occurred in
the course of events; even in retrOSpect some do not see their
financial condition as one which had been deteriorating over a
long period of time. In several of the interviews, for example,
the calamity which aggravated and thus called the debtor's atten-
tion to the dreadful state of his financial picture is given full
blame for the problem. "I would have kept up with my payments,"
they say, pointing to a job loss or illness, "if only that had not

happened."

321

Since transformations of the debtor's immediate world occur
as a gradual process, it is his perception of changes in his career
that is important. In constructing his actions as consumer debtor
and defaulter, he takes account of differences across at least
three discernible phases of the indebtedness experience, but
passing from one stage to the next is largely a matter of his own
definition. Our purpose in attempting to establish the existence
and nature of Specific turning points is to Show that changes in
the debtor's situation, to which he responds with a different form
of thinking and conduct, are essentially of his own making. He
addresses the world in a new way only when pg_has come to see it
as a new or different world. Put another way, the debtor alters
his view of himself and his mode of conduct toward his social envi-
ronment when he sees his circumstances as changed, when he redefines
the situation.

We have somewhat arbitrarily identified as the first phase
of the indebtedness experience that set of circumstances wherein
the individual operates as a "normal" credit user and we have indi-
cated that in the second phase, as a defaulter, the individual's
actions and feelings are expected to be quite different. To dis-
cover whether peOple do indeed think and act differently as
defaulters than they do as consumer debtors is our major goal. If
this is so, we also want to know what the individual perceives that
brings him to define this as a new situation, one that calls up
new patterns of conduct and a different set of attitudes. Drawing

on debtors' accounts of their personal experience in debt

322

situations, we have made the assumption that such changes occur
after the debtor has come to regard his indebtedness as a problem
for him. It seems plausible that although he may have been over-
burdened with debt for some time with realizing what consequences
lay ahead, there must be a time that the debtor can look back upon
and identify as the point at which he became aware that he was in
trouble. It is likely that such a "moment of truth" would take
place either as an event in itself for the debtor or concurrent
with another crisis affecting his financial affairs, and on this,
assumption the question was put to the debtors interviewed: What
was it that first led you to believe that you had too much debt?
Did something happen that made you think of your indebtedness as a
problem?5
The reSponses tended to fall into three main categories in

tenns of the circumstances or event debtors identified as the point
of change in their experience. There was some overlap since sev-
eral mentioned more than one thing that made them see their debt
condition as a problem, but half of the 42 persons clearly made the
discovery on their own. Here is how two of them described it:

Yeah, there was a turning point because, ah, well we were

just simply overwhelmed with the amount of the bills stacked

in the drawer every month and I just looked at it and, ah .. .

I had to make--to total, and it was getting worse. But then

all of a sudden it was just really bad. I mean I just--I

realized I was really in trouble. Like I say, I had, ah,

$400 a month coming in and like $700 to pay out a month.
In a similar case:

I guess the realization struck me--oh, it wasn't a sudden

thing like a lightening bolt. I could, you know--well for
years I've said, "Now this has got to stop." But, but about

323

three years ago for the first time in all these many years a
month came when I saw there was no way I could make my pay-
ments.

A few of the debtors said that they anticipated their prob-
lem and began to see themselves as headed for trouble before it
became extremely serious; in one such case the debtor came upon
his debt-income imbalance when taking stock of his financial condi-
tion as he laid plans to attend college. Approximately one debtor
in five indicated that he did not realize a problem existed until
he began to receive calls and notices frOm creditors. In most of
these cases, however, the interviewees disclosed a vague worry or
said they had some idea that things were building up; it is hard to
believe that any were totally heedless of their over-extended state
before it was made apparent by collectors.

About 40% of the debtors identified the turning point in
terms of some calamity that brought a loss of earnings or added
debt to upset the family's financial plans. In the descriptions
given by many of these debtors it is difficult to determine whether
the crisis event brought about over-indebtedness or merely signalled
an already develOping problem. Some did not confuse the meaning of
the event: one woman told me that herhusband had undergone a
colostomy and was unable to work for several months. "This messed
us up with all our little bills," she said, and went on to explain
that when the medical problem occurred they couldn't keep up the
instalments on home appliances purchased Shortly before and had

tried to "turn them back in" to forestall the debt crisis when her

husband was hospitalized.

324

Another debtor, who acknowledged that some indebtedness
had been incurred prior to the crisis event marking his change of
situation, did not attribute his debt problem to the event even
though it might well have been given the blame:

Yes, we're like most people, you know--needed a lot of things
when we started out. But we had a lot of medical, too. My
wife had brain surgery.
Asked whether he regarded the costs of her illness as the reason
for his problem with debt, he replied:
Well, we. . . . You know, we had the usual--furniture and
stuff on time. But she had a $28,000 doctor bill. We had
insurance but they only covered $500 toward the surgery
itself.

As these comments suggest, it is impossible to judge the
extent to which such events exacerbate the debtor's problem; with
crises that have economic consequences, much depends on its serious-
ness and on the individual's financial condition when it occurs.
Undoubtedly many of these debtors had made themselves vulnerable
by acquiring too great a debt load for their income and as a
result they could not prevent the misfortune that befell them from
triggering a debacle, but some did not interpret their experience
in this way. A common form of response was to report the turning
point event, not as a signal of debt trouble, but as its cause.
Perhaps some defaulters simply did not perceive the crisis event
as separate from the financial erosion already in progress. Others
may have found it difficult to admit that they had contributed to

a vulnerable debt condition through unnecessary buying and poor

money management and were protecting their self-image by attributing

325

the problem, upon its discovery, to events beyond their control.
This question of blame, whether the debtors hold themselves or
others to blame for their trouble, will be explored in more depth
in a later portion of this chapter.

It sum, it was found that every one of the persons we
interviewed could look back upon his experience and discern a par-
ticular time or identify a certain incident to mark the point at
which his situation took on new meaning for him. This seems to
show that the debtor perceives fairly distinct periods or phases
in his indebtedness wherein new roles are set before him which may
prompt him to address his world and himself in a different way.
From what the interviewees have said we understand that after this
first turning point he no longer considers himself just another
consumer who, like so many others, has some bills to be taken care
of at regular intervals; he now regards the need to meet these
obligations as a painful burden. Being in debt is now a problem--
one that rapidly grows more pressing and begins to encroach upon
other areas of his life. Soon much of the debtor's activity comes
to be centered on efforts to cope with the debt problem and deal
with the troubled relationships to which it has led. This is the
experience of the debtor as he enters the second phase of
indebtedness.

Phase 2: Meeting the
World as a Default Debtor
The period following the realization that he faces a finan-

cial crisis is a most difficult one for the debtor. It appeared

326

from the interviews that this phase could best be examined by
pursuing three related avenues: (1) presentation of a general
picture of the debtor's experience during this time, including a
description of debt enforcers' activities as they appear to persons
at whom collection efforts are directed, how the pressure of
indebtedness touches other aspects of the debtor's life, and what
he does to c0pe with the problem; (2) how debtors respond to
debt enforcers--what are their actions upon receiving dunning
notices and calls from creditors, what are the attitudes they hold
toward credit granters who have used harsh enforcement procedures
with them; (3) the issue of the debtor's self-image--we are con-
cerned with how the individual feels about himself in relation to
the problem he faces as well as with his self-concept in terms of
the treatment he has received from agents of debt enforcement.
Whatever the route by which the consumer debtor came to his
present state, he now finds himself in a predicament where demands
for payment are becoming more urgent and the resources necessary
to meet them cannot be mustered. To learn something of what it
is to be in this position, we asked our interviewees to tell us
what kinds of events took place when their past-due obligations
began to pile up, and what were the actions of their creditors when
payment was not made. When a specific incident such as a call
from a collector was mentioned, the subject was asked to describe
it in detail. (This line of questioning frequently led to descrip-
tions of their own actions and feelings in response to collectors,

particularly in exchanges with those who used a harsh or tough

327

approach; we will take up the matter of debtors' responses in the
next section.) The interviewees outlined their view of the experi-
ence of indebtedness largely in terms of specific difficulties it
had brought them and the steps they had taken in trying to deal
with them. Many told of episodes of interaction with creditors but
the general tension and pressure created by collection activities
seemed to characterize the experience for most of them. Although
all had some kind of troublesome aspect to report, there was quite
a variety in the views these debtors had of their situation. The
differences in the kinds of events described and the way they were
seen by the debtors are largely a reflection of the differences in
their indebtedness histories; some, for example, had been in debt
before or over a long period of time while for others it was a new
and shattering experience. Moreover, debtors who perceived them-
selves as "in financial trouble" early on, or in a less serious
state of indebtedness, were not exposed to the severe collection
measures brought against those with large debt loads or long overdue
obligations. Thus there is no "typical" incident involving col-
lectors that can be reported; however, we do gain much insight on
how enforcement appears to those on the receiving end of debt
sanctioning from descriptions of interviewees, as in these
examples:
This one man he scared me--he just got me real upset because
he called me, this man from the credit place, and he says,
"Well, ah, we don't take partial payments." He says, “We've
got to have it all at once." He said that I should call the
finance company where we already have a loan and see if we

could get the money to pay it all off. I tried to get it
and . . . well, then I didn't know, but it was behind in the

328

payment so they wouldn't let us borrow any more at Pacific.
That man, he made me feel upset, you know, thinking that he
wanted the whole $395 all at once, and then he said that if
we didn't pay it he was going to take it to court by the
next Wednesday and then if we didn't have it--well, he said
he was going to garnishee my husband's wages. My husband's
boss won't put up with that, so when that happened I was
pretty scared. I was just so upset, well I just--I told my
husband about it the minute he got in the door.

Another debtor described her experience this way:

This guy kept bugging me. He told me that he was going to
call me every day until it was paid. I tried to tell him I
didn't owe it. See, I had put in several [classified] ads
at the same time and I thought they had all been paid for.
Well, when I questioned it, boy that was when he really
started pouring it on. I told him there was a mistake and
he said, "Listen lady, we're going to see you in court." He
was a real bastard. Well he finally checked with the paper
and, true, it wasn't paid, but it was their error because
this one ad wasn't on my bill. But he wasn't giving me any
benefit Of the doubt. They just don't believe you.

A subject who received calls from collectors quite frequently was

asked to describe what happened in a typical call. She gave this

account:
Well these creeps they say, "Hello,” and they use your first
name, like, "Is Mel there?" When they got you on the phone--
well this one guy, he called me a thief. He said I was
taking other people's money. He told me I wasn't a decent
person or I'd pay my bills, and how would I like my neigh-
bors to know, what would they think. He'd call again and
again and--I mean, too much. I tell you they can be really
nasty. And they'll ride you and ride you.

Many more debtors responded by describing the general con-
dition of receiving pressuring messages than told of specific inci-
dents with collectors. It is evident from what they said that
this period is made traumatic for them by the overall experience

of receiving many collection calls more than by the individual acts

329

of collectors. Here is how one debtor described the mounting
tension:
Oh God, they calls ya'--they calls your supervisor, you know,
and allows as how you're irresponsible-~all kinds of things.
There's no place . . . you can't sit home, you can't go to
work, you can't visit relatives that you don't have any of
this kind of hassle. One called and threatened my mother.
Said if they didn't get in contact with me they'd be out, you
know . . . it sure upset her. And one pretended they were
with the sheriff's department and said they were going to
arrest me. It gets so, well you get to where you find there's
no place you have peace, you can't get away from the hassle.
The pressure of debt--frustration and worry over not being
able to meet payments and the discomfort of having to cut back on
family living expenses, coupled with the tension generated by
collectors, is not without its effect on the emotional life of
the debtor. Most of the interviews contain some mention of personal
or family troubles occurring in conjunction with the debt problem.
"There was an awful emotional crisis here with the family," one
man said, and at least a half dozen others commented that they had
had difficulties with the children--"taking it out on the kids" or
reacting to "pressure from the kids." Personal emotional problems
were not uncommon: "nerves" or treatment at a mental health clinic,
the possibility of suicide, and alcoholism came up in Six other
interviews. Marital trouble was the most frequently mentioned
problem; in almost a third of the cases there appeared remarks

such as, "the debt problem messed up our marriage, or some refer-
ence to divorce or separation. It cannot be claimed that the
indebtedness preceded these kinds of difficulties or could be

regarded as "causal" in each case, but they undoubtedly contributed

330

to the strain on the debtor and added to his difficulty of COping
with the debt problem.6

Ways in which troubled debtors go about COping with the
problem vary widely, as does the length of the "COping period"
between discovery of excessive debt and the decision to seek help.
A few subjects said that they had turned to the counseling agency
immediately, when their troubles first became apparent or as soon
as they "saw it coming," but there were also some at the other
extreme who delayed in seeking help and tried for a long time to
solve the problem by other means. Those who tried alternative
solutions, without complete success, reported an array of approaches
to the problem. These can be grouped into four general categories
with approximately the same number of interviewees having tried
each method of handling their trouble. Manipulating the financial
situation itself was one approach: at least a fourth of the debtors
talked about how they had "robbed Peter to pay Paul" as they tried
to get a handle on their affairs; many tried to reduce the debt by
cutting back on spending and by selling goods to pay off debt or
attempting to return merchandise bought on contract; several des-
cribed this as a period in which they simply struggled with the
situation and "tried to figure it out." If there was a most popular
approach, it was looking for ways to resolve the difficulty by
adding to income; more than a fifth of the subjects had refinanced
a credit purchase or taken out consolidation loans, but not a few
of them said that they had made matters worse when they "kept

borrowing and borrowing" to stay abreast of their bills. Others

331

found additional sources of income in a variety of ways: some said
their wives went to work, welfare aid or help from parents was
accepted, they got a second job or tried to "work harder to make
more money." A number had been temporarily "bailed out” with money
from tax refunds, vacation paychecks, a good month's commissions,
or bonuses. A third set of alternatives includes attempts to
evade creditors and those which could be thought of as "uncon-
structive measures." Evasion ranged from "holding off” the creditor
by making promises to send payment which the debtor knew he could
not keep, to having telephone numbers changed and made unlisted
(reported in two cases), to actually leaving the area for the spe-
cific purpose of evading collectors. Two persons interviewed said
that they had strongly considered doing this, and a young single
man told of actually having been a “skip" who left the state and
hid out for a time:
I, ah, see . . . well I went to Florida and I just stayed
away from my bills for a few years and, ah . . . but I got
homesick so I came back.
Asked if he went to see his creditors when he returned or waited
until they found him, he replied:
Well, ah, I'm pretty hard to find when I want to be--
(laughing). I could've . . . well I suppose it was only a
matter of time anyway.
Another version of this approach was dealing with creditors in
ways which were manipulative if not exactly evasive; some mentioned
tactics such as sending small payments to hold off creditors (often

to keep phone service from being cut off). Another form was bluff-

ing the creditor, as this debtor describes:

332

I, ah,--(laughing)--well this is . . . actually it's kind of
funny because I had a $2,500 loan, a note, from ' Bank and
Trust and . . . . Well there was no way, but (laugh)--I had
it on a 90 day basis and it was, well I guess it was on the 30th
and the guy said, "Gee, Mr. W., we sure would appreciate your
paying, you know, this off or, you know, paying some of this
off." And I said, "You want me to write you a check for the
whole amount right now?" I just challenged the guy. And then
(laugh), he said, "Oh no, no, that's all right," he says. And
I said, "Would a couple of hundred dollars, you know, be good?"
And he said, "Oh sure, yeah.” Now if he had called my bluff--
well I would've been. . . .
Several debtors indicated that they had made no attempt to deal with
the problem constructively, but had simply hOped for a windfall or
expected a favorable outcome to a pending or uncertain future event.
For some a stroke of good fortune did occur, such as payment of
accident claims covering more than costs of that event, but most
waited in vain to win the lottery or make unprecedented sales com-
missions. A fourth mode of c0ping was to take constructive steps,
e.g., asking advice of friends, credit union officials, and the like--
which often led to the first visit at a counseling agency, or trying
to work something out with the creditor. Nearly a quarter of the
subjects said that they had talked with the creditor or proposed
some sort of settlement plan to them, but in more than half of
these cases they met with little success. This appears to be a
major reason for seeking the help of counselors--Offers of partial
payments are more likely to be rejected when made by debtors them-
selves than when made on their behalf by counselors. Debtors'
inability to work things out successfully with creditors is tied
in with the important aspects of this phase of the debtor's

experience having to do with his actions, attitudes, and feelings

333

in response to debt enforcement. It is in this context that we
begin to look at the debtor as labelee, how he acts and feels
toward those by whom he has been identified as deviant, and we take
this up in the next section.

The Debtor's Response to
Deviance Labeling

 

 

We have been exploring the problem of over-indebtedness as
it appears to the persons involved in it; we are about to narrow
this focus to concentrate on how people fggl_when they have become
the defaulters at whom creditors and collectors direct persuasion
and coercive measures to induce repayment of debt. The issue we
are now presenting is prOperly addressed in terms of labeling
theory: following the lead provided in the work of Paul Rock, we
have examined the workings of the collection process, presenting
the argument that debt enforcement is a form of social control and
showing how the "deviance" of indebtedness originates with the
enforcers who generate definitions and sanction those whom they
have defined as "wrong doers." That is, we have answered the
question, Who applies the label of deviant to whom? We have shown
how the deviant label is applied to the debt-burdened individual by
his creditors and their agents through the mechanism of debt col-
lection. What we now want to know is, What consequences does the
application of a label have for the person so labeled?7

Although we are to be treating debt default conceptually as
deviance, it is regarded as a form of deviance which, while it may

affect other areas and relationships, does not form the basic pattern

334

of the individual's life. The person may be deviant as a debtor
only intermittently or on a single occasion and, even as a defaulter,
he is ordinarily a conforming member of society in other respects.
Deviant behavior which does not constitute a style of life or the
basic identity of the individual has been called "Situational
deviance," wherein the person finds himself in a situation which
leads him to become labeled as deviant but only on a limited or
temporary basis.8

To learn what effects the imputation of deviance by enforcers
has on the debtor we asked the interviewees to describe what they
gig when collectors called or reminders arrived in the mail. Many
complied and then went on voluntarily to tell about the feelings and
emotions they had in connection with such incidents; the others
were asked how they felt when an event of this kind occurred.9
The subjective orientations these debtors described tend to fall
into two analytical groupings: first we have statements concerning
debtors' attitudes toward creditors and collectors; their descrip-
tions of their subjective feelings, together with debtors' accounts
of their own overt actions in confrontations with collectors, serve
as indications of "labelee responses," i.e., debtors' responses to
labeling by debt enforcers. Second, we have statements containing
debtors' descriptions of feelings about themselves, in terms of
having become over-indebted and, more importantly, in terms of his
self-concept as a defaulter.

