But all that borrowing produces a lot of financial heartburn. Every year, banks, retailers and other consumer lenders write off more than $70 billion in uncollectible debt, mostly hopelessly overdue credit-card balances. From there, the debts are bundled for auction and scarfed up by companies that pay next to nothing for the opportunity to take one more shot at collecting from deadbeat debtors.

It is through that process that about $9 billion in secondhand debt has landed in Greater Cincinnati, ending up at a Blue Ash company called Unifund and its 38-year-old majority owner, David Rosenberg.

Unifund feasts on the famine of others. As banks and lenders dump their delinquent consumer debt, Unifund and others happily buy it in bulk for pennies on the dollar. According to Collections & Credit Risk magazine, Unifund boasts one of the nation's biggest inventories of shaky money.

From its start in Dayton, Ohio, in 1986, Unifund has quietly become an economic force. It has 45 employees; clients as big as Citibank and American Express; and dealings with banks, retailers and law firms all over the country. Rosenberg also has a project going with hip-hop mogul Russell Simmons of New York, involving the issuance of more than 100,000 debit cards to low-income people.

All this from someone who yawned his way through school and dropped out of Ohio State University after his freshman year. Rosenberg, born in Izmir, Turkey, moved to Dayton as a child after his father, a civil service engineer, was assigned to Wright-Patterson Air Force Base. At 10, he said, he began entertaining thoughts about owning a business. Four years later, he was selling Fuller brushes. At 15, he took a summer job with a collection agency.

It soon dawned on him that regular collection methods were largely a waste of time. He also learned debtors were subjected to the practices outlawed by the Fair Debt Collection Practices Act of 1978.

"You had collection agencies that were basically beating people up by phone to attempt to collect in a very short time frame," he said. "It really does take a lot longer for people to rework their situation and regenerate themselves. To call them in some accelerated, urgent 'I only have 60 to 90 days to take care of this with you or it's going to go on to the next process' isn't something that resolves anything for someone who owes money."

The young entrepreneur

In 1986, at the age of 20, Rosenberg gathered $20,000 in savings and formed Unifund in a one-room office in north Dayton.

The business started out by buying the bad checks of supermarkets and retailers, paying 75 to 80 cents for each dollar of face value. Unifund reaped 115 percent to 125 percent of the check amounts, a return made possible by charging people insufficient-funds fees, Rosenberg said.

Relieving themselves of bad checks, though, was only one reason retailers signed up with Unifund. Rosenberg developed software that helped to avoid bad-check passers. Before long, Unifund was dealing with national chains, including Kroger. Its system is now used by more than 30,000 stores.

Meanwhile, buying bad debt was becoming big business. The Federal Deposit Insurance Corp., inheriting the bad loans of failed banks during the 1980s, began selling them in batches for pennies on the dollar. Unifund joined the action. It made its first big buys in 1990: a series of bad debt portfolios from Manufacturers Hanover Trust with face values of up to $50 million apiece.

Ironically, even as his business grew, Rosenberg found himself on the receiving end of liens and delinquency notices. Over the past decade, Rosenberg's name has appeared on Ohio income tax liens, an overdue notice for Vermont real estate tax and a lawsuit for an unpaid auto loan. Rosenberg made good on the debts. He declined to talk about them for this article.

The price of credit

As Americans gorge themselves on easy credit, defaults are swelling. As of September, total U.S. consumer indebtedness, excluding home loans, stood just shy of $2 trillion, compared with $1.3 trillion in 1998, the Federal Reserve says.

U.S. households carried an average of $8,940 in credit-card debt in 2002, up from $6,618 in 1998, market research firm CardWeb.comsays.

Banks keep issuing credit cards because income from the interest - now averaging about 13 percent - more than offsets any write-offs. But buying the write-offs can be profitable, too, said Dennis Hammond, executive director of the Debt Buyers Association in Santa Fe Springs, Calif.

"The target," he said, "is to double your investment in three years."

Rosenberg said Unifund generally pays 4 cents to 10 cents per dollar of face value and recovers an average of about 20 cents, or a gross profit of 150 to 200 percent.

Strong-arm tactics are not part of the operating plan, he says. Collection agencies often harass by phone, threatening to garnish their wages or confiscate their homes. Such practices are illegal. Several lawsuits accuse Unifund of having an unsavory side, but Rosenberg says that pales alongside what other companies do.

"We're not in the embarrassment business," he said, not at all red-faced about the Phat Farm street sneakers he mixes in with his snappy executive garb.

Instead of rotely going after debtors, Rosenberg says, Unifund gathers information about people from public and proprietary databases, then classifies them by their ability to pay. It steers some people into credit counseling or refinancing, others into court.

"Anybody else would call those people and say, 'You've got to pay!'" he said. "I think it's important to understand what people's situations are first. Today's debtors are different. You have people who are intermittently running into problems as they change jobs, careers and have families. It's an unintentional circumstance."

After sifting its newly acquired accounts, Unifund keeps most, but sells others. Of those it retains, Unifund decrees who can pay, who can't and, above all, who should. When it decides someone can - and should - pay, Unifund assigns collecting to agencies and law firms.

"We don't do business with people who claim to be rough-tough collectors because it's not our philosophy that that's what produces payment," Rosenberg said. "We're not of the opinion that calling somebody and yelling at them and making them afraid of what might happen next is the best way to get paid."

An industry in controversy

Bud Hibbs, a nationally known consumer advocate in Fort Worth, Texas, disputes that claim.