We look first at the actions of debtors in response to debt

enforcement. Recounting incidents they had had with creditors and

335

collectors, the actions most of them described could be generally
characterized as hostile or evasive: many debtors said they hung
up on the caller; some reSponded verbally with threats (filing
bankruptcy) or challenging remarks--"They talked about coming

after the furniture and I told them to come ahead and get it."
Others ignored or threw away reminder notices or refused to answer
the phone. A much smaller number said they had "burst into tears"
and a few had spoken calmly to collectors ("stayed cool" or "levelled
with them"). Looking at only the actions of most debtors, we might
conclude that coercive sanctioning by enforcers had antagonized

and alienated them and perhaps led them to view themselves as
deviant. We are given quite a different picture, however, by the
debtors' reports of their emotions and feelings in encounters with
collectors. Speaking of their reactions to calls” teninterviewees
said flatly that they were angry, mad, or annoyed; more than twice
as many described themselves as "frightened," "worried," "upset,"
or "panicky," or said that they were humiliated, embarrassed, or
frustrated (because they were unable to pay and could not explain
their situation to the caller). Most of those who said they had
hung up on collectors' calls indicated that they had done so more
out of frustration than anger. Several of the debtors said that
they had "told off" the collector, describing their own behavior as
"hostile" or ”belligerent," but even in some of these cases the
debtor gave other indications that his overt actions may not have
reflected his feelings. These excerpts from one interview reveal

the conplexity of the debtor's response pattern:

336

They just don't understand. . . . They harrassed the hell out
of me. It was the cruelest, most heartless thing that ever
happened to me--I finally told them just to--to get fucked.

I tried to send a dollar or two, you know, but they'd call
and say they wouldn't accept that. It gave me a bad atti-
tude because, well I said, "Fine, I won't send you a damn
penny then."

They called and threatened me with, well with everything from
being taken to court to being put in jail. I told them, "Ah,
come on, you put me in jail, that's fine. I'm Sick of fight-
ing you people and I'd just soon hide awhile." I sat down
one day, though--I got three calls in one morning. My mother
came over, that was just a coincidence, but there I was, sit-
ting on the kitchen floor just sobbing. I just couldn't cope
with it anymore. You talk, you try to reason with them and
they act like you're a retard or something.

It was just so terribly overwhelming. You know, you get so
embarrassed and you're, you know, trying--but they don't seem
to comprehend that. You're defeated so often it seems like
you can't, well after while you think why should I try? You
know you're labeled as bad and you almost get so you believe
it yourself. Like they say, anybody that would do a thing
like this. . . . You get so you so begin to feel that you're
just worthless, that nothing you do could turn out right. I
guess, well you never get to the point where it doesn't
bother you but-~well, after while when they called me I called
them everything I could think of. That doesn't solve the
problem but it helps me, it makes me feel better.

Although this woman expressed her feelings more eloquently
than most, the subjects generally made it clear that the psychologi-
cal pressuring of debt enforcers does have an impact on them. In
this phase, when the debtor's main concern is finding ways to
resolve the problem he faces, collection activity reaches it peak.
Creditors have moved from "nudges and appeals" to more severe
methods and, to the debtor, it seems as if demands and threats are
coming at him from all sides. 'Hua overall effect is that of being
"rattled" or hurried because, although unsystematic measures for

cOping with the immediacy of the problem (additional borrowing,

337

"robbing Peter to pay Paul”) have been of no avail in solving it,
he still thinks that everything could be straightened out if he had
a little more time. The debtor is frustrated and anxious over his
lack of success in getting his financial situation under control
and his inability to convince creditors that he has an explanation
for his failure to pay, that he wants to clear his debts and that
he is trying. He feels increasingly helpless when he cannot relate
successfully to his creditorS--"they won't listen," "they don't
believe anything you say," "they acted like what I told them was
just another excuse." As the debtor is finding it increasingly
difficult to deal with the problem and as collection pressure is
intensified, the effect of the enforcers' messages is magnified:
"they get you down” or "they really get to you” was the way many
subjects put it.

The debtor is plainly aware of the way he is defined by the
sanctioning enforcer. While only one subject stated this explicitly
("you know you're labeled as bad"), many others conveyed the same
idea: "they make you feel like a criminal," "they act like you're
some kind of retarded person," "he treated me like I was a thief."
Clearly the labeling attempt does not go unnoticed, but what effect
does it have on the debtor's feelings about himself? The debtor's
attitude toward himself in the role of defaulter represents a
change from his self-image as a consumer debtor in the previous
phase. Where their remarks about events prior to the turning point
had reflected a generally positive self-attitude, debtors Spoke

of their Situation and themselves in more negative terms in

338

describing their experience as defaulters coping with a debt prob-
lem and experiencing the coercion of enforcement. On the whole,
the debtors' feelings emerged as depression, discouragement, and
unhappiness (worry, tension) more than as guilt or remorse, and
aggressive feelings (e.g., retaliating by refusal to pay) were
little in evidence. Although the subjects' remarks indicated that
they no longer had their former self-confidence and belief in their
own ability to succeed, these data do not Show that the debtor, as
defaulter, has a strongly negative or deviant perception of himself.
That is to say, the debtor is definitely uncomfortable in the situa-
tion in which he finds himself and it is the situation and his lack
of success in changing it that he deplores and finds depressing;
he is saddened and embarrassed by the messages of debt enforcers,
but he seems not to accept their imputations of deviance or apply
the label to himself. Debtors perceive enforcers as ”trying to
make you look bad," "putting you down," ”treating you like you're
worthless," but they resist the labeling attempt; few debtors gave
evidence of self-recrimination or guilt feelings and, although some
feel that being in debt is "degrading," few if any had come to
conceive of themselves as the bad person or wrong-doer defined by
collectors' labels. For the most part, these debtors find in
themselves the resources to reject imputations of deviance—-they
are not passive recipients in the labeling process. This debtor
tells how he worked at retaining his self-esteem:

I was depressed and, well, actually frightened. But I try

not to let it get me down. I mean, well at first I felt like
I was really lower than anybody but then I started getting my

339

head together and I realized that I'm just as good as that
bill collector sitting behind that desk, you know? Of course,
I'm still working at it, but now I realize that. . . . Well
I look at them as just regular people.
It's like when I went on food stamps. I grew up believing
that I am the man of the house and I'm supposed to provide
so it's a reflection on me personally--like telling everyone
that I'm not man enough to support my family. But, well I
kept telling myself--look at these people that are out of
work and they've got no chance of a job. Now at least I've
got, you know, something--I mean a job and I'm hOpeful it's
going to work into something. So I've got--well I've got a
chance. I keep telling myself, you know, next week. . . .
This phase of indebtedness is a bitter experience for the
debtor; it is a situation that frightens and depresses him, but he
is not completely cowed by the intimidating tactics of collectors
and he is not made to think of himself as an "outsider" who has
wronged society. In the debtor's view of things, he has come to a
situation that he has defined as a problem, but one he had believed
he could remedy. His efforts to straighten out the difficulty
have proven to be disappointing, in large part because he is unable
to present his case to creditors or convince collectors that with
more time he can clear his debt. At the same time he is having
little success in getting a handle on his financial Situation; the
spending habits that contributed to the original problem do not
easily yield to change, or the loss of income that led to debt
stands in the way of solution. COping with the problem becomes
increasingly difficult within the tense situation created by col-
lection pressure and concomitant personal or family problems. The

characterizing feature of the second phase of the debtor's experi-

ence is not his acceptance of deviancy, but his frustration; he

340

had expected to be able to recover from his debt ills by his own
efforts but there are too many factors that he cannot control. As
this phase nears its end he begins to realize that the problem is
not yielding to his efforts and he is frustrated and made more

anxious by his inability to c0pe with it.

Resolvingpthe Dilemma
A definite turning point in the indebtedness experience is
marked when the debtor comes to define his debt situation as a
problem; a second juncture can be identified by the state of affairs
that exists when the debtor perceives the problem as one which must
be addressed in terms of definite actions aimed at its solution,
when he realizes that simply coping with it and hOping things will
improve is not a remedy for the problem. As with the first turning
point, we look for an event or the conditions that mark the change
in the debtor's view of his situation. What is it that precipi—
tates the need to seek alternative solutions and choose among them?
Recalling the discussion in Chapter 3 (Default Debtor
Alternatives), we argued that there are really only two practical
alternatives available to the debtor in trouble--he can exit the
enforcement career by filing bankruptcy or he can take the role of
"help-seeker" and enlist the aid of an organization which will give
him the guidance and protection he needs to continue his efforts
to s;traighten out his financial difficulties. We pointed out that
what: it comes down to is a dilemma-~the debtor must choose to pay

or riotLto pay--and, while there are several organizations to aid him

341

in the help-seeking role, the one he is most likely to discover is
the credit counseling agency. We showed that there is considerable
structural influence on the debtor's decision-making process: the
credit community supports the counseling agency concept and encour-
ages debtors to seek their assistance because this choice results
in a paying outcome; it emphasizes the stigma of bankruptcy to
discourage debtors from taking recourse to legal release from his
Obligations. This was the state of affairs with the debtors we
interviewed. They had resolved the dilemma by opting for the help-
seeking role and accepting the aid of a counseling agency and they
had rejected the bankruptcy alternative. Hence, what we are looking
for here is, first, what is the event or condition that brings the
debtor to perceive the need to take action toward solving the prob-
lem and, second, why did these debtors reject the bankruptcy alter-
native in favor of paying with the help of credit counselors.

Since contact with the interviewees had been made through
their credit counselors, it was not difficult to question them
about their reasons for deciding to act, to seek help, and then to
ask them whether bankruptcy had been considered as an alternative
and why that had not been their choice. The subjects had no trouble
recognizing that there had been a point where the need to take
action became apparent but few identified a specific event to mark
it. In almost every case the debtors simply came to the place
wheice the situation was defined as beyond their ability to handle.

ThQ‘il" responses concerning the nature of the circumstances at that

point: fell almost equally into three categories: one set of

342

subjects said that for them it was time overall situation, the
combined problems that they faced. Debt and collection pressures
together with other, related, personal or family troubles-~sickness,
unemployment, alcoholism, marital trouble--cu1minated in an over-
whelming problem. The "last straw" seemed to be whatever occurred
most recently, Often just a distressing collection call. Another
third of the subjects specifically identified the need for protec-
tion or relief from collection pressures or legal actions as the
main reason for seeking help. This is consistent with other studies
which show that harassment and fear of job loss because of garnish-
ment is often the immediate cause of bankruptcy and, since counsel-
ing is presented as a bankruptcy-prevention alternative, debtors
often look to these agencies for protection. A third group of
subjects attributed their decision to the debt problem itself,
apart from the threat of legal remedies used by creditors. In

some cases the debtor perceived his financial condition as sud-
denly worsening; some had c0ped with the problem ineffectively and
felt they could not continue, and a few had resorted to help-
seeking almost immediately after defining their debt condition as
serious. It is probable that the latter, by anticipating trouble
and acting quickly, precluded the development of a problem suffi-
ciently grave to consider bankruptcy but this was not the situation
witiilnost of the interviewees-~very few peOple said that their debt

had never become so bad as to warrant bankruptcy.

343

At this point in the indebtedness experience the debtor is
desperate for a way to ease his tense situation and release him from
his impossible problem:

I thought we could get out of it by doing this and doing that
but it didn't work that way. Eventually we had to go with
Debt Management--it was just that. . . . We had just got so
far gone. I guess you realize it when you see that you're
paying out so much and it isn't doing any good--I guess that's
the turning point. And then the people calling, that too,

it can be pretty bad, you know--people wanting your payments
and all this stuff and it just comes to the point where you
decide it's time to do something about it. It just builds

up until something's got to give. Like I say, we knew we
had to go see John [their counselor] before something drastic

happened.
Under these circumstances, bankruptcy, despite its attached stigma,
is a very real possibility. Even among the debtors we interviewed,
and they were at least reasonable candidates for rehabilitation,
three out of five said that bankruptcy had been considered and then
rejected in favor of counseling and a few others said they thought
it might still be a possibility for them; only ten interviewees
said they had never regarded bankruptcy as a possible solution.
Their explanations for rejecting or not considering bank-
ruptcy as the way out divided the debtors into two almost equal
groups, those who gave practical reasons and those who decided
against bankruptcy on the basis of their personal feelings about it.
Fear of losing credit privileges in the future was the most common
explanation, given by a fourth of all the interviewees. Other
Pracrtical reasons had to do with the debtor's financial condition:
a fEHN could not raise the money needed to file a petition; others

felt: they had too much to lose in assets or not enough of their

344

debt was dischargeable. None of the debtors lacked information

1 . .
0 Ten of these 1nterv1ewees, who became counsel-

about bankruptcy.
ing clients instead of bankrupts, said that they had been advised
against that choice by a banker, credit union official, agency
counselor, or, in one case, a lawyer.11
The most commonly expressed personal objection to bank-
ruptcy centered on the debtor's feeling of moral obligation:
"bankruptcy is not the right thing," "we made the debt and it is
. up to us to pay it." A few looked upon bankruptcy as cheating or
dishonest; some saw it as damaging to their self-image--"we are
too proud for that"--or as admission of failure (failure as earner
or money manager). A number of debtors gave reasons that seem to
reflect the social norm calling for self-reliance: "I got myself
in and I should get myself out," "that would be admitting defeat"
(failure to solve the debt problem by himself), "bankruptcy would
be taking the easy way out," "I had to do it for myself." The fact
that these debtors were willing nevertheless to accept the help of
counselors, suggests that the effective normative deterrent may have
been the common view of bankruptcy as a dishonorable solution to
over-indebtedness.
Although six of our interviewees were unequivocal about
having based their choice of alternatives on a moral obligation
(to pay) and a belief that bankruptcy (not paying) is wrong, com-
parative analyses of debtors' reasons for their decisions are not

possible with these data. We can, however, make some limited

generalizations on the basis of the subjects' explanations as to

345

why they opted for counseling instead of bankruptcy. Both practi-

cal concerns and social expectations enter into the decision but

there is also a strong possibility that counselees who have given

thought to bankruptcy form their views of what is the best practical

outcome and what is socially acceptable on the basis of what they

are told by those from whom they seek advice. The following seg-

ment from one interview shows how the debtor is moved to the final

decision by both practical and normative concerns; we also see the

influence of the counselor reflected in the debtor's views as they

come to light in this series of questions and answers.

0:

At the time you were getting those calls, did you consider the
various things you could do? Going for help, of course, but
did you also consider bankruptcy?

I went to see about bankruptcy but you need $400 to declare
it. I asked Legal Aid and also a private lawyer. He said
the better thing was to get some help and go that route
because it would cost me $400 cash.

They seemed to discourage you from filing bankruptcy?

Yes, definitely. They made a big point to tell me that my
credit would be bad, that I'd never get credit again. That

it would be better to find someone that would help me pay

my bills--that's exactly what he said, but he didn't say Credit
Counselors Specifically. It was kind of odd, you know,

because they told me that bankruptcy wasn't a very good route
to go--they'd do it but I had to have $400 cash. And I

thought Jeese!-- I can't even pay my bills, where do I get
$400? You feel like, my God, I can't even declare bankruptcy!

Well how about CCC, has it ever come up for discussion there?
Are you able to tell what they think about bankruptcy?

They definitely don't want you to declare bankruptcy. They
don't say it right out but. . . . Well, I told them I had
asked about it and that I had said, "Hell I can't even declare
bankruptcy." They were very kind and they said, "No, no,
don't think of the bankruptcy route. Now we're going to help
you and everything's going to be alright and if you declare
bankruptcy everything is shot, you know." The whole thing

346

is that your credit would be done, they don't say it costs a
lot. It's only what you'd have to suffer because of it.

They said that people go into bankruptcy blind. "Well this
is great. . . . It nullifies every debt." Except that you
can say, "Well I feel an obligation on this debt so I'll just
pay this," and like that. You can declare on just some bills
if you want to--I didn't know that. They said at CCC that
peOple really think this is the answer and they declare bank-
ruptcy, but then they go try to buy a car or a TV and they
can't buy it.

Do you think their credit would have been hurt otherwise? I
mean would yours, for instance, be OK at this point?

My credit? My credit is no good. I couldn't buy a donut.
It's definitely shot.

Well that's what I wondered, if the experience you did have
hurt your credit, then what did you have to lose with discharg-
ing your debts in bankruptcy so you could start over? ESpe-
cially in your case, when you had all those medical bills.

I don't know, I never considered past the point that . . .
well, the financial aspect of it. I just couldn't do it. I
do feel an obligation, I owe this money, you know. I owe it
and I'll pay it somehow. It may take me the rest of my life
but before I die I'll pay it.

You feel it is a moral obligation. . . . Would you think of
bankruptcy as kind of a wrong thing to do then?

Yes. You know, everybody I've seen that declared it thought
it was cute--they'd brag about it, and I used to think, my
gosh if they had enough money to declare bankruptcy, why the
hell didn't they just pay $100 to this person and that would
get him off their back, and $100 to that person to bring them
up to date. . . . Besides, an individual doing it is not as
acceptable in society's eyes for some reason, you know?

Would you say that was partly what kept you from deciding on
it yourself? '

Well actually, I just didn't have the money.

If it hadn't been so costly it would have been a viable alter-
native for you?

Yeah, at that point it would have been. At that turn in my
life it would've been perfectly acceptable. But now I wouldn't
even consider it.

347

The feelings expressed by individual debtors in the inter-
views suggest that conformity to conventional norms applicable to
behavior having to do with obligation and indebtedness figures
importantly in the decision, apart from the effects of direct
influencing and even among those who said they had chosen counseling
over bankruptcy primarily on practical grounds. More light can be
Shed on the importance of normative demands by looking at the scale
data we have available. As explained in the introductory chapter,
initial contact with the interview subjects was made in the form
of an attitude survey questionnaire presented to them by their
counselors. (See Chapter 1, Gathering of Questionnaire and Interview
Data.) One of the instruments it contained was a scale measuring
"attitude of responsibility for debt payment" which had been
designed and used by H. Lee Mathews in his study of causal factors
in personal bankruptcy. We obtained attitude data on 149 of the
agency clients to whom the questionnaire had been sent; Mathews
had administered the scale to a sample of 118 persons who had
recently been granted discharge in bankruptcy and to a control
group of similar Size. Comparison of these distributions of
response scores may add to our understanding of debtors' choices
among alternative ways of resolving the dilemma. Because these are
not matched groups and the counselee respondents do not constitute
an accurate sampling of counseling agency clients, statistical
tests of differences are not appropriate but the apparent contrast
in the two distributions suggests that debtors choosing counseling

may hold quite a different attitude about debt than do bankrupts.

348

Mathews' scale was designed to measure the extent to which
individuals (i.e., bankrupts) felt responsible about debt repayment.
Lower scale values indicate a relatively lax attitude about paying
and a generally favorable attitude toward debt (that is, the idea
that debt and owing are not "wrong” or bad). Higher values suggest
that the respondent feels accountable, that he has a strong sense
of responsibility about repayment and is concerned about his debts.
In sociological terms we would say that a person scoring high on
the measure has been successfully socialized in matters of money
obligations and indebtedness. Trust and the importance of honoring
one's commitments, values underlying the American "bill-paying
ethic," are reflected in the socially approved behavior of "respon—
sible" consumer debtors. The individual who upholds these values
and conforms to the expectations of the dominant social order
would regard debt repayment as a moral obligation and he would not
look favorably upon the alternative which offers him release from
his debt obligations through the court.

Mathews reported his findings as follows:

Scores of the bankrupt sample on the attitude scale

ranged from 19 to 29, averaging 23. On the other hand, the
control group's scores ranged from 19 to 31, with a mean of
24. A standard test for the difference between two groups
showed that the means for the two groups were significantly
different at the .001 level.

Equally important is the fact that 68% of the bankrupt
group scored below the approximate midpoint of 25, compared
with 45% of the control group. Hence, it is apparent that
bankrupts as a group have a distinctly less favorable atti-
tude toward the responsibility of paying their debts than do
others of the same socioeconomic class.

Such an attitude orientation may help to explain why
some individuals turn to bankruptcy and others seek different

349

alternatives. When faced with financial problems the indi-

vidual who feels little responsibility for debt repayment

may be prone to choose bankruptcy.12
We have reconstructed Mathews' table which shows the distributions
of the bankrupt sample and the control group's scores and placed
the score distribution obtained on counseling agency clients in
juxtaposition. AS an aid in making visual comparison we have indi-
cated the scale value of 25, which Mathews used as a reference for
comparison of his groups, and computed the prOportion of counselees'
scores above and below that middle value. Looking at the three
sets of scores in Table 3 we see that, as Mathews reported, there
is a larger prOportion of scores on bankrupt respondents in the
lower range than of control group scores. The low scores of persons
who petitioned for legal forgiveness of their debt obligations indi-
cate that these individuals felt relatively lax about paying their
debts or less responsible about honoring their commitments. Per-
sons who declined the bankruptcy alternative and chose to become
agency clients, on the other hand, tended to score in the higher
range on the same scale. While the distribution of bankrupts'
scores ranged from 19 to 29, the range for clients was 21 to 35;
the modal score for bankrupts was 21, while the score of greatest
frequency for clients was 28. Mathews' control group, persons for
whom indebtedness was not a salient problem, scored almost equally
above and below the reference score of 25, while more than two-
thirds of his bankrupt sample distribution fell in the lower range;

over 90% of the counselee respondents, on the other hand, had scores

350

of 25 or above and less than 7% of them, compared with 68% of the

bankrupts, scored below this value.

Table 3.--Distribution of scores on scale measuring attitude of
responsibility toward debt repayment.

 

 

 

 

 

 

 

 

 

Score Bankrupt Sample Control Group Counselees
N % N % N %
13
14
15
l6
17
18
19 6 5.0 12 7.9 - -
20 - - 6 3.9 -
21 22 18.6 12 7.9 2 1.3
22 20 16.9 18 11.8 1 .6
23 20 16.9 18 11.8 2 1.3
M n WA 3 19 ___5__}4
25 'T16 13.5 24 15.8 15 IOQT
26 9 7.6 15 9.9 14 9.4
27 10 8.5 21 13.8 18 12.1
28 2 1.6 3 1.9 26 17.3
29 l .8 9 5.9 23 15.4
30 - - 9 5.9 16 10.7
31 - - 2 1.3 15 10.1
32 - - - - 5 3.4
33 - - - - 5 3.4
34 - - - - l .66
35 - - - - l .66
36
37
38
39
N = 118 N = 152 N = 149

 

351

Bearing in mind the limitations of our data, our results
shown in the table are consistent with those of Mathews: persons
lacking a responsible attitude about repayment are less reluc-
tant to turn to bankruptcy as the solution to their problem than
are those who feel morally obligated to pay their creditors.
Conversely, the more responsible debtor who looks upon repayment
of debt as his moral duty would prefer to take an alternative
course of action by which paying is made feasible. Although
these findings cannot be generalized to all debtors pursuing
such a course, the very large prOportion of our respondent group
socring in the "responsible attitude" range strongly suggests
that their mode of solution was chosen in conformity with the
dominant social norms and values.

Phase 3: The Debtor in
the Help-Seeker RoTe

It was generally the case with the debtors we talked to
that they had gone to credit counseling because they believed
paying was the right thing to do and they could not do it without
help, but carrying out this decision was not always easy. For.
some, having to face the counselor with his accumulated debts
and relinquish to him control of his money matters and responsi-
bility for paying bills was a humiliating experience. AS we see
from this debtor's comments, it can represent an admission of
failure and inability to handle one's own affairs:

I went because, well, I needed help. But that Credit

Counseling--I don't know. At first when I went there I
walked by the door a couple times and looked up and down

352

the street to see if anybody was looking and then I. . . .

Well I mean, I really slunk into that place. I've always

handled the money, because my dad did, I guess, and I

never did a good job of it. That was, well, like an

admission. . . .
After the initial embarrassment, however, the debtor's attitude
changes. He feels relieved to have the tension of unpaid debt
and the pressure of collectors taken from him and he is comforted
by the discovery that others have the same problem. Recalling
his first visit one debtor said, "It's a relief to see how big
their file cabinet is and see that pile of checks on his desk.
I realized, heck there's lots of guys like me!"

Turning the problem over to a counselor can have differ-
ent meanings for the help-seeking debtor. Some regard agency
services as rehabilitative; for them the counselor is someone
he has engaged to negotiate with creditors on his behalf and to
bring order to his financial situation. Interviewees who took
this view emphasized their interest in learning good money manage-
ment from the experience and, as this debtor did, expressed
eagerness to take charge of their own affairs as soon as the dif-
ficulty has been brought under control: "Once this is cleared up
I wouldn't want to stay with them. I think that would be defeat-
ing the purpose of going there in the first place--then it would
be a crutch."

Many other interviewees interpreted their relationship
with the counselor as a personal one, characterized by their

dependency on him as their guide and protector. As we noted in

our description of counseling agency services (Chapter 3),

353

collection efforts against the debtor may be continued despite the
agency's attempts to arrange extension agreements with creditors
as part of the prorating service and in such cases the client looks
to the agency for help. Consequently the counselees, especially
those who saw counseling primarily as relief from collection pres-
sures, came to view their counselor as ally and defender, "somebody
going to bat for me." Over and over in the interviews the debtors
expressed the relief and gratitude they felt being able to refer
the creditor to their counselor or talk the problem over with him.
This debtor's personal dependence on the counselor is typical of
many:
John has made me feel better when I--when I'm upset about a
bill or something. Like, well one day when I went in there
crying, I don't know, he just made me feel better. He says,
"You don't have to worry about it. We'll take care of it.
We'll just pay some on it and we'll. . . ." "They won't do
nothing about it," he says. That made me feel better.
Apart from the comfort they derive from the social support of coun-
seling, many clients personalize the functions a counselor performs
for him in implementing agency services. It is the counselor's job
to intercede with creditors, to take charge of bill paying for the
client, and to guide and supervise his spending and buying decisions,
but counselees frequently feel personally grateful to the counselor
for taking over their problem and regard him as a savior and bene-
factor. "He brought us over some mighty rough hurtles," one said
of her counselor, "I swear by him." Another referred to counsel-

ing as "a blessing" and told of finding CCC by chance--"It was

really weird, like somebody upstairs was guiding my way." Debtors

354

helped by the agency feel that a burden has been taken from them;
they are glad to be relieved of concern for managing their affairs
and making financial decisions. One counselee described what this
meant to him:
The counselor looked it over and then he tells me how much
money he had to have and how much I could have each week and
that my bills would be paid and--to hell with the creditors
because I never had to worry about them again. Wow! What a
relief! All the pressures are lifted off. You have no fears,
no worries, it's a completely different life.
For some clients counseling becomes a haven where they can abdi-
cate responsibility and lean upon their counselor with child-like
trust. A particularly insightful interviewee saw this aspect in
her relationship and described it as follows:
The counselors are just super. They have this quality--well,
they're so gentle. There's a firmness when necessary, but
there is this gentleness right after it. It's almost like a
parental--there's discipline but there's kindness. And,
well when you leave there the first time you're so relieved
and then after that you know you have to come up with it
[the money] every week, but you feel you mustn't let them
down. And then you see the possibility is there, that you
will be able to get out of it now, with them. It's like a
parental--well, taking over. It's taking over.
As might be expected, many counselees have no desire to resume
control of their finances and terminate their relationship with
the agency. Asked if they would stay with CCC after their debts
were caught up, one interviewee replied, "I wouldn't dream of leav-
ing. Paul is my Rock of Gibralter--I ain't giving him up, no way."
We do not wish to leave the impression that all help-seeking
debtors are restored to good financial health through agency rehabili-
tation or counselor guidance, never to become over-indebted again.

Although they were not questioned about this, at least nine

355

interviewees let it be known that they had been in debt trouble
before; some had had debt counseling before and three admitted that
they (or a spouse since divorced) had been declared bankrupt in
years past. Several of the counselees indicated that they had
been unsuccessful as clients in some previous experience with a
counseling agency; a few said they planned to drop out of the present
program because the agency was "only making things worse" by fail-
ing to distribute their funds to creditors properly. A surprising
number Spoke of recent consumer goods purchases (often without
knowledge or consent of the counselor) that would suggest they had
changed little in their basic buying habits and might soon be over-
indebted or back in a vulnerable debt condition again. These
exceptions to the general case of the debtor who recovers from a
single debt problem and learns from the experience remind us that
help-seeking is not invariably the final decision among alternatives.
We have been viewing the counselee as a defaulter who,
resisting the deviant labeling of him by debt enforcers, has sought
a socially acceptable means of putting an end to his debt career,
but the debtor in the help-seeking role remains at least poten-
tially a deviant. If counseling is not successful in solving the
problem he could not cope with alone, the debtor is likely to find
the ultimate answer in the only way he can--not paying--most likely
through bankruptcy proceedings. We do not propose to explain why
some defaulters go bankrupt and others do not; we hold that the
counselee should be regarded as a defaulter who might have (or

could yet) decide on bankruptcy because the debtors' subjective

356

views are better understood in that context. In the next section
we explore the debtor's definition of himself in the help-seeking
phase of the indebtedness experience. What is the self-concept of
the person who has had to face up to a debt problem and admit to a
need for help with it, and what in his view of himself discouraged
him from the nonpay alternative?

The Counselee's Interpretation of His
Situational Deviance

 

 

Our analysis has taken the debt-burdened consumer to the
third phase of his experience, through changing definitions of his
indebtedness and of himself as the central figure in that Situation.
When the debtor's drift into financial trouble reaches its culmi-
nation in his realization that he has become seriously over-
indebted, anxiety and frustration with his inability to handle the
problem emerge to replace the positive attitudes with which he began.
Under the tension generated by the increasing pressure of debt
enforcement, the troubled debtor arrives at a point where he must
address the problem by choosing between two courses of action. In
the case of the debtors on whose experience we base this study, the
dilemma has been resolved by the decision to seek help. At the
time that our interview and scale data were gathered, the respon-
dents were default debtors who had opted for the paying alternative
by taking the role of counselee; in electing this course, they were
acting in conformity with social expectations, i.e., they had
decided against the stigmatizing role of nonpaying debtor by reject-

ing the bankruptcy alternative. Hence, the debtors under examination

357

are individuals for whom the third phase of indebtedness is a
period characterized by on-going efforts to achieve exit from the
enforcement career, to remove themselves from the defaulter role
and from enforcers' imputations of deviance, by following a route
which returns them to the normal, moral community.

AS we explore the conception these debtor-counselees have
of themselves at this stage in their debt career, we have in effect
captured the views which our subjects as actors in an on-going
situation held at a certain point in time. The debtors (whose
expressed attitudes and feelings we use as our data) were looking
upon their own experience and reconstructing the series of past
events that had brought them to this point. In their accounts of
how they came to be confronted with a debt problem and why those
chose to resolve it as they did, we find the debtor's motivations
for his actions--the terms by which he interprets his conduct and
"explains" it to himself and others.

For the sociologist, as with his subjects, the question

of motivation does not arise except in those instances where
on-going conduct recurrently breaches expectation and mobil-
izes a control reaction from others. This reaction takes the
form of a motivational challenge that asks in effect: "Why
are you engaging in a deviation from expectations when you
might well be doing what is expected of you?"13
In our subjects' explanations as to why they failed to pay as they
promised, in their expressed motives for making debt commitments
they could not honor, we are given a key to understanding the
self-concept of debtors whose actions have been defined as deviant

but who have thus far not accepted that label or applied it to

themselves.

358

We begin our examination of counselee debtors' self-
definitions with a preliminary look at some relevant findings from
Mathews' research on causes of bankruptcy (the work from which the
two attitude scales used in the present study were adapted). One
of these scales, a measure of "responsibility about repayment,"
was described earlier; the other, to which we now turn attention,
is an instrument which Mathews designed to tap "blame orientation."
Mathews' interest in discovering whether bankrupts hold themselves
responsible for having become over-burdened with debt, i.e., whether
they accept or reject the blame for their financial trouble, was
based on the observation that "individuals who are involved in beha-
vior that deviates from the norms of society sometimes tend to

'4 On this

blame other persons and things for their offenses."
basis he hypothesized that bankrupts would tend to relate the blame
for their debt problem to other persons or conditions outside their
control to a greater extent than would the control group subjects

to whom the test was administered for comparison. In Mathews' study
response scores were obtained on 118 bankrupt and 152 control
subjects; the possible range of scores was from 13 to 26, with low
scores indicating a tendency to accept responsibility for financial
trouble (self-blame) and high scores representing externalization

or projection of blame. The results did not turn out in the way
Mathews expected; only a slightly greater proportion of bankrupts,
31.4% of the bankrupts compared with 27.6% of the control group,

scored above the middle scale value of 18. Mathews reports that a

standard test for the difference between two sample means showed

359

that there was no significant difference in the two means (16.13
for bankrupts and 16.04 for the control group). This indicates
that the bankrupts did ppp project blame for their problem as
hypothesized; as it turned out, more than two-thirds of the bank-
rupt sample subjects blamed themselves for becoming over-indebted
and unable to meet their obligations. Before we look at the scores
of our counselee debtors (nonbankrupts) on the same scale, we will
attempt to interpret Mathews' results in terms of the labeling
theory analysis developed in Rock's work.15
In his sociological study of debt collection, Rock shows
that the collection process, in which responsibility for regulation
of debt default is vested, accomplishes this function in such a way
that indebtedness is imparted a career-like structure, and it is
in this enforcement career that the deviance of default originates;
deviance is imposed upon debt default by the collection process.
As the debtor is propelled through the series of identifications
and sanctions by which indebtedness is socially controlled, he
is routinely identified as deviant. The debtor who fails to pay
continues in the enforcement career, subject to ever stronger
enforcement pressures together with an assumption of his increas-
ing reprehensibility and deviance.'6 A kernel notion in Rock's
portrayal of debt collection as a social control system is the
concept of secondary deviation. To clarify the way in which this
concept may be linked to the decision to take voluntary bankruptcy,
thereby providing a plausible explanation for Mathews' findings,

it hfill be helpful to look briefly at the theoretical foundation

360

upon which Rock has based his analysis. The mechanism by which
secondary deviance emerges in the interaction between the control
system and the individual who is subject to its regulation is
explained by Lemert (who originated this construct) as follows:

The sequence of interaction leading to secondary devia-
tion is rou hly as follows: (1) primary deviation; (2) social
penalties; l3) further deviation; (4) strong penalties and
rejections; (5) further deviation, perhaps with hostilities
and resentment beginning to focus upon those doing the penal-
izing; (6) crisis reached in the tolerance quotient, expressed
in formal action by the community stigmatizing of the deviant;
(7) strengthening of the deviant conduct as a reaction to the
stigmatizing and penalties; (8) ultimate acceptance of deviant
social status and efforts at adjustment on the basis of the
associated role.17

At the risk of over-simplification, this explanation may be

summarized by describing secondary deviance as the product of a
progressive relationship between the continued or repeated deviance
of the individual and the societal reaction generated by his
socially disapproved conduct. An important aspect in the thinking
that led to this view was Lemert's belief that the crucial concern
for students of deviance was not discovery of reasons for originally
violating the norms of society, but understanding the consequences
of societal response to the initial errant behavior. In essence,
his interest was in explaining the development of a deviant role
and self-concept out of social response to norm violations, i.e.,
to action(s) of primary deviance.