"Excuse me while I throw up," he said. "Nothing could be further from the truth. I've heard those claims a million times over 20 years."

Hibbs, author of The American Credit System: Guilty! Until Proven Innocent, said he receives many inquiries about Unifund's collection methods. He reports on debt collection companies on his Web site, www.budhibbs.com.

Perhaps the harshest claims against Unifund are allegations that it fiddles with people's credit reports.

To help people put their credit problems behind them, the federal Fair Credit Reporting Act requires debt to be expunged from credit histories seven years after their delinquency, barring new activity on the account. But class-action lawsuits filed in Texas and Chicago claimed Unifund is chasing outdated debts.

In the pending Texas case, two plaintiffs say Unifund bought their credit-card debt, freshened up the delinquency dates by a year and provided them to Experian Information Solutions, one of the nation's three big credit-rating firms.

Russell Van Beustring, a Houston lawyer representing the Texas plaintiffs, said the subsequent blemish on people's credit ratings lowers their creditworthiness and makes them more vulnerable to abusive collection tactics. In his lawsuit, which also names Experian and The Credit Store, he said the companies "defraud and scam American consumers out of hundreds of millions of dollars." Their actions, the suit states, amount to racketeering.

"The major reason why the Fair Credit Reporting Act was amended was that these companies were rolling back the odometers left and right on the dates of last activity, and consumers were getting screwed," Van Beustring said.

The Chicago case accused Unifund of telling Experian that Richard and Lida Munson's credit-card default dates were up to six years later than they actually were. They settled for an undisclosed amount in 2002.

Unifund says the date-changing allegations have no merit. Rosenberg declined to talk about the lawsuits beyond saying that they are off-base.

Reincarnating old debts on credit reports is a practice familiar to the agency that regulates collection agencies, the Federal Trade Commission. The FTC has fined companies twice in three years for such tampering with consumers' credit. It accused one of those companies, D.C. Credit Services of Canoga Park, Calif., of harassing people with obscene language.

D.C. Credit settled by paying a $300,000 fine and correcting seven years' worth of false information supplied to credit bureaus.

Thomas Kane, a lawyer in the FTC's Division of Financial Practices, said he was unaware of the allegations against Unifund.

"We are not shocked to hear that other debt buyers are doing it," Kane said. "It is a powerful collection tool, if you can get away with changing the date on a person's credit report. But it's illegal."

The FTC said it has received 203 complaints against Unifund - a number that it says is low for bill collectors. It has taken no enforcement actions against Unifund.

No credit to secured credit

Hip-hop impresario Russell Simmons jumps at the chance to vouch for Rosenberg's integrity.

Simmons, one of America's most successful African-American entrepreneurs, was the subject of Business Week's Oct. 27 cover story, "The CEO of Hip-Hop." His company, Rush Communications, was Black Enterprise magazine's Company of the Year in 2002. He founded, then sold, Def Jam Records - the label for hip-hop musicians Run-DMC, LL Cool J and Public Enemy. He now focuses mainly on expanding his Phat Farm apparel line - the maker of Rosenberg's sneakers - but Simmons found the time to create Def Poetry Jam, a Broadway production that won a Tony award in June. Rosenberg shared the award as an executive producer.

Simmons and Rosenberg own homes in the Hamptons. They spend vacations together in St. Bart's. In his Tony acceptance speech, Simmons thanked Rosenberg for being one of the few financial backers of Def Poetry Jam.

"He's one of my dearest friends. We're just alike," Simmons said from his office in Manhattan's Fashion District. "He and my wife are the only two outside of myself who would put money in my play."

Rosenberg and Simmons were introduced two years ago. That led to the debut of the RushCard in March. For $19.95 a year, takers are issued a debit card that draws from cash balances kept by M&T Bank of Buffalo, N.Y. It lets people who can't afford traditional banking buy things by phone and by the Internet.

"I told (Rosenberg) that my job had to do with empowerment and that the more you give, the more you get," Simmons said. "It evolved into a company that could really build on giving opportunities."

Rosenberg, who puts in 12- to 18-hour workdays and travels frequently, throttles into high gear when asked why society needs the RushCard.

"There are cases where the people who are frequent, consistent payers, but who don't show up as being qualified borrowers, are really being taken advantage of," Rosenberg said.

"So they really should be boosted up into another kind of maybe nonprime (credit) category. ... That doesn't really happen. People kinda get stuck in that place and then you get that kind of service and you're branded to an extent as being that kind of customer and you get reoffered that type of nonadvantageous solution again, and it takes a very, very long time to make it back into what you and I would call a bankable scenario."

With a $9 billion chest of bad debt, a beehive of a business and a Tony on his credenza, these are heady days for Rosenberg.

Consumer credit keeps getting easier, and Rosenberg sees nothing but growth ahead.

He won't oblige requests for an income statement, but his recent purchase of a Challenger 604 intercontinental jet seems to indicate that he has the nation at his feet. Before long, Unifund could become a familiar name in town.

"I think," Rosenberg said, "it will become 10 times the size it is."

E-mail jmcnair@enquirer.com.

Other Debt Collection/Debt Collector News Media Articles

Learn What Your Rights Are:

Debtors Rights

Fair Debt Collections Practices Act

Your Right to Validation

Dealing With Debt Collectors

Dealing With Debt Collections

Your Credit File Rights

Brochure on Fair Debt Collection from the Federal Trade Commission

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