Deviations are not significant until they are organized
subjectively and transformed into active roles and become
the social criteria for assigning status. The deviant indi-

viduals must react symbolically to their own behavior aber-
rations and fix them in their sociopsychological patterns.

361

The deviations remain primary deviations, or symptomatic

and situational, as long as they are rationalized or other-

wise dealt with as functions of a socially acceptable role.18
As labeling theorists who apply Lemert's observations in their work
see it, the beginnings of secondary deviation may be found in the
interaction between conduct which is not in conformity with social
norms or values and the social reaction to aberrant conduct that
likely follows upon it. Social control agents identify the indi-
vidual as a "wrong-doer" and he is censured and sanctioned for his
misconduct and frequently made an object of disapproval in the com-
munity. Out of the primary deviation of the individual and the
societal reaction to it (labeling and sanctioning by enforcement
agents and a general social response of condemnation), there develops
a progressive reciprocal relationship "with a compounding of socie-
tal reaction out of the minute accretions in the deviant behavior.'9
In short, if the unacceptable behavior is repetitive or continued
and followed by punitive reactions by society, the product of this
spiralling interaction between the norm violator and social group-
ings which manifest disapproval is likely to be secondary deviation.
Labeled and sanctioned as "wrong-doer," whatever the psychological
or Situational reasons for his conduct, the individual may see
himself as pushed from a place in the social "ingroup" and blocked
from playing the accepted role. The hostility and frustration he
feels as a result may lead him to forego efforts to construct his
actions in conformity with social expectations and assume instead

the role defined for him by his labelers. The process by which

secondary deviation emerges requires that there be just such an

362

escalating, interactive development; it is the product of both the
individual and society and it must involve the interplay of both
subjective definitions and overt actions. In Lemert's words, there
must be "a Spreading corroboration of a sociopathic self-conception
and societal reinforcement" all through the process.20

Applying this explanation of secondary deviance to the
problem of debt default, and to explain the indicated tendency of
Mathews' bankrupt respondents to ggggpp the blame for their finan-
cial problems, we begin with the assumption (suggested by Rock)
that acquiring debt which cannot be paid constitutes primary devia-
tion. We then draw from Rock's argument the notion that coercive
social control could result in escalation of the deviance; that is
to say, a possible or likely consequence of social control that
relies more on force than persuasion, that produces antagonism and
hostility in the debtor, is the generation of secondary deviance.
Subjected to harsh collection measures and negative labeling by
collectors, a defaulter, then, could come to identify himself as
deviant (accept the definition of himself as a "bad" person who
makes debt obligations he does not honor) and consequently assume
a deviant role whereby he foregoes efforts to make good on his

2' Faced with a serious debt situation

commitments to creditors.
and the necessity to resolve the problem by either renouncing his
debt commitments or by appealing for help and protection against
collectors' pressures so that he can honor them, the secondary

deviant is not likely to choose the latter course. As the scores

we obtained on the counselees with the scale measuring

363

"responsibility for repayment" suggested, these debtors felt a need
to follow the socially approved course of action (paying), whereas
Mathews' respondents who took bankruptcy, the not-pay Option,
appeared to be much less concerned with social expectations (i.e.,
with conformity to norms which require the honoring of one's obli-
gations as the "right thing to do"). In a similar vein, we submit
that the self-blame indicated by Mathews' bankrupt respondents may
reflect a self-identification consistent with their decision to
resolve the dilemma by a decision to cease their efforts to repay.
Admittedly Speculative, we offer the following explanation for the
bankrupt subjects' tendency (shown by their scale scores) to
accept blame for their debt problem: the sanctions imposed on them
by the enforcement system in response to their primary deviance
was perceived by these debtors as coercive and forceful; the
debtor-collector interaction transpiring through the enforcement
career, and the deviant labeling of these defaulters by creditors
and collectors, did have as its outcome their self-identification
as deviants. Embittered by collectors' treatment of them and
thwarted in their efforts to recover from their financial diffi-
culty, they came to accept the imputation of them as deviant.
Labeled as deadbeats or inept money managers who "got themselves
into trouble" through irresponsible consumer behavior, these
defaulters came to view themselves as losers or "wrong-doers";
gradually they internalized the attribution of fault to themselves
and, as their scale scores indicated, they defined themselves as

blameworthy. When the time came for them to take some action to

364

solve their problem, these bankrupt debtors, long exposed to harass-
ment and degradation by enforcers, had undergone a transformation
of identity that permitted them to elect the socially disapproved
alternative. As self-defined deviants, they were not deterred by
subjective views in line with dominant social values from the per-
formance of an act of secondary deviation, thus they abdicated

their responsibility and commitments to creditors by filing bank-
ruptcy.

If this is true, if the bankrupts whose scores indicated
acceptance of blame for the debt problem had indeed been moved to
secondary deviance, then we might expect that the blame orienta-
tion of debtors who took the Opposite course would be quite differ-
ent. These are persons who persisted in their efforts to pay and
looked to counselors for help in making this possible; they had
resisted the deviant imputations of collectors throughout their
experience in the enforcement career, remaining steadfast in their
view that paying was the "right" thing to do, and had ended up
selecting the course of action that was acceptable to society.
Hence, counselees' scores on the scale used in measuring bankrupts'
blame orientation should be higher, they should reflect less ten-
dency to fault themselves, to see themselves as "wrong-doers" for
having become debt entangled.

Surprisingly, the scores obtained on the counseling agency
clients who returned the questionnaire did not differ from bankrupts
in the way that we had expected. Although the distribution of

clients' scores had a broader range, 13 to 26 compared with 13 to 23

365

for bankrupts, they were even more heavily concentrated in the lower
values. Eight out of ten counselees scored below the middle value
of 18, while fewer than seven in ten bankrupts had such scores.

Over half of thecoun581865.in fact, had the lowest possible scores,
13 and 14, while little more than a third of the bankrupt distribu-
tion fell this low. Our results, set against Mathews' reported
findings (in terms of the proportion of each distribution of scores

above and below 18), are summarized in Table 4, below.

Table 4.—-Proportions of bankrupt and counselee respondents scoring
high/low on Blame Orientation Scale.

 

 

 

. Bankrupt Counselee
Score and Mean1ng Respondents Respondents
Low (13-18) = Self-blame 69% 83%
High (19-26) = Projected blame 31 17
(N = 118) (N = 149)

 

We must interpret these low scores of the counselees to mean
that, rather than differing from bankrupts in terms of self-blame,
they blamed themselves for their over-indebtedness just as the
bankrupt respondents of Mathews' study did. Why, then, did these
debtors persist in their efforts to pay, to seek the help of
counselors, when they might instead have chosen to exit the enforce-
ment career through bankruptcy? The anomalous outcome of the
blame orientation measurements could be an artifact of the instru-

mentation: Mathews employed a disguised method of questioning in

366

building this scale which required affirmation or rejection of
statements about how a hypothetical debtor called Joe would react
to certain situations.22 This indirect approach may have confused
respondents and perhaps it failed to tap their attitude accurately.
However, a more satisfactory explanation for their having chosen
to seek help and pay, despite this ostensible tendency to assign
the blame to themselves, may be found in the interview protocols.
Probing their motivations for extensive credit buying and for con-
tinuing to use credit when already far in arrears on their debts,
a clue to the apparent inconsistency between their attitudes and
their conduct came to light in the verbal expressions of the debtor
counselees with whom I talked. While only 17% of all the clients
who returned the questionnaire showed by their scores that they
did not feel blame-worthy, a decidedly different picture emerged
from the explanations for their over-indebtedness offered by the
counselees in the interviews. Here there was consensus that the
trouble stemmed from outside forces or the actions of other persons.
Moreover, these were not just counselees who had scores indicating
"projected blame"; of the 42 debtors interviewed, only 6 had
achieved scale scores over 18. In other words, the expressed
motives of counseleesstrongly suggest that, while they would
attribute over-indebtedness to the debtor himself in the hypotheti-
cal case, it could be otherwise accounted for in their own situation.
In the explanations given by the counselees we find the
mechanism by which their self-concept was protected from deviant

labeling by enforcers; although they were willing to acknowledge

367

that the acts of over-buying and over-use of credit were of their
own doing, they were able to take the "wrongness" from their con-
duct by providing rationalizations for it. Although they did not
deny that they had incurred excessive debt and failed to keep the
commitments they had made, the counselees had resisted the deviant
labeling of enforcers; societal reaction to their deviance had not
been incorporated as part of their basic self-identity. It is our
conclusion that because counselees were thus prevented from inter-
nalizing the deviance, they consequently elected a course of action
in conformity with norms calling for repayment as one's moral duty.
Alternatively, for defaulters in whom the social control process
has produced secondary deviance, bankruptcy would be the likely
outcome.

What we are analyzing, then, in terms of the data at hand,
are the actions and subjective experience of debtors who are NOT
looking back upon a decision to resolve their dilemma by Opting for
an act of secondary deviance. Unlike most labeling theoretical
studies, we are not interested in explaining how it is that persons
who have engaged in such conduct manage to preserve a favorable
self-image, how they avoid guilt feelings pfpp: they have drifted
into deviance and, defining their situation as having no other
solution, resort to socially disapproved behavior. We are,
instead, examining persons who did not persist in their deviance;
deviant self—identification was precluded by their ability to
provide reasons for their norm violation which bridged the gap

between actions and expectations and permitted re-integration

368

of disrupted conduct and negotiation of an acceptable identity by
self and others. In short, when they were "accused of having done
something that is 'bad, wrong, inept, unwelcome or . . . untoward,'"
they responded by invoking "accounts," thus neutralizing the ques-
tionable behavior and enabling deflection of the deviant label.23
We will first summarize the argument we have been presenting and
then apply this concept to interpret our interview data on debtor-
counselees.

We have traced the career of the debtor as he drifts into
debt entanglement, enters a period of exposure to intense enforce-
ment pressure, and acts to meet the urgency of the problem by
choosing between a socially acceptable and a stigmatizing mode of
resolving the dilemma. In so doing, we have taken the position
that becoming over-indebted and failing to stay abreast of one's
debt commitments constitutes "situational" or primary deviance;
societal reaction to this wayward behavior, deviant labeling and
sanctioning by debt enforcers in particular, has the potential for
leading defaulters to incorporate the deviant label as a part of
their self, i.e., they may become secondary deviants; if this
occurs, we claim that they are likely to resolve their problem
through bankruptcy, an act we regard as secondary deviation.
Conversely, the debtor may be deterred from further deviance, and
pursue instead a course of financial rehabilitation, if he can
disavow the deviance imputed to him by social control agents.

Given similar circumstances, secondary deviance may be produced or

it may be avoided--it depends on whether the debtor manages to

369

retain a favorable self-image in the face of societal reaction to
his primary deviation by giving "explanations" to himself and
others which permit him to be "excused" for his misconduct. If
this is the case, although the debtor acknowledges a "wrong doing”
(over-indebtedness), he continues to see himself as one whose
actions are generally in conformity with social expectations; he
manages to bridge the gap between his own normative commitments
(e.g., his view of debt as a moral obligation) and his socially
unacceptable conduct (defaulting on debt obligations) by rationaliz-
ing his actions, by providing statements which relate his actions
in breach of social expectation to the situation as he defines it.
The defaulter may attach culturally apprOpriate reasons to his
situated actions and, by supplying such a rationale in response to
challenging reactions to his wrong-doing, he mitigates or relieves
responsibility for his questioned conduct.

Statements (socially approved vocabularies) offered as
explanations for untoward actions in reSponse to control reaction
are known as "accounts," and one form of account-~excuseS--has
relevance for our examination of debtors' explanations about who
is to blame for his debt problem. With the excuse, the person giving
the account does not deny the pejorative quality of the action in
question, but he denies full responsibility for it. Scott and
Lyman have identified the more common types of excuses to illustrate
the idea: excuses may be claims that accident represents the
source of conduct or its consequences, thus mitigating the actor's

responsibility for it; the individual may appeal to defeasibility

370

--lack of intent, or failure to foresee the consequences of his act
or to understand its gravity, for example, may relieve him of cul-
pability; fatalistic items, such as bad luck, may be invoked as an
excuse; and scapegoating, alleging that the questioned behavior
is a response to the behavior or attitudes of another, is a common
version.24 All of these forms of excuses appear in the protocols.
Of the debtors interviewed, 26 of those who had scored
"self-blame" on the scale produced an "account" that related their
deviance to their situation, as did interviewees whose scores had
indicated a tendency to project blame. Among the accounts given by
these 37 debtors, the appeal to accidental events resulting in loss
of income was by far the most common (although several sources of

25 Those who resorted to scapegoating

blame were usually mentioned).
most often put the blame on creditors for making credit too easy
to obtain or for encouraging consumers to use credit to their own
disadvantage. Six of the interviewees alleged that their former
spouse (from whom they had since been divorced) had led them to debt
by over-spending, poor money management, or failure to contribute
income. Counselees in higher income levels found appeals to
defeasibility appropriate:

One thing that happens to you with credit cards, it's hard

to be aware of where you are in relation to your limits.

You figure you've got more credit available than actually

is there and you tend to overdo it.
And:

I guess I finally realized that this expectation that I'd
always be able to get some more money was, well--unrea1istic.

371

The fatalistic approach attributing the debt problem to bad luck

was seldom used, perhaps because it is least likely to be honored

in our culture; by the same token, excuses based on accidents may
be the most popular because (as Lyman and Scott have suggested)
they have the greatest efficacy.

An illustration of the way in which counselees construct
their accounts is found in the following excerpt from one of the
interviews. This subject had a score of 13, the extreme "self—
blame" value on the scale. (He had also scored high on the responsi-
bility measure, suggesting a strong concern about honoring debt
obligations; in another part of the interview he indicated that he
had seriously considered filing bankruptcy but had been persuaded
not to by a banker with whom he had discussed it.)

0: I'd like to ask you about the way you answered the question-
naire. When you gave your answers, were you thinking about
the situation with Joe, or more about yourself and your own
circumstances? Is it that you think Joe would blame himself--
or do you feel that you're to blame for getting into debt?

A: No, you can't pass the blame around, I borrowed the money.

I was sick and there's nothing I can do about that, but
still. . . . Well, credit is really too easy. There Should
be different controls on borrowing money, like government
controls--the government Should decide what you can afford
and keep people within their limits according to their wages.

0: Well do you think, as you look back on it now, that there was
any way you could've avoided it all? If you had it to do over
could you have kept yourself out of the problem?

A: Yeah.

Q: By handling money differently?

A: No, by seeing a doctor about my asthma sooner. That's one

thing I should've done and that's what put me behind. I
lost so much work--and that's a lot of money.

372

Q: So it was the circumstances. . . .

A: Oh, yes. You know, a vast number of things can go wrong--
sickness, trouble where you can't work--even car trouble
where you can't get to work, stuff like that. Those things
happen all the time. Those are what put people behind.

This individual typifies the debtor-counselees we have
examined. Although debt default is viewed as a violation of social
norms which he himself embraces, he sees himself at fault for having
drifted into over-indebtedness; he has manifested his acceptance of
responsibility for the debt problem by formulating it as one and
presenting it to a helping agent. Because his actions leading to
debt entanglement could be attributed to forces beyond his control,
he was successful in mitigating blame for failure to conform with
social expectation and he thus protected his self-concept from
moral recriminations about becoming mired in debt. This debtor
was exposed to social control reactions to his "situational" devi-
ance and was not immune to the coercive pressuring of enforcers,
but by constructing "accounts" which "excused" his questionable
conduct, he was precluded from internalizing the deviant imputation
of enforcers and perhaps continuing to further deviance. While he
defined his situation as critical, so serious as to warrant con-
sideration of bankruptcy, this debtor was able to entertain other
alternatives as well; indeed, the "easy way out" that would likely
have been the choice of an estranged defaulter who had come to

regard himself as deviant was rejected in favor of an acceptable

means of solution.

373

Thus the defaulter as counselee emerges from his debt
career with his self-identification as a conforming member of
society intact. While redefinitions of self have occurred with
each new definition of his situation as increasingly offensive,
societal reaction to his conduct has not produced a transformation
of identity such that he accepts deviant social status and organizes
his behavior around the associated role. Although there is in the
enforcement process the potential for drastic change in the
defaulter's conceptualization of himself, the experience of indebted-
ness and exposure to social control agents' application of deviant

labels does not necessarily lead to emergence of a deviant self.

 

As we have seen in the experience of debtors turned counselee,

the errant individual does not remain passive within the labeling
process; the labelee is not a powerless recipient of a deviant
identity--he may resist or find means to deflect the deviant label.
Labeling is a dynamic process in which the labelee is a participant
and reinforcement of his deviance as the outcome cannot be always
predicted. (hn~exploration of the experience of "border-line"
deviance has shown that the labeled individual is not a "victim”
under compulsion to accept society's disapproving identification

of him. This analysis has shown that individuals, as Mead insisted,
are in constant reflective dialogue with reality rather than simply

determined by it.26

374
FOOTNOTES

1Manning, for example, reports the discovery of four stages
in the natural history of the search for an illegal abortion among
.unwed coeds; this pattern emerged from analysis of interview mate-
rials and a simulated search for an abortionist as part of a
"natural experiment" undertaken to "replicate" an earlier investi-
gation. Developmental stages in the subjective experience of deviant
actors, and how they are treated in this and other studies, are dis-
cussed further in Chapter 5.

The notion of "sensitizing hypotheses" and subsequent dis-
covery of the posited stages in terms of "saturated response cate-
gories" found in the interview data is methodologically similar to
the "constant comparative" method, an approach proposed by Glaser,
which emphasizes generating properties and hypotheses about a
general phenomenon, and not the provisional testing of theory.

See Barney Glaser, l965, p. 439.

2Herbert Blumer, l969, p. 3.

X 3My generalizations, which are based on the explanations
given by this group of 42 counseling agency clients, are consistent
with the findings of systematic studies of causal factors in per-
sonal bankruptcy. Mathews, for example, looked to "external or
emergency conditions beyond the bankrupt's control" and, alterna-
tively, to "factors within the control of the bankrupt" as likely
causes. Included in the latter was "poor financial management"--
inadvertence, keeping up with the Joneses, over-estimating income
increases, and the like.

Mathews found that in 93 of the 152 cases he examined, the
trouble stemmed from conditions outside the debtor's control--for
73 of them it was attributed to involuntary assumption of debt,
most often associated with medical problems or marital trouble, and
20 suffered substantial losses of income. In the remaining 59
cases the causal factors were assumed to lie within countrol of
the debtor. Of this group, 40 cases (one-fourth of the total sample)
were found to have ended up in bankruptcy mainly because of poor
financial management. Almost none of Mathews' subjects had ever
budgeted and few kept records of their transactions; many felt that
their lack of sales resistance led them to make purchases beyond
their ability to pay. Mathews concludes: "This lack of prudent
financial management on the part of almost all of the bankrupts was
found to be the prime factor causing 40 individuals, 26% of the 152
studied, to become overburdened with debt." H. Lee Mathews, l969,
pp. 73 and 80.

4"In order to convince themselves that they are getting
ahead and that they are not without ambition, workers apply to the
ends they pursue the vocabulary of the tradition of Opportunity.

375

They extend the meaning of ambition and advancement to include the
search for security, the pursuit of small goals in the factory

and the constant accumulation of personal possessions." "Advancement
has come to mean the progressive accumulation of things as well as
the increasing capacity to consume." Ely Chinoy, l955, pp. 124,

l26. (Emphasis added.)

5The phrasing of this question is meant to indicate the
tone of inquiry as it was presented to the debtors. Since a stan-
dardized interview schedule was not used, the specific manner in
which this question was put varied. In many cases the debtor's
response developed over an extended period of dialogue.

6Marital discord is treated as a causal factor in most
studies of personal bankruptcy but the nature of the relationship
between marriage problems and debt trouble is ambiguous. In a
section dealing with various consequences of the debt problem,
Caplovitz looks at marital strain as debt-induced and notes that
in many instances it may also figure as a cause. See David
Caplovitz, l974, pp. 283-85. (Cf., H. Lee Mathews, l969, pp. 24-25
and David Stanley and Marjorie Girth, l97l, pp. 47-48.)

7Becker holds that labeling theory places the focus on
deviance as an interactive process, the product of transactions
taking place between some social group and one viewed by that group
as a rulebreaker. Deviance is viewed as behavior that people so
label, rather than a quality of the act the person commits. "In
defining the problem this way, we direct our attention in research
and theory-building to the questions: Who applies the label of
deviant to whom? What consequences does the application of a label
have for the person labeled? Under what circumstances is the label
of deviant successfully applied?" Howard S. Becker, l963, p. 3.

 

 

 

8Jack Douglas has distinguished three forms of deviance.
Situational deviance is behavior that is not usual for the indi-
viduals involved; it does not form a basic pattern in a person's
life and, while it may be something he is involved in at many dif-
ferent times, it constitutes only a small part of the person's way
of life. See Jack Douglas (ed.), l970, p. l0.

9We do not regard the collection episodes and their modes
of response which the interviewees described as necessarily "average"
or typical of debtor-collector interaction. There is a strong pos-
sibility that they generalized their experience from the more
unpleasant episodes which more readily came to mind or perhaps the
incidents they picked to recount were those which showed the col-
lectors as being tactless and rude. It would be best to assume
that the debtor responses under analysis are those which would be
elicited by collectors using a severely harsh approach.

376

10Dolphin also found that troubled debtors usually have
knowledge of bankruptcy. He observed that, although most individuals
do not accumulate debt with the intention of going bankrupt, when
financial strain increases ("when something happens to upset the
delicate balance between solvency and insolvency") they recall that
many people go into bankruptcy and they usually know a fellow from
the shop or a relative who has had the experience. Robert Dolphin,
1965, p. 112.

1]We have shown that structural pressures narrow the range
of alternative solutions open to debtors and influence their
choices among them. See Ch. 2 (The World of the Consumer Debtor:
An Overview) and Ch. 3 (Default Debtor Alternatives).

In our interviews, although we did not question them about
seeking advice, ten debtors gave "advised against it" as their
reason for rejecting bankruptcy. When this response showed up we
began askin debtors if they had heard of the wage earner plan
(Chapter 13?. None of the peOple we asked were well informed
about this alternative; l4 had no knowledge of it and 4 said they
had a vague idea of it but did not know enough about it to consider
it an)alternative. (Cf., David Stanley and Marjorie Girth, l97l,
p. 53 .

12H. Lee Mathews, l969, pp. 77-78. The tabular data reported
below are taken from Mathews' Table 5.l, p. 77.

13Gregory P. Stone and Harvey A. Farberman (eds.), 1970,

p. 467.

MH. Lee Mathews, l969, p. ll. For the purposes of his
research, Mathews related a tendency to project blame to bankrupts'
prospects for rehabilitation. Had findings in support of his
hypothesis been obtained, this would have been interpreted as an
indication that the Bankruptcy Act, primarily aimed at rehabili-
tation by giving debtors a fresh start, may not be meeting its
objectives.

The results obtained by Mathews on the blame orientation
measure (described below) are reported in his monograph, p. 78.

151 have summarized Rock's analysis, in which he applies
labeling theory to the process of debt collection, in my introduc-
tory chapter.

16See Paul Rock, l968, p. l79. I call upon Rock's analy-
sis here in order to link the concept of secondary deviance to
the self-blame attitude displayed by the bankrupt subjects of
Mathews' study. It should be noted that Rock's main thesis has
$0 do with a unique characteristic of the debt collection process
1" England, its central concern for preservation of debtors'
dev1ance in primary form. He finds that, unlike other forms of

377

social control, this process is deliberately constructed in such

a way as to allow debtors to retain a favorable self-image, to
prevent their developing a conception of themselves as deviant.
Amplification of debtors' deviance through public degradation and
ostracism is avoided because it would likely lead to a transfor-
mation of identity, moving the debtor from "situational" deviance
to the assumption of a deviant role style which forbade any payment
or negotiation.

I have not found this to be the case with the debt col-
lection process in America (see footnote 2l, below), but I have
applied a part of Rock's argument in the present discussion;
namely, that over-indebtedness can be regarded as primary deviance,
that it is logically possible for secondary deviance to be induced
by coercive enforcement measures, and that such escalation of
debtors' deviance would likely result in their unwillingness or
refusal to pay. This is consistent with Rock's views, as seen in
the following statement: ”A conditional deviant undergoing secon-
dary deviation is likely to be confirmed in his alienated status.
His chances of redemption are considerably reduced. Thus, drama-
tized enforcement processes are most dysfunctional to the debt
collection system." Paul Rock, l973, p. 7.

17Edwin Lemert, 1951, p. 77.

18Ibid., p. 75.

'9Ibid.. p. 76.

201bid., p. 77.

21In this discussion I take departure from Rock's view that,
while enforcement processes have the potential for producing secon-
dary deviance, the social control system by which debt is regulated
does not transform marginally deviant debtors into "full fledged"
deviants. His examination of the English debt collection process
follows the debtor's career into the final stage of debt enforcement
--committal to debtors prison-~but he finds that even those debtors
who have experienced this most extreme of sanctions have managed
to preserve an acceptable image of themselves, despite prison.
Rock contends that although debtors can become secondary deviants,
it is the particular nature of the control system (i.e., its
restraint in the use of coercive enforcement measures) that prevents
them from doing so. See Paul Rock, 1973, pp. 306-307.

While comparison of consumer credit and debt collection
in England and America is beyond the scope of this paper, I find
that there are two important differences in our system by which
secondary deviance among American debtors is made far more likely:
first, because credit is much more widely granted and used in the
U.S., the debt collection process which has developed in this coun-
try is more systematic and severe. Coercive measures which can

378

produce secondary deviance are employed regularly and without the
degree of restraint that appears to prevail in the English system.
Secondly, unlike England, American federal law provides the oppor-
tunity for discharge of debts through voluntar personal bank-
ruptcy. The Brookings Institution reports the following: "Bank-
ruptcy in Europe is predominantly a creditors' remedy, intended to
suppress and punish deception and fraud by debtors and to obtain
equal shares in the assets for the creditors." They observe that
there are no bankruptcy discharges in most European nations and,
while discharge is possible in England, it may be delayed for years
or conditioned on certain actions of the debtor or both. See David
Stanley and Marjorie Girth, l97l, pp. 24l—42.

The importance of this difference in the availability of
voluntary personal bankruptcy is this: the American consumer
debtor who is subjected to coercive enforcement has at hand a means
by which secondary deviance can be made manifest. He has Open to
him a legitimate (if not altogether socially approved) avenue
which enables him to reject creditors' claims with legal impunity
and this is an alternative which he may freely choose to take if
his situation so warrants. I have taken the position that debtors
who do make this choice are thereby revealing a deviant self-view,
i.e., the defaulter can become a secondary deviant and (in America)
whose who opt for discharge of their debt in bankruptcy are mani-
festing a deviant self-image. Because English debtors do not have
access to this option, Rock's analysis could not have included
debtors in a similar position; thus, in his study there was little
opportunity for examination of debtors who had a means by which
secondary deviance could be expressed, even if it were produced in
debtors by the measures of the English debt enforCement system.

22Mathews writes, "In constructing this scale it was felt
that bankrupts would be unable and even unwilling to give an
accurate account of this particular attitude. Thus, as is often
done in this type of situation, a disguised method of questioning
or a projective technique was employed. The theory of this tech-
nique is that every individual describes and interprets a situation
according to his own mind-set. For bankrupts to accept or reject
the reSponsibility for their serious financial trouble might be
very difficult. It was thus hoped that through a mildly projec-
tive scale concerning blame orientation toward financial diffi-
culty, the actual feelings of the bankrupt might be recorded. In
accordance with this idea, twelve projective situations concerning
financial difficulty were created. These were designed for the
respondents to indicate how 'Joe' would probably react in certain
situations, thereby revealing who the bankrupt felt was responsible
for 'Joe's' troubles and disclosing their own feelings." (H. Lee
Mathews, l969, p. l4.)

The questionnaire used in the present study was adapted from
that of Mathews; a reproduction of the questionnaire may be found
1n the appendix.

379

23Marvin Scott and Stanford Lyman, 1968, p. 48. The authors
noted that this formulation was taken from J. L. Austin. See his
Philosophical Papers, London: Oxford University Press, l96l,
pp. l23-52.

The notion of "accounts" is taken from this paper by Scott
and Lyman. ”Accounts" are statements (excuses or justifications)
made to explain untoward behavior and bridge the gap between
actions and expectations, thus "accounting for" questionable beha-
vior by providing a "motive" or explanation to neutralize or render
it acceptable.

24See Marvin Scott and Stanford Lyman, l968, p. 48 for
definitions of types of accounts, "excuses," and "justifications."
It should be noted that the term "excuse" as used here is intended
in an entirely different sense than in Ch. 3 where we described
collectors' responses to debtors who tried to explain why they
were delayed in making payments.

25Rock also makes mention of debtors claiming that unemploy-
ment or illness prevented their repayment of debt. He observes,
"Illness or unemployment not only serves as a reasonable excuse
for default, it also provides the basis for an acceptable model of
the self. If the debtor believes that he was incapable of paying
because he was prevented by outside forces, he cannot define himself
as unprincipled or deviant.” Paul Rock, l973, p. 255.

261 am responding here to comments by Paul Schervish regard-
ing weaknesses in applications of the labeling approach. See Paul
Schervish, l973, p. 52.

 

CHAPTER 5
CONCLUSION

Summary Remarks

This study has examined consumer indebtedness and the experi-
ence of debt default from an interactionist perspective. Nor merely
has symbolic interactionism been adopted as a general frame of
reference for dealing with the problem of personal debt as a form
of deviance, but the research itself adheres to that commitment.
Social psychology in the Meadian tradition differs from competing
theoretical perspectives in that it represents a stand which is
neither deterministic nor cognitive. It sees human association as
an ongoing formative process, a fitting together of develOping
lines of conduct involving interpretation and definition. It
assumes that human behavior is interactive and processual, that
human beings, as actors who give meaning to their environment, con-
struct their behavior in the course of its execution. It is most
uniquely characterized by its position that individual human conduct,
while not socially determined, is influenced and limited or con-
trolled by its societal context and the social environment is at
the same time structured and reacted upon by the behavior of indi-
viduals.

Substantive issues of concern in this paper--the supplying
and use of consumer credit, regulation of personal debt, and problems

380

381

of individual over-indebtedness--have been addressed in a manner
consistent with the presumptive framework which informs the sym-
bolic interactionist perspective. At the heart of this theoretical
approach is the assumption that the human being possesses a self,
posited as constitutive of and generated by a reflexive process--a
uniquely human capacity for self-perception and self-interaction.
Because the individual is seen as a "minded," symbol-manipulating
organism engaged in on-golnginteraction with his social environ-
ment, the key to understanding the social psychology of the indi-
vidual debtor lies in examining the relationship between person
and structure; it requires looking at both the structural context
and the acting individual within that context. Thus, while our
primary interest centers on the person in the role of consumer
debtor, examination of the social structural "world" of the debtor
is made an essential part of the investigation.

It is important to emphasize that we do not look upon
social structure as merely the milieu within which the person is
moved by such internal "forces" as drives, needs, or motives, nor
as the source of external stimuli determining individual behavior.
Rather, social structure--human social organization-~has been seen
in the way Blumer has suggested, as constituted by the fitting
together of the lines of behavior of the separate participants
through a process of interpretation to form "joint action," the
larxger, collective form of action which comprises the fundamental

Lu1it: of society.1 With Blumer, we hold that human society is to

be seen as consisting of acting people;'group life consists of

382

acting units (individuals, members of collectivities acting together,
organizations acting on behalf of a constituency) developing acts

to meet the situations in which they are placed.2 Space limita-
tions do not permit spelling out the numerous sociological impli-
Vcations of the Meadian perspective which we have sought to exemplify
in this paper. However, the following excerpt from Blumer's analy-
sis of Mead's writings adequately summarizes the view to which we
subscribe and reveals the importance of its uniquely defined con-
cepts to this study. To conclude his discussion of the self, the
act, social interaction, objects, and joint action, Blumer describes
the way in which human society is portrayed in Meadian thought:

The picture is composed in terms of action. A society
is seen as peOple meeting the varieties of situations that
are thrust on them by their conditions of life. These situa-
tions are met by working out joint actions in which partici-
pants have to align their acts to one another. Each partici-
pant does so by interpreting the acts of others and, in turn,
by making indications to others as to how they should act.
By virtue of this process of interpretation and definition
joint actions are built up; they have careers. Usually, the
course of a joint action is outlined in advance by the fact
that the participants make a common identification of it;
this makes for regularity, stability, and repetitiveness in
the joint action. However, there are many joint actions that
encounter obstructions, that have no pre-established path-
ways, and that have to be constructed along new lines. Mead
saw human society in this way--as a diversified social pro-
cess in which people were engaged in forming joint actions
to deal with situations confronting them.3

Studies of human social conduct which employ the symbolic
'hqteractionist approach must take into account its conception of
Inunan beings as organisms with selves, and the basic notion that
hunuan action is an outcome of the process of self-interaction must

be incorporated into the examination. These features of the

 

383

Meadian position and its distinctive view of man and society are
respected in the design of this investigation and woven into the
fabric of the analysis. In considering issues of credit and debt
as a social problem area and dealing with personal indebtedness and
default as phenomena indigenous to contemporary American society,
we have treated human behavior not as reactive responses evoked
from the individual but as something the person constructs and
directs in coping with the situations which confront him. Our
focus has centered on how individuals handle and fashion their
world, and that world is presented not as an established social
structure but as a dynamic process of interaction among peOple

meeting the conditions of daily life.4

So that it would be consonant with the theoretical implica-
tions of symbolic interactionism, this investigation was designed
as a three-phase work focusing on the substantive problem--issues
relating to consumer indebtedness--from three different perspectives.
The initial phase, contained in Chapter 2, directed attention to the
broader social environment which surrounds and facilitates the use
of credit for consumption purposes. Following a brief survey of
the practices and organizations by which consumer credit is made
available, we presented a descriptive account of the growth and
expansion of personal financing and money lending and the emer-
gence of credit-debt organizations in concomitance with social
change, pointing up sociologically significant aspects of these
develOpments. The nature of consumer credit and its place as an

institution in contemporary American society was then explored;

384

here we outlined the activities in which various credit-granting
organizations engage in meeting the needs of the different social
segments that make up their traditional client groupings. This
part of the presentation concludes with a description of the
intense competition between dominant credit granters which illus-
trates the way in which the institutional structure that forms the
context of personal indebtedness affects consumption behavior and
impacts the daily life and affairs of individual consumer debtors.
In the second phase of study (Chapter 3), attention turned
from credit and credit granting to debt and its regulation; this
section continued the examination of consumer indebtedness from a
social, rather than individual, perspective but the focus was
somewhat more narrow. Having looked into credit-debt structure at
the broadest social level, as part of the overall environment
within which credit is granted and used by consumers, this part
was concerned with specific organizations and with the operations
and procedures they have devised for sanctioning and monitoring
credit use and for making collection from their debtors. The
sociological analysis of debt collection presented in Chapter 3
is informed by participant observation, particularly by first-hand
experience in the role of agency debt collector. It is organized
around a description of the devices and strategies that make up the
general collection system developed and used by creditors and their
agents. We explained the manner in which an enforcement "career"
is structured in terms of the increasingly harsh collection measures

that are imposed on defaulters. Tracing the progress of an

385

"ideal-typical" consumer debtor through the various collection
stages, we showed how nonpayment is reidentified with the passage
of time, and how ever more severe coercion is brought against
debtors in default. We then presented an argument for viewing
this enforcement process as a social control system, one uniquely
contrived for the successful regulation of personal indebtedness.
Drawing extensively on Rock's analysis, we called attention to the
unusual features characterizing the debt control process. In this
connection three fundamental concepts of Meadian social psychology
figured importantly--interaction, taking place among individuals
and organizations as acting units of society, and the on-going
processes of interpretation and typification by which symbolic
social interaction is made possible. With these concepts in mind
we explained that collectors, as social control agents, construct
typologies upon which they rely in differentiating among debtors
and determining what sanctions to impose and we showed how their
interpretations of debtors' responses to enforcement measures are
used in making these determinations. We explained how debtors,
as they are repeatedly tested, classified, and sanctioned by col-
lectors, are thus propelled through an ordered series of inter-
actions by which indebtedness is given a career-like structure and
failure to pay is defined as increasingly wrongful. In sum, we
have depicted debt enforcement as an interactive process wherein
individual conduct is interpreted and defined as wrong—doing

by members of an identifiable social group who regard it as a

Problem and bring effective sanctions against it.5 In other words,

 

386

we have shown that debt enforcement constitutes a mechanism of
deviance labeling and that it is in the workings of the system by
which debt is socially controlled that the deviance of default
originates. Deviance is imposed upon debt default as a consequence
of the defining and sanctioning of debtors by social control agents

in the performance of debt enforcement.6

With Chapter 4 the focus was shifted from the societal to
the individual. Building upon our description of the organizational
side of debt collection and our examination of the social labeling
machinery contained in the routine procedures of debt enforcement
agents, the final phase of study was aimed at understanding how
indebtedness and debt enforcement practices are perceived by the
individual consumer debtor at whom they are directed and showing
how he constructs courses of action in response to debt sanction-
ing. Here our analysis was centered on the personal, subjective
side of deviance and control. A central point of inquiry had to do
with the effects on the person of control agency processing as it
works to differentiate debtors and tag as deviant those who fail to
pay. In particular, we were concerned with debtors' self-
conceptions--how they changed in the course of the indebtedness
experience and whether, through interaction with the social con-
trol system, defaulters are propelled toward a deviant self-concept.
'This part of the study was based primarily on information obtained
from debt defaulters in unstructured interviews, supplemented by
attitude scale data. Drawing on debtors' descriptions of their

interactions with credit-debt organizations, we attempted to

387

reconstruct the course of indebtedness in terms of the individual's
on-going experience as a debtor. We intended this chapter to
complement the previous one, i.e., we tried to present the debtor
as the "collectors' counterpart" and to suggest the general parallel
between the objective enforcement career and the develOpmental char-
acter of the subjective experience of debtors; where the one chap-
ter concentrated on the way the enforcement process organizes and
imposes a career-like structure on debt default, the other explored
the debtor's perception of his progress through different indebted-
ness situations as he defines them. We depicted the "indebtedness
experience" as a sequence of three phases delineated by two major
turning points. We traced the path of the debtor through the drift
to over-indebtedness to the point where he comes to view his debt
as a problem; we saw him coping with the difficulties of financial
distress and the coercive treatment of collectors to the second
turning point, where he recognized the urgency of finding a solu-
tion and, finally, we observed him making a choice among alterna-
tives and setting out on a particular course of action to meet the
conditions he perceives. This phase of study gave emphasis to the
way in which the individual constructs his actions in terms of the
meanings he gives to his situation and to the way this meaning
unfolds by and through interaction; it Specifically stressed these
notions in its concentration on turning points. The points of
marked change in the debtor's situation were defined as contin-
gencies by those experiencing it and it was at these points--when

the debtor saw new meaning in what had happened to him which led to

 

388

a different view of himself and his circumstances-~that his "career"
took on new direction. We saw that turning points are frequently
defined as or associated with crises and, as Manning suggests,
crises may be seen "as the axial points around which new meanings of
self crystallise, and new careers are launched, e.g., help-seeking
processes."7 We found this to be the case among the debtors we
studied. The juncture at which debt-laden individuals see their
situation as critical can be a point of status change (as from
defaulter to bankrupt), but it can also mark a change of direction
which finds debtors entering a new "career" or phase of experience,
as with debtors entering the help-seeker role. In the closing
section of the study we focused attention on just such individuals,
i.e., those who, upon seeing themselves faced with a critical debt
condition, turned away from the solution to be found in bankruptcy
and sought help in meeting the problem in a more socially acceptable

manner by voluntarily becoming counseling agency clients.

Discussion
In the foregoing summary we have indicated areas of this
investigation in which the concepts of deviance and labeling have
flnportance. Here we will discuss aspects of the deviance labeling
orientation which have been found to be ambiguous or misleading
and point out ways in which we have tried to respond constructively
to some of these criticisms; we will also consider other problems

in labeling theory that came to light in the present study.

 

389

In the proliferation of deviance research which followed
upon the publications of Lemert and Becker in recent years there
has been a tendency to trivialize the social defining process and
its consequences and to over-state basic notions of deviance label-
ing expressed in these writings (e.g., "deviant behavior is behavior
that people so label" and "social control leads to deviance. . . .").
The insightful ideas of proponents of this view of deviance, taken
out of its symbolic interactionist context and made the basis of an
explanatory "theory," have, as Lemert comments, been indiscrimi-
nately applied and vulgarized.8 Not much of the work in this area
has been directed toward the clarification of sociological questions.
This is one of the criticisms that has been made of the labeling
approach; Fabrega and Manning point to "the tendency of labeling
theorists to focus upon bizarre or exotic behavior of groups rather
than cases chosen solely for their potential value for clarifying
sociological questions."9 The critical commentaries of these and
other writers include the following points of weakness in label-
ing theory: the vagueness of the term "deviance"; looseness of
the career concept; implied bias in presenting the labelee as
passiveznuiexploited, the social control agency as the power elite;
emphasis on societal reaction to the neglect of subjects' response.10
Although this approach to the study of deviance suggests
(application to a wider range of human conduct, the bulk of label-
irug'theory investigations have as their focal concern illegal or

criminal acts or some form of human behavior that is widely dis-

approved or comnonly regarded as pathological, stigmatizing, or

 

390

strange. The typical analysis begins with the "deviant" individual.
Asserting or implying that he is essentially "no different" from
ordinary peOple but that he has been made an "outsider" by social
designation, it looks to the workings of the organization responsible
for control of the behavior in question for an explanation of his
aberrance. Since social definition is an important part of all
human behavior, selecting a case of "known” deviance (i.e., focus-
ing on actors whose behavior is in violation of laws or, by con-
sensus, a departure from normative expectations) and showing that
societal identification and classification processes are involved

in the organizational treatment of that form of conduct does not
afford much Opportunity to explore the potential of the labeling
approach. Moreover, such studies tend to be misleading; they give
the impression of sociologistic determinism by overlooking the
interactional aspects of social defining and their neglect of sub-
jective factors, self-interaction and the like.

In this discussion we will explain in what respects this
research is different from most deviance labeling studies and sketch
out some advantages of our approach. First, the behavior under
examination is not a "classic" form of deviance, such as crime,
juvenile delinquency, prostitution; personal indebtedness is a
gray area in which "deviance" is not a given. Debt commitment is
not wrongful per se and there is nothing uncommon or bizarre about
owing money; defaulting on debts is not a highly visible offense
lNthh excites moral outrage (as do murder or rape).]] This investi-

gation also departed from the usual pattern in terms of the cases

39l

selected for study and the point where analysis began. In apply-
ing labeling theory to indebtedness and default, we did not begin
by focusing on a limited set of debtor roles and behaviors widely
regarded as reprehensible (e.g., deadbeats, skips, bankrupts) with
the aim of showing how their debt-related actions, involving fraud,
evasion, or renunciation of commitments, led them to becoming
"deviants" as a consequence of coercive social control. Rather,
the analysis started with an examination of the social context
wherein a definition of default as deviance would have its origin.
Locating in the debt enforcement process a mechanism whereby
deviance is constructed and deviant identifications imparted to
defaulters, we then showed how consumer debtors may enter this
process and move through its various stages of sorting, typing,
and sanctioning and thus be ascribed a deviant label. To explore
the effects that imputations of deviance to him by social control
agents may have on the labelee, i.e., the consequences of labeling
in terms of debtors' self-concepts and future behavior, we examined
subjects who, having made debt commitments they did not honor, were
exposed to treatment by control agents but did not continue in a
deviant "career." We concentrated on responses to societal reac-
tion of debtor labelees who, rather than persisting in deviance,
had chosen to pursue an alternative course of action as a way of
meeting conditions of enforcement sanctioning.

Putting "common" social behavior to examination under label-
ing theory brought to the fore the essential concepts of symbolic

meaning and process and called attention to the emergent quality of

392

deviance. This strategy served to highlight the idea intended in
Becker's statement that "deviance is behavior that people so label"
without causing it to appear trivial. Showing that collection
Operations center around control agents' interpretations and differ-
entiations developed in the context of on-going interaction with
debtors and that indebtedness is "made" deviant in increasing
measure through the workings of the system by which it is enforced
gave emphasis to labeling theorists' conception of deviance as not
simple rule violation but the product of contingent, dynamic social
processes. By focusing on a form of “everyday" behavior and expli-
cating the process by which its definition as deviance is originated
and imparted to social actors, the key notion of labeling theory
has been made more meaningful: "Deviance is not a quality of the
act the person commits, but rather a consequence of the application
by others of rules and sanctions to an 'offender.'”12
We suggest that misunderstandings about deviance and label-
ing stem in large part from researchers' lack of interest in apply-
ing labeling theory to "border-line" forms of behavior.13 Concentra-
tion on dramatic and predatory actions has not illumed the character
of "deviance"cn~clarified its definition; more, it has under-stated
the develOpmental, contingent quality of social definitions and
shown deviance as an either-or sort of phenomenon rather than a
process of "becoming." Almost exclusive concern with classic types
of problem behaviors, particularly those controlled by formal
organizations or involving institutionalization of the deviating

individual (e.g., law enforcement, treatment of mental illness)

393

has invited misconceptions about the relationship between deviat-
ing actors and controlling organizations, about the role of the
individual in the mechanisms that create deviance and designate
actions as deviant, and about the nature of the labeling process
itself. In the conventional treatment of social labeling there is
seldom an occasion to question or probe more deeply into the way in
which certain actions become deviance by their social definition

as such. It is only a partial exaggeration to say that "labeling”
oftimes becomes little more than a cliché. Variously presented in
the literature, the process appears facile and instantaneous, more
an "occurrence“ than a complex process, and, in many cases, a uni-
lateral imposing of definitions rather than a develOpmental, inter-
actional process in which definitions are constructed and communicated
but not invariably adopted and acted out.

We do not claim to have remedied the shortcomings of label-
ing theory in this study, but by applying it to debt control and
default we have presented the possibility of exceptions to the usual
conception of labeling and its outcomes. We find, for example, that
the individual is not necessarily passive and powerless before a
controlling organizational force. He may, in fact, participate in
the activities leading to the construction of deviant definitions.
In debt enforcement the consumer debtor is seen taking an active
Part in the control process, interacting with collectors, choosing
among alternative modes of counter-response, developing lines of
action for dealing with creditors and their sanctions. By looking

at indebtedness, for which there would be no organized social

394

defining without the collection system, we pointed up the complexity
of the social and psychological processes involved in labeling and
the profound consequences it may have. By focusing on both the
labeling source and the recipients of labels in terms of indebted-
ness, we call attention to the processual nature of labeling and
emphasized the emergent, sometimes ephemeral, quality of deviance.
Above all, the approach we have taken in this study lays stress on
the progressive reciprocal relationship between the deviating
actor and the societal reactors and controllers of his behavior,
and on the dynamic aspects of the processes of labeling and being
labelled. Our treatment of the concept of career was one means of
calling attention to these points; another, discussed below, derived
from our selection of counseling agency clients as research subjects.
By presenting debt enforcement as a sequentially organized
system which relies on typifications of debtors at each successive
stage of sanctioning, the importance of the notion of career was
brought to light and made significant in terms of the process of
"becoming"--Of making identifications of "increasing" deviance. We
portrayed a debt enforcement "career" as objectively structured by
the practical concerns of creditors and collectors; stages in the
collection process could be identified by observable "bench marks,“
such as creditors forwarding accounts to a collection agency. A
different conceptualization Of "career," however, was introduced
in our examination of the individual's side of the collection pro-
cess. The on-going experience of indebtedness was depicted as a

subjective career made up of the debtor's personal recognition

395

and interpretation of events in his life. Major phases, delineated
by turning points in the course of the debtor's experience, were
located; these turning points were conceived not as objective mark-
ings of steps in a career-line of indebtedness, but as contingencies
interpreted by debtors as they are encountered. Treating turning
points as "career contingencies" and distinguishing the Objective.
enforcement career from the subjective experience of events in
indebtedness are significant features of this study because they
allow for a challenge to the view of social labeling as a uni-
lateral process by which the individual is predictably moved
through stages culminating in his acceptance of a deviant role and
identity. Unexpected alterations in the orderly course of events
which thrust new conditions of life on the individual need not mark
increments in his deviance; turning points may instead signal

places at which he reconstructs and gives new meaning to this situa-
tion and works out new ways of meeting it._ A turning point can be
a stage-marker where situational deviance turns into a new way of
life but, as shown in this study, it may also be the contingency
upon which a new career is begun.

The purpose in calling attention as I have to two concep-
tualizations of "career," and in showing, with two different kinds
(If data gathered from two different sources, that debt collection
and the indebtedness experience are separately structured as two
crffferent kinds of career--one objectively and one subjectively
defined--was to give substance to our argument against the notion

that the labelee is inevitably moved through a series of fixed

396

stages of lesser-to-greater deviance.14 We took the position that

a career line can be identified in terms of the practices Of
creditors and collectors, but the debtor's progression to ever

more serious "deviance" is in the eyes of debt enforcers who bring
increasingly severe sanctions against him, and this does not mean
that the labeled-sanctioned debtor necessarily becomes more deviant
as a result. We agree with the claim that misconceptions in the
application of labeling theory have tended to give the societal
reactions approach to deviance a deterministic cast, and our research
provides what we believe is a more accurate interpretation of this
view by taking into consideration the individual's own definition

of his "progression towards increased deviance." While we recognize
an objectively structured deviant career and illustrate the develop-
ment of such a career in terms of debt enforcement activities, we
have also presented a documented argument for the presence of a
subjective career structured by the individual's own perception of
his actions and the behavior of others toward him, and the condi-
tions surrounding them. We have found that while there are definite
events marking points of intensified sanctioning, the place to

look for a change that signals or launches a new way of life is in
the experience of the labelee where changes of self-identification

A are to be found. As we have shown, the phases in this subjective
career are marked by decision points, places where greater or
"secondary" deviance might occur, but that outcome is contingent

on many'factors present in the individual's perceived situation

397

other than (but including) a stepped-up level of societal reaction
to his disapproved conduct.

Since our chief goal in this paper was to explore indebted-
ness from two points of view, seeing it from the creditors' (organi-
zational) side and from the debtors' (individual) side, examining
the two sides or versions of the "indebtedness career" was a major
theme in the work. Locating two sets of features by which indebted-
ness is given a career-like structure, first the patterning emergent
from organizational enforcement and another in the individual's
recognition and interpretation of the succession of events experi-
enced as a debtor, we have in effect been looking at two separate
careers, and something should be said of the way in which they are
related. The career line created by the processes of credit-debt
regulation consists of a series of organizationally defined statuses
corresponding generally to the "debt condition," the extent or
seriousness of the state of indebtedness. (This notion is
schematized and explained in the beginning of Chapter 2.) In terms
of this aspect of our career analysis, the objective career, we are
looking at status passages, i.e., the individual's movement through
the sequenced activities of enforcement. The counterpart of these
movements through the organizationally defined stages of debt
sanctioning, the subjective career, involves changes in self-
conception that may accompany positional relocations. We do not,
however, link debtors' self-redefinitions directly to the status
changes through which debtors are propelled by collection processes,

as some social psychologists appear to suggest doing. Lindesmith,

398

Strauss, and Denzin, for example, have written that ”Objective

careers--these movements through statuses and positions--produce

...l5

a counterpart, termed the 'subjective career. In our presen-

tation, the subjective career is not "produced" by the objective
career but they are interrelated through the phenomena that comprise
the "debt condition." The two careers are essentially two modes of
patterning the events of indebtedness, one as these appear and are
handled by organizational processes and the other as they are per-
ceived and defined by the debtor; creditors impose one form of
structure on indebtedness for the purposes of regulation and control
while debtors, looking at indebtedness phenomena in terms Of their
own experience, create a different pattern out of their defini-
tions of their changing situation. These two versions of the pat~
terning of indebtedness phenomena may coincide or overlap but they
are not identical, and the importance of this to the present
research on debtors' self-redefinitions is that it is the subjective
career that counts. The Objective career, the debtors' passage
through increasingly deviant statuses, is patently of fundamental
importance in the explanation of deviance labeling, for it is the
larger part of the mechanism of labeling, but it does not deter-
mine the individual's redefinition of himself as deviant.

Although I have not attempted to spell out in detail the
exact nature of the relationship between the objective and subjec-
tive careers, my definition and application of these concepts in
this work makes clear their integral importance in any attempt to

explain the way in which the self is formed and changed in the

 

399

interaction between person and social structure. In my use of
career as a dual concept I have drawn upon Stebbens' paper explor-
ing the nature of the subjective career which contains a tentative
effort to outline its relationship to objective career components.16
The utility of the concept of subjective career in explaining self-
definitional changes, made apparent in the present research, strongly
suggests the need for more specific exploration of the subjective~
objective career relationship, although such an examination was not
possible within the scope of this paper.

"Process" is very likely the concept or theme most central
to labeling theory, and it seems also to be the most troublesome to
writers in this area. In large part, criticisms of the labeling
orientation are pointed to issues that relate to the DEEEE§.°f the
processes involved in deviance labeling: the process by which
deviance is identified, shaped, and given boundaries--i.e.,
"created"--in the course of its control, and the process by which
"full-fledged" deviance is developed out of "initially erstwhile and
unpatterned deviations" of the actor.17 These processes are of
-concern in most labeling research and they thus involve in one way
or another the notions develOped by Lemert, societal reaction
(especially as it pertains to social control) and secondary deviance,
and Becker's elaboration on his work, particularly that surrounding
the "career" concept. Principal criticism of works applying these
notions has been aimed at writers' over-emphasis on societal reac—

tion to the neglect of subjects' responses to the reactive patterns

elicrited by their disapproved behavior and their tendency to

400

overlook the interactional aspects of the process leading to deviant
roles and self-identification. Manning's critical commentary points
to the more important misunderstandings or false impressions found

in much labeling research, and he observes that
In cruder versions of labelling theory there is a ten-
dency to set aside or overlook the earlier interactional
insights [of studies carried out in the spirit of Meadian
thought] and to eliminate the interactional in favour of
exploring the unilateral effects of confrontations between

authority and the victimised deviant. The deviant is at
times only a passive recipient of the pressures, forces

and strategies of more powerful others.
Critics note also that the term "career," loosely defined and
uncritically applied in examinations of actors' movement from
temporary, unsystematic deviations to involvement in deviance as a

life-style, has contributed to the distortion of labeling theory

and inaccurate portrayal of the processes it involves. Lemert

recently commented that labeling has come to convey the impression
of "crude sociologistic determinism" and he credits Becker's
elaborations and researchers' preoccupation with official agencies
of control with developing a view of labeling that does a disservice
to Mead.19 Many critics agree that labelees tend to appear as
underdogs, victimized individuals exposed to a process that works
only'one way; labelees are pictured as passive organisms who accept
coercive sanctioning and take it to heart, never responding
aggressively to reject deviant designations. Deviants are "suc-

cessfully labeled" by exploitative features of societal reaction

arKi set upon a course of action (a career line) which has as its

final step the emergence of a deviant self. Little attention is

401

given to the place of human choice in the interaction processes
involved in creating and taking on labels; self-conception is seen
as transformed by societal reinforcement of deviance, but seldom
presented as a possible outcome of "a progressive reciprocal rela-
tionship between the deviation of the individual and the societal

reaction," as Lemert sought to emphasize.20

In this investigation of debtors we intended that our
treatment of "career" (explained earlier) would controvert some
inaccuracies about the labeled individual's path toward eventual
deviant self-conception as an outcome of societal reaction. A
definite challenge to the idea that this is thg_outcome to be
expected as a consequence of social control comes out of this study
through our concentration on subjects in a labeling situation who
were following a course other than continued deviance. Because
changes in self-concept, particularly transformations to secondary
deviance, were the primary research issue, the feelings as well
as the actions of individuals in their several debtor roles were
of interest, and the feelings of defaulters subjected to coercive
treatment received greatest attention. We found that the elements
which could produce secondary deviance were present in the circum-
stances surrounding debtors' progress from consumer to alleged
wrong-doer, and the subjective reactions to collectors' sanctions,
descneibed by the debtors themselves, strongly suggested that they
were candidates for deviant self-conceptions. Illustrative state-
ments of debtors presented in Chapter 4 revealed their deep feel-

ings of resentment and frustration about the position they were in

402

and the treatment they received at the hands of collectors; many
felt hostility and a sense of injustice; they spoke of their humilia-
tion, not only by the abuse of collectors, but because they were
seen by others as dishonest and untrustworthy. In detailing the
way collectors do their work, it also came to be seen that debtors'
feelings of resentment and frustration, entirely apprOpriate to
their situation, could be expressed only at risk of validating
deviant definitions already placed on them. Tracing the events in
the experience of the debtor we found so close a parallel to the
sequence of interactions leading to secondary deviance as Lemert
describes it that we can, in fact, paraphrase his illustration (he

used an errant schoolboy) in terms of consumer debtors' behavior.

My version using debtors goes this way:21

The consumer, "for one reason or another," becomes laden
with debt and, failing to pay his Creditors, he is penalized.
Becoming further over-indebted (perhaps by using consolidation
loans to pay other debts) and continuing to default on his obli-
gations, he encounters stronger penalties and pressuring from debt
enforcers. Then the debtor is tagged as a bad risk and referred
to by collectors as a deadbeat or thief or other invidious terms.
"Hostility and resentment are excited in him." Finding creditors
reluctant to believe his explanations and often unwilling to accept
his (affers to repay in small amounts, "he may feel that he is
blocked in playing the role expected of hhnfl' Thereafter, there
may be a strong temptation to assume his role in the comunity as

defined by creditors and their agents, "particularly when he

403

discovers that there are rewards as well as penalties deriving from
such a role." (He may resign all efforts to pay and focus his
resentment on those doing the penalizing; reacting to enforcers, he
may avoid paying by eluding his creditors or having himself declared
bankrupt.) As did Lemert, we note that there is no implication

here that such individuals do go on to acceptance of deviant social
status and efforts at adjustment on the basis of the associated
role. If secondary deviance does emerge, however, it is the product
of just such a progressive reciprocal relationship between the
deviation of the individual and the societal reaction.

Our investigation of debtors in default revealed that the
conditions for producing secondary deviance were present and, by
their own statements, the debtors under examination indicated a
potential for self-transformation to secondary deviance. Their
conceptions of themselves had been altered at various points in
their on-going experience but devaluation of self on society's terms
was not in evidence among these debtors at the time of our inquiry.
Although these individuals were exposed to the pressures, forces,
and strategies of more powerful others than can lead to deviant
self-identification, they did not remain passive recipients of
organizational defining and sanctioning in the labeling situation;
although they were not unaffected by the treatment of "stronger
forces," they had not internalized the condemnations Of control
agents. Their deviations remained situational and primary because
they were being dealt with as functions of a socially acceptable

22

role. Adjustment to the overt and covert problems created by

404

societal reaction to their situational deviance had been made, or
at least was being attempted, on the basis of an alternative role
and not in terms of a role organized around subjective identifi-
cation of themselves as "deviant.'l

We do not suggest an explanation for this outcome of
social labeling in terms of "factors" which assumedly intervened
in the process and prevented the "expected occurrence" of secon-
dary deviance. The significance of this study is not so much in
its "finding" as in its clarification of the nature of the labeling
process and the documentation it provides in support of the claims
made by labeling theory critics. When social labeling is made to
appear as a unilateral process, when the action-reaction of deviants
and controllers is seen as a sequence of interactions between power-
ful organizations and inert recipients, and when there are implica-
tions that the consequences for passive labelees are almost certain
to be escalated deviance or further progress in a "deviant career,"
labeling comes across as a determining force; to explain outcomes
other than deviance then requires the location of some other feature
of the situation that could permit such an occurrence. We have
approached the problem in an entirely different way.

Most studies that look at the consequences of labeling for
the individual's self-concept take as subjects persons who hay§_
engaged in behavior which generally is socially identified as
"deviant." Finding that these individuals have not taken on a
deviant self-identification, despite the negative societal reaction

which that form of behavior generally elicits, the failure to

405

regard themselves as Ndeviants" is typically explained in terms of
neutralization of negative feelings--the neutralization Of feelings
such as guilt which takes place after they have perfonned the
objectionable act. Individuals who express no feelings that they
have been involved in deviance or that they have done something

for which they should feel guilty are said to have neutralized the
"deviance" of their behavior by conceptualizing the act as "not
wrong," or to have neutralized the social norms regarding the act
by placing responsibility for it on others or justifying their per-

23 These studies show that the individual. having

formance of it.
already been engaged in illegal or unapproved behavior, is able to
insulate himself from the stigmatizing consequence, to shield him-
self from a deviant self-conception in the face of his norm viola-
tion. They show, indirectly, that the process of labeling is effec-
tive in defining certain behaviors as deviant and that it has the
potential for creating in the Offending individual a deviant self-
concept. In that approach, attention is centered on the indi-
vidual's self-concept but the focus is on the feelings of the indi-
vidual after the fact of norm-violating or law-breaking. This
limits the opportunity to learn about the feelings of individuals

in contemplation of the act, or to examine self-concepts in the
course of the changing situations as they are experienced and
thereby explicate the involvement of the individual in the process
of labeling certain actions as "deviance."

By taking as subjects persons whose path could lead to

"deviance"--i.e., to deviant identifications and further deviant

406

behavior associated with that self-identification--and by looking
at their on-going experiences as labelees, our investigation moved
the focus directly to the process of labeling. This was the impor-
tance of selecting counselees as research subjects. They consti-
tuted a set of individuals who are being processed by a social group
whose actions produce labels (and there is a further deviance,
e.g., skipping out on creditors, to which they might move), but
they have not continued to further acts of disapproved behavior
that may later bring feelings of guilt. This strategy was a means
of looking into the in-progress experience of research subjects and
it permitted a clear view of people beigg labelled and making
responses to labeling.

From this perspective we saw debtors acting in their situa-
tion in the way Mead saw human beings as actors in society. They
were influenced and constrained by social structure but their
actions were of their own construction. They gave meaning to
events in their lives and worked out ways for COping with problems
as they defined them and for adapting to new situations as they
emerged. Social control imposed on them gave direction to their
behavior, but it was also guided by their own internalized pressures
toward conformance with social norms. Human choice had a part in
their interaction with other social units. Their self-conceptions
were changed with shifting conditions and relationships, but self-
conceptions also entered into their mode of response to structural
impact. At the very least, this study has contributed to taking

the deterministic cast from labeling theory by its reminder that

407

other than deviant outcomes can ensue from the labeling process,
but more, by its insistence that in considering the process and
consequences of deviance labeling, it must present a different

view of the nature of man.

Some Reflections and Suggestions
for Further Study

 

 

Several interesting and useful parallels may be found
between this study of labeling and labelee responses in terms of
debt and some other pieces of research which have similar concerns
but deal with other types of deviance; I refer in particular to
Davis (197l) on prostitution, and Manning (1970) and Henslin (197l)

24 Looking at these studies comparatively brings to

on abortion.
light some areas of ambiguity in the labeling perspective which
deserve attention. I will briefly summarize the relevant aspects

of the present work and those named above, and then discuss a few

of the similarities and discrepancies that appear in studies such

as these.

Each of the four studies mentioned treats deviancy as a
temporally patterned phenomenon, i.e., as on-going behavior divisible
into stages or phases of deviance. Henslin identifies three phases:
the first or pre-abortion phase includes the dilemma--where the
girl finds herself pregnant, realizes the complications this
presents, and considers the alternatives, and it shows her making
the decision for abortion, neutralizing the social disapproval of

the act she has decided upon (enabling her to go through with it),

and searching for the abortionist; the second phase, abortion, is

408

not analyzed; the post-abortion phase shows how abortionees are
able to avoid deviant self-conceptions and also describes cases in
which "guilt-deviance neutralization" failed. Manning's work
focuses on the essential feature of each of four stages: first

the initial defining process--defining signs as pregnancy; second,
constructing alternatives--deciding what to do; third, locating

the abortionist; and finally, the resolution of the search, which
looks at some after-effects in terms of abortionees' feelings of
guilt and deviance. Davis looks at changing motivations of pros-
titutes and traces the course from promiscuity to the role of pros-
titute describing three stages in a prostitution career: one, the
drift from prOmiscuity to the first act of prostitution; two, the
transitional stage, between the first act and "full-time deviance";
three, professionalization, where there is "unequivocal perception
of a deviant self." My treatment of deviant debtors has elements
of similarity to each of these, but differs from all of them in
that it focuses in the last phase on the debtor who did not persist
in deviance. It sketches out three phases of experience and shows
the individual in three different roles: he begins as a "normal"
consumer debtor and, in the first phase, we describe his drift to
over-indebtedness; in the second, as a defaulter, he is being
sanctioned and labelled and in this period he defines his debt as

a problem and tries to cope with it--this phase ends as he considers
alternatives for resolving the dilemma and decides upon a solution;

phase three looks at the debtor in the role of help-seeker

409

(counselee), making an adjustment on the basis of an acceptable,
rather than a deviant, role.

Another similarity in these, and most other, labeling
studies is their use (implicitly or explicitly) of the concepts of
primary and secondary deviation and the related notions of deviant
self-concept and deviance neutralization, but there is not as much
consistency in the way these concepts are employed. It is in these
areas that labeling theory could be sharpened and made more useful
for this kind of research. I will draw a few examples from the
studies we have been looking at to suggest some perplexing issues
and places where "loose" concepts seem to show up. In my work I
made the assumption that using credit (simply having debts) is
"normal" behavior and when default occurs and is labelled it is
situational or primary deviance. When the defaulter comes to
decide on a mode of adjustment he can go either way, to a new
career in an acceptable line of behavior (e.g., paying debts
through a counseling agency) or he can go on to “further deviance,"
which I have suggested could be either skipping out on creditors
or not paying through bankruptcy. These actions I have viewed as
behaviors of secondary deviance. In a manner of speaking, I Opera-
tionalized "ngt_secondary deviance" in terms of debtors' choice of
counseling over bankruptcy, and then I considered the choice they
made in terms of neutralizing the wrongness of having gotten over-
indebted in the first place. Thus over-indebtedness is the primary
deviance and that is the deviance which could be neutralized thereby

preventing negative self-views which could lead to further deviance

410

(i.e., not paying). I regarded 'self—blame" (for over-indebtedness,
the sanctioned action) as the feeling debtors would express if

they had a deviant self-image. This is equivalent to expressions
of "guilt" about deviant actions which are taken as indications of
negative self-feelings by Henslin and Manning, but they make no
mention of the possibility of continuing in deviance if that guilt
is not neutralized.

Manning does not refer specifically to secondary deviance
but he makes the assumption that premarital pregnancies are the
result of primary deviation. He reasons that in a college context
sex is an everyday affair (like lunch, it happens routinely), and
thus requires no explanation as deviance. This corresponds to my
view--sex, like debt, is not wrong, per se, but can become "wrong"
under certain conditions. His abortionees appear as "potential"
holders of a deviant self-concept only after they have decided on
abortion and taken that course of action; then he asserts that they
did not define themselves as being deviant or view themselves as
having a deviant character--"there was very little guilt feeling,"
and "none of them expressed the feeling that they were 'deviants'
after the abortion." He indicates that they had neutralized the
effect of the abortion and felt that it was the only expedient
thing to do under the circumstances. (This suggests a weakness in
viewing bankruptcy as an act of secondary deviance since bankruptcy
is also the most expedient action in certain circumstances, despite

its stigma.)

4ll

The Henslin study concentrates primarily on neutralization
and it enters into his analysis in two ways. Like Manning, he
regards illegal abortion as primary deviation: "Because of situa-
tional factors of a temporary nature they [persons who are con-
forming members of society] enter into a transitory deviance." He
explains how they come to violate normative proscriptions: "It is
during this pre-abortion phase that neutralization techniques begin
to come into play, helping the girl to make her decision final, to
go through with the abortion, and setting the stage for adjustment
to her act." The neutralization concept is also used, as in
Manning's study, in the post-abortion stage; Henslin's respondents
demonstrated that they had defined their act such that deviance and
guilt were neutralized, in spite of their violation of societal
proscriptions, and in many cases, their own internalized norms.

He adds mention, however, of some subjects' inability to neutral-
ize post-abortion deviance and guilt feelings. Henslin identifies
successful neutralization in such observations as these: "express
no feeling that they have been involved in deviance or that they
have done something for which they should feel guilt" and "express
happiness and gratitude about the act of abortion." Failure of
neutralization is indicated in abortionees' expression of questions,
doubts, self-searching, and self-recriminations that continued to
haunt them. The Davis study follows the career of girls to pros-
titution, examining the socialization process in deviance, and most
attention was given to the professionalized prostitute. The self-

concept is considered in terms of the motivations expressed by

4l2

the subjects; deviant self-concepts were revealed by remarks which
indicated accommodation to their deviant status, e.g., defining
the "square“ life as impossible and extolling the rewards of pros-
titution.

Now I would like to raise some questions that are suggested
in the comparison of these four studies. This is not necessarily a
criticism of any of this work; I simply point to some implications
that I find perplexing and ask, in effect, Could it have been
otherwise? And what, then, would have been the result? My dis-
cussion deals primarily with issues centering on the notions of
primary and secondary deviance, the deviant self-concept, and
deviance neutralization. The first question has to do with neutrali-
zation; what is neutralized, when, and with what effect. The
notion, introduced by Sykes and Matza (in connection with juvenile
delinquency), that "rationalization" may render social controls
inoperative before a deviant act as well as normalize deviant status
and protect the individual's self-concept after it, has been
employed as an explanation for going through with acts such as
abortion and for explaining the actor's "0K feelings" after a
deviant act. Henslin explicitly used it both ways; Manning implied
pre-abortion neutralization in showing that the girls saw abortion
as the only "expedient" alternative—-i.e., justified--and also
stated that this was how post-abortion girls prevented negative
self-concepts. I point to the use of "accounts" (excuses which
neutralize) as having the effect of preventing deviant self-feelings

before a contemplated deviant act and thereby keeping the individual

4l3

within the bounds of acceptable behavior as he finds adjustment to
labeling. Most often it is post-act guilt that is neutralized,
but the effect of neutralizing is also impacted on social control
of which the labeling process is an integral feature. Therefore
unmitigated negative feelings prior to an act could enhance label-
ing just as neutralizing before hinders it; "misgivings" about
deviance reveal internalized norms.

Part of the perplexity of this issue has to do with the
assumptions of the researcher, e.g., whether the act in question is
taken as primary deviance. Could it then be regarded as transi-
tional behavior that might lead to secondary deviance? It also
touches on some very difficult methodological questions, such as
how he "taps" secondary deviance or deviant self-conception, what
"indicates" to him the individual's negative self-regard, or,

25 This

conversely, his successful avoidance of a deviant self.
leads to questions left unanswered by Lemert; he only suggested
that "objective evidences of this change [to secondary deviance]
will be found in symbolic appurtenances of the new role [clothes,
speech, mannerisms, etc.] which in some cases serve as symbolic
cues to professionalization." There is also the delicate issue of
the relationship between deviant self-concept and a continued pat-
tern of deviance (behavior), one we cannot address here except to
say that Lemert appears to imply that the subjective alteration
(self-concept) precedes the behavioral manifestations of secondary

deviance in making the distinction between primary deviance (dis-

crete or initial deviating acts, or the sheer act of rule violation)

414

and secondary deviance, deviance in which there has been a secondary
elaboration of such rule violation in terms of both self-concept and
broader social ramifications. In depends in part on whether we are
thinking in terms of the individual or the social level, but it

is possible to "read in" different meanings to Lemert's remarks.
Since we always deal with deviance in temporal terms, however,

there should be some attention given to the tremendously difficult
question of the order of events in develOping deviance. This is

not to imply that"causes"are of major concern; the problem I have
in mind is whether we should look at the person's behavior or his
"expressions" (of subjective feelings) in trying to discover

whether he is approaching secondary deviance or deciding among
alternative adjustments on the basis of a deviant self-concept or

a neutralized conception of social definitions.

Discussing in the abstract when and what, exactly, is
neutralized, as we are here, it seems unimportant; it becomes sig-
nificant, however, when we try to fit this notion into the context
of a temporally patterned deviance and make use of the idea in con-
nection with processes like labeling and the develOpment of secon-
dary deviance that have a spiralling, reciprocal character. When
we talk about ordinary actions like credit buying and sexual inter-
course and how, under certain circumstances, such "everyday"
behavior can become a matter of social deviation, it is important
to be more certain about whether it is the individual's view of
himself or the social definition that is affected, whether it occurs

before or after an act has been accomplished, and what would happen

4l5

had neutralization not succeeded. Since the concepts we have to
work with are not precise, much of what we see in deviance labeling
situations is Open to interpretation. This is a moot point--the
difficulty I mean to describe is perhaps better diSplayed in a
logical argument: We see that studies use neutralization as a
means of neutralizing guilt. Guilt is the equivalent of "self-
blame." (Henslin, in another study, speaks of actors blaming
themselves, i.e., feeling guilty, for their part in some aspect of
a death by suicide.)26 Self-blame indicates the individual's
internalization of social norms, of social control. (This is a
Meadian notion, society in the individual, well explained by Linde-
smith and Strauss.)27 Sykes and Matza hold that neutralization

can have the effect of lessening social control, weakening internal

28 Failure to neutralize nega-

and external demands for conformity.
tive feelings leaves the individual with guilt or self-blame; if
self-blame shows internalized social control at work and enhanc-
ing social controls, then failure to neutralize self-blame should
increase or leave unaffected the force of social control. And
social control is what we look at as the source of the labeling

and sanctioning that is somehow behind the develOpment of a deviant
self-concept, so would not failure to neutralize self-blame (i.e.,
take the blame for "being deviant," as society tells the individual
he ought to be regarded) suggest the individual's negative self-
view and the possibility of his continued deviance? Say also that

we know post-deviance guilt is removed by neutralizing it but in

some cases this can fail. If the deviance in question is seen as

4l6

"primary," what could possibly happen thereafter? Henslin suggests
that the individual goes on carrying a tremendous guilt burden,

but is it possible that these strong feelings of having done wrong
by society's standards might lead him to feeling so "deviant" that
he goes on to other or further deviance? If so, in the case of
abortionees, what kind of behavior might it lead to? Noting that
Henslin, unlike Manning, did not limit his concern to unwed preg-
nant girls, perhaps extreme and prolonged guilt could lead to mental
illness; if abortion is primary deviance that stems from sex as an
everyday affair, could this be viewed as the sort of promiscuity
that Davis shows to be the beginning of a "drift" which goes on to
an act of prostitution and possibly a career of deviance? If
acceptance of social definitions shown in guilt and self-blame can
enhance the impact of social forces toward conformity, preventing a
wrong-doing, how much "acceptance” of social definition does it
take to bring the individual to view himself as a deviant and what
is he likely to do if that happens? These are the kinds of puzzles
that even good labeling research has left us to work out.

Without further polemic, I think that the point has been
made that Lemert has provided some valuable conceptual tools but
they are not yet in a state where we can utilize them to the full.
My suggestion for further study in the area of deviance labeling
would be to strongly urge that more attention be given to what we
have done and seeing how it might be emplOyed as the basis for
,improvement, rather than rediscovering that deviance is in the eye

of the beholder, etc. I also urge more interest in forms of

4l7

behavior other than those we conventionally regard as "deviance,"
for they seem to offer more opportunity for getting at the things
_in the labeling perspective that we have found perplexing and
ambiguous. In so doing, it seems to me that investigations should
"go back to basics" and look at the ideas suggested by symbolic
interactionism, rather than taking specific leads from the narrower
body of thought represented by labeling "theory." And researchers
using a symbolic interactionist frame of reference in studying
behavior related to deviance and control should be encouraged to
build more directly on previous theoretical developments so that a
"line of research" will emerge from our work from which we can
gain insight and sharpen our conceptual tools.

I should like to add that there are almost unlimited possi-
bilities for useful and needed studies having to do with consumer
indebtedness, for this area has hardly been touched and it is
becoming an increasingly relevant part of social life in the modern
world. Bankruptcy, for example, has been heavily researched but
as a social problem and not as a concern for theoretical social psy-
chology. It could be looked at from a labeling perspective,
probably as the kind of problem Schur invites our attention to in
discussing deviance "outcomes" of the labeling process; he points
out that labeling also has societal consequences and bankruptcy
could be examined in terms of the economic and social impact on
society at large of attempts to attach and resist negative defini-
tions of bankruptcy at the organizational level.29 In our chapters

on credit granting and collecting personal debt we touched on

4l8

several points which could be given a closer look; the way in which
organizations compete and the impact they have on consumers in
attempting to carve out segments of population as their preferred
clientele, for instance. Recent developments in the enforcement of
economic crime suggest areas to look at in terms of "organizational
deviance" and attempts to control it. Let me point to the possi-
bilities there are for sociological research in this area by
quoting part of a recent newspaper article (headed, Consumer Agency
Means Business), noting particularly the reference in the last
paragraph to criminally enforceable violations of the Consumer

Protection Act by one company against another.

The country's consumer protection office has a new name--
The Consumer Fraud and Economic Crime Division--to go with
what officials call a tough new stance against economic
crime. The agency, a division of the district attorney's
office, is taking alleged con men to court on criminal
charges. In the past, civil remedies were used. The direc-
tor of the division said civil injunctions against violators
--usually in the form of promises from violators that they
wouldn't break consumer laws again-~just weren't enough in
many cases. The men behind the new emphasis on criminal
prosecutions say the subjects of civil actions were leaving
town or filing bankruptcy in attempts to evade responsibility
for their acts. "A very common occurrence in economic crime
is to fleece the public and when the water gets hot, split."
The director said that in the past economic criminals were
treated much differently than persons committing crimes such
as robbery and burglary. The peOple responsible for the
economic crimes committed were viewed as fine upstanding
citizens . . . [but now they will be prosecuted to the full-
est ability] . . . and in many of the cases pending, the mul-
tiple defendants face multiple charges.

With the new stand the agency still retains its old func-
tions, standing as a liaison between the citizen with a beef
and the legitimate businessman. In fact, the director points
out, the commercial field, too, may need protection. His
office, for example, is now investigating schemes in which
out-of—state suppliers call local purchasing agents and attempt
to bribe them into ordering unneeded materials for which the

 

419

company employing the purchasing agent may get stuck. "We

do mean business," said the director. And the agency plans

to increase the scope of activities coming under the Consumer

Protection Act that they have been involved in. An estimated

40,000 complaints and inquiries will be handled this year.30

With the advent of new legislation that recognizes the

consumer as a social element and recognizes the rights of consumers
in their relationships with organizations of commerce and finance,
a whole new field of inquiry has been Opened to investigation. It
has special importance for social psychologists committed to the
A Meadian perspective because it demands acknowledgment that man as
a social actor is both enmeshed in society and free from society.

He can be changed by social structure but he can also bring change

to his social environment.

420
FOOTNOTES

1Herbert Blumer, l969, p. 70. Blumer uses the term "joint
action" in place of Mead's term "social act." It has equivalent

meaning.

21bid., p. 85.

31bid., p. 72.

4Ibid., p. 75.

5"Social groups create deviance by making the rules whose

infraction constitutes deviance, and by applying those rules to
particular people and labeling them. . . . Deviance is not a quality
of the act the person commits, but rather a consequence of the
application by others of rules and sanctions to an 'offender.'"

Howard Becker, l963, p. 9.

6As explained earlier, I credit Rock with having first
applied Lemert's societal reaction perspective to the analysis of
debt collection processes.

7
8

Peter K. Manning, l975, p. 8.
Edwin Lemert, l972, pp. l6-l7.
9Horacio Fabrega and Peter Manning, l972, p. 93.

10Critical commentaries may be found in the following works:
Fabrega and Manning, 1972; Gibbs, l966, l972; Schur, l969, l97l;
Lemert, 1967; Schervish, l973; Davis, l972; Hagan, l973a; Liazos,
l972. A brief review of recent criticisms appears in Joseph
Rogers and M. D. Buffalo, l974, pp. lOl-l02.

1'See Paul Rock, 1973, p. 266, on the public view of default.
Another indication is in a study reported as part of a story on
consumer debt in Time: "In a survey of consumers, pollsters for
General Mills found that 60% of American families considered 'not
being in debt' an important personal value; 45% identified 'being
completely out of debt' as a major goal for the future. And how
did they face the fact that they might well never reach that goal?
8y redefining 'debt.' To many, the word did not mean simply owing
money but falling behind in the payments." "Merchants of Debt,"
Time, February 28, 1977, p. 38.

12Howard Becker, l963, p. 9.

421

13Liazos gives examples showing that acts of a simple and
dramatic predatory nature occupy the attention of most writers on
deviance, that labeling research is overwhelmingly focused on “nuts,
sluts, and preverts." He observes that they purport to show that
such individuals are "essentially no different" but the use of
"deviant" to refer to the people under consideration indicates the
feeling that they are indeed different. Alexander Liazos, 1972,

pp. 104-106.

14This is consistent with Lemert's view: "A career denotes
a course to be run, but the delineation of fixed sequences of
stages through which persons move from less to more serious deviance
is difficult to reconcile with an interactional theory.
Concepts of drift, contingency and risk [are] far more meaningful
in deviance than inevitability or linear progress. " Edwin Lemert,

1972, p. 79.

15Alfred Lindesmith, Anselm Strauss, and Norman Denzin,
1975, p. 464.

'65ee Robert A. Stebbens, 1970. His view differs con-
siderably from that of Lindesmith and Strauss.

17
18

Peter Manning, 1973, p. 124.

Peter Manning, 1975, p. 7.

'9Edwin Lemert, 1972, p. 16.

20
21

Edwin Lemert, 1951, p. 76.
Ibid. (See p. 77.)

22We are making the claim that secondary deviance was not
precluded as an artifact of this research. This discussion is
directed to showing that organizations for debt control do tag
and treat as norm violators debtors who fail to pay. Persons who
do not pay, deliberately, as in bankruptcy or skipping on creditors,
are knowingly engaging in behavior defined by society as deviant.
The kind of action-reaction process that can lead to deviant identi-
fications and roles does take place between defaulters and con-
trolling agencies and some defaulters do become secondary deviants.

This is a major theme in Rock's work, i.e., the prevention
(If the emergence of secondary deviation which is built into the
character of debt collection, according to his claim. We take a
departure from his view on this point, however. (See footnote 21
to Chapter 4.) We make the assumption that in America, where
voltnTtary bankruptcy is available and debtors have an Option, they
may use bankruptcy as a device for not paying; bankruptcy is
assumed in this work to be in many cases an act of secondary

deviance.

422

Some support for this assumption may be found in the atti-
tudes of bankrupted persons as reported by the Brookings study. In
interviews with 400 debtors two years after bankruptcy, nearly half
(43%) of the responses to inquiries as to their feelings about the
experience were favorable or neutral, e.g., "good," "satisfied,"
"OK but can't get credit," or "doesn't bother me." Only 28%
expressed negative feelings, e.g., "lost self respect," "feel bad,"
"ashamed, embarrassed," "stigma." Some of the positive expressions
may, of course, reflect respondents' neutralization of bad feel-
ings about the experience but this would not negate the idea that
bankruptcy may be viewed as a deviant action. See David Stanley
and Marjorie Girth, 1971, p. 68.

I might add that public labeling is often regarded as a
necessary feature of the debtor's acceptance of a deviant role;
public labeling does occur with bankruptcy. The names and financial
conditions of debtors are put in public record, published in news-
papers, and the information is circulated to credit bureaus and
businesses. It is made known to credit granters who frequently
refuse credit to bankrupted persons, and this may be considered

stigmatizing.

23See Gresham Sykes and David Matza, 1957, on neutraliza-
tion techniques. Later in this chapter we discuss the use of these
concepts in the research of Henslin and Manning on abortion.

24The studies under consideration are these: Peter Manning,
1971 ("Fixing What You Feared: Notes on the Campus Abortion Search");
James Henslin, 1971 ("Criminal Abortion: Making the Decision and
Neutralizing the Act“); Nanette Davis, 1971 ("The Prostitute:
Developing a Deviant Identity").

25All of these works relied on interviews for their data
and in the foregoing summaries of them I have pointed to the remarks
of respondents which were used as indications of feelings suggestive
of negative self-images or definitions and redefined (neutralized)
conceptions of self and social actions. Davis relied on expressed
motivations for actions. I employed both verbally expressed feel-
ings and, to a lesser extent, questionnaire responses. Unlike my
fellow writers, I took the act of declaring bankruptcy as an
indirect indication of secondary deviance in making the assumption
that bankruptcy is the action a deviant debtor would take and that
not paying (and bankruptcy is a way in which that can be observed)
is an act of secondary deviance. In a sense I have used an observ-
able behavior as an indicator.

26See James Henslin, 1970.

27See Alfred Lindesmith and Anselm Strauss, 1968, pp. 324-25.
28See Gresham Sykes and David Matza, 1957, p. 666.

 

423

29See Edwin Schur, 1971, p. 11.
30

Eagle, April 28, 1977, p. 8c.

Lon Teter, "Consumer Agency Means Business," Wichita

‘.._— ~m—- I 7‘

APPENDIX

424

£3!!! 3 Amfla w: some CREDIT

PART 1. lbs following stete-nte suggest eons of the different weys thet people eight feel ebout
beving debts or owing money. Pleese decide if you egree or dieegree with eech of these etete-nts.

CHECKONEONEACHLIhE
553:..- Piggm "19m

1. One should enjoy the good life now.

2. There is too such consumer credit for the public good.

3. For philosophy is buy now. pey leter.

'5. Benkruptoy should be used only es e lest resort.

5. The everege debtor is e perfectly honest person ebout peying hie debts.

6. The seller selects the people he gives credit to. so if he thinks
your credit is OK then it's his feult if you cen't neke the peyuente.

7. You ere entitled to buy es mob es you cen on credit beceuse credit
buyim is e right.

8. It's so eesy to buy on credit thet the everege fenily is being
m3?!“ 1nt° dbbte

9. A greet deel of debt is needed before benkruptcy is Justified.

10. ubt is sian.

ii. If there is "V possible wey to solve his finenoiel problem. e sun
should try to pey off whet he owes.

12. A person should seve up his money end then buy whet he wents leter.

13. Credit buying is fine when people keep their nonthly peynents
within their income.

PART II. Imgine thet you heve e friend. Joe. who hes e wife end fenily end eerns everege hourly weges
st e locel plent. Things eren't going so well for them letsly end. for new reesons. they heven't been
eble to keep peid up on their bills. How do you think Joe feels ebout the finenciel trouble he hes
gotten into? Would you sey thet he believes he is to blene or is not to blues for this problem? Put
yourself in Joe's shoes end decide if you egree or dieegree with eech of the following steteisents.

CHECK ONE Oh‘ EACH LINE
ALE: se ree
1. Joe feels the odds ere egeinst guys like hits so he believes he is
not to blene for his finenoiel troubles.
2. He thinks he is to bless for his finenciel trouble since he should
heve known better then to get so fer in debt.
3. He feels he is responsible for his trouble beceuse he is too eesily
tslked into buying things on time.
0. Joe thinks he is to blene beceuse he should heve sewed up sons
money to cover unforeseen events.

5. He believes his creditors ere to blene for his troubles beceuse
they ettecbed his weges.

6. He feels selesnen ere to blues for his finenciel troubles beceuse
they sold his more on credit then he could efford.

7. He thinks he‘s to bleme beceuse he should here kept his family's
buying limited to necessities while he got his bills p.id up.

8. Cbenoee ere thet Joe feels to bless for his problem beceuse he
couldn't weit until he bed the money to buy things.

9. Joe feels he is to blene for his finenciel trouble beceuse he
should've used for s reimr dey.

10. He feels he is not to bleme for his trouble beceuse he hed bed luck.

11. Joe thinks his creditors pressed him too herd for peyeent so they
ers to bless for his finenciel trouble.

12. He believes he is to bless for his problem beceuse he Just cen't
seen to nenege his money.

13. In generel, other things err! not Joe ere .0sz to blues for the
trouble he is in.

WOULD you 83 IN‘ERES‘IED IN SHARING WITH ME AN! EXPERIENCES YOU MAY HAVE HAD IN CONNECTION WITH
ram 041')! USE OF CREDIT? It would be very helpful to consider your views in this :1be end elvthing
thet you let us know would be rsgerded es completely confidentiel - in feet you don't even need to
81's your ness. If you would be willing to essist as in this wey. pleese indioete how we could get
in touch with one enother (either by phone or in person).

Write your phone number or eddress below if you'd like to heve as contect you. If you prefer.
you cen cell In -- my number is 399-1289.

1... cell - et telephone umber
You ney telk with use (w fenily) et this eddresss

 

I on sincerely greteful to you for your help on this project. If you here erg suggestions or consents.
Please write them on the other side of this questionneire.

425

 

 

 

 

426

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>55

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