An interview with the man that invented credit scoring, the second placement and automation, Ruvin Schwartz

Here is an interview with an icon in the industry. He assisted in inventing things like credit scoring, Co Lo’s, focusing on the second placement and was the first to automate many processes when computers arrived in the industry. Ruvin Schwartz was gracious to let me enter his home in FL and learn how he helped to shape the industry in the 60’s and 70’s and how he is still in business in the 2000’s.

He began, “I returned from the service in 1954, got married one week after I came back so had to get a job somewhere. My first collection job was at Bond Clothing Stores (in NY). I started out as a clerk typist, then became assistant credit manager and was eventually the top credit and collection manager in all of their stores.

After 6 years Ruvin asked for an increase in salary and stated, “They offered me 10% of what I was earning ($150 weekly) and I told them that it was not enough. Their comment was that it was the best the budget could do, so I began looking for another job.”

In a deep and strong voice for an elderly man he stated “I went to a company called Interstate Credit Corp and they offered me the same amount of money ($165 weekly). I told him that did not work for me and I told the President of the firm that he was going to force me to go into my own business.” His comment was ” if you go into business, I will be your first client.” Ruvin said this with a smirk on his face.

“Within 30 days I went into my own business” and with what I am sure was quite a swagger, he knocked on the door of the man from Interstate and said, “I’m here.” He finished with “and that was my first client”.

So CAB or Central Adjustment Bureau was opened in the early 1960’s in Valley Stream, NY.  Ruvin continued to build his client base over the next 40 years with large clients like Manny Hanny, as he affectionately called Manufactures Hanover Bank, The City of NY Parking Violations, NY Dept of Education, Chase and Citibank.  As his business expanded nationwide, Ruvin discovered the name CAB was used in other areas like Chicago. He said, ”So I had to change the name and I called my company Coldata, that name came from collections and data processing.  No one liked that name with the exception of me. Needless to say, we called it Coldata.”

Ruvin did business under Coldata for the next 30+ years.

“Back in 1960 we did not have computers and we would type out dunning letters, yes, type them by hand.”  Imagine a big room of typists doing initial dunning notices from ledger cards.  “Then the volume got so big we got preprinted letters and just had to type the name of the debtor and the name of the account we were servicing”

In the mid 1960’s Ruvin got Doubleday as a client “Doubleday at that point probably gave us 50,000 accounts to work and they required us to send out dunning letters and make phone calls.  I would look at 200 typewriters in one room and inevitably five of them would break and since the typist had no other responsibilities, it was money lost”, he said with frustration still in his voice. “And we could not afford to have back up machines. So at that point I made a decision to find a way to automate. We were one of the first collection agencies in the U.S. to create an automated process of dunning”.

“Hand stuffing envelopes became a real problem with the number of letters we were sending out for Doubleday”, said Ruvin as we sat in his home office in Florida on a cool, rainy Florida afternoon.  “We had to get these letters out in the period of a week so we hired High School students to stuff envelopes. Soon he decided this was also nuts so he purchased an inserting machine for less than five hundred dollars and soon after, another letter inserting machine.

“We used an IBM machine to print our letters, purchased for less than one thousand dollars in 1962.  It was a wire board machine.  In order to add accounts, you had to put the plugs in certain holes in the mother board. The machine was able to add, subtract and multiply, but it had a difficult time dividing.” he said while smiling.

During those years Ruvin created AIA or Affiliated Independent Agencies. “I created a concept of agencies merging together, creating a central database because in those years there were not too many who had computers and the software to run them but we did.” Ruvin was the data storage department for the members and received a service fee to house the other agencies data. Sounds like the first CO LO to me.

All this conversation sparked my own memory of when I began in collections in the late 70’s with GC Services.Skip tracing meant nearbys, mults and city directories. We called nearbys or neighbors up and down the street and asked if they knew how to reach the debtor.  Or we might ask them to leave a message on the debtors door.  Mults or multiples were people with the same last name in the same geographical area. This worked well on odd names, but was a waste for the Jones and Smiths.

Once we had been doing collections for a couple of years, we learned there was another way to get info; “sharing”. We all had personal connections at certain other agencies, banks, auto lenders and other credit issuers that we could call and share info on the location of the debtor we shared. This was the most effective skip tool especially if you had a connection at Ford, Chrysler or World Omni (Toyota) as they almost always knew where the car was even if the customer was delinquent.

In early 1980, Ruvin began working with Trans Union to create a scoring model later called QUEST. “We created QUEST to determine probabilities using credit bureau information to determine whether that human 1. could be found and 2. if you could find the debtor, what was the probability of collecting once he was found.”  I am sure this sounds familiar to all of you today but scoring did not exist at the time and QUEST was the predecessor of all scoring today. Yes, the man invented collectability scoring in 1980!” Using the limited info the CB gathered in those days, Ruvin and other people created this model and it was very effective to predict collectability.

Coldata was the first agency to work accounts differently; in past years all files received the exact same work strategy no matter the balance, issuer or any factor.  All work strategy was the same.  Coldata began working some files more aggressively than others and some files hardly at all. This allowed Coldata to gain market share in late stage paper by intensive skip tracing and prioritizing collection activity.  Most agencies only desired to work fresh charge-offs as they had no defined skip process.

When I started in collections all business was placed at the same contingency rate 33.3%, regardless of its age. I understand that you invented the second placement.  Can you explain how that came about?”  I asked of the legend. Ruvin explained that Manny Hanny had requested that Coldata expand nationwide. They did not help with the financial burden that expansion created, they just pushed to have it happen. As he opened more and more offices the volume of primary business was not enough to sustain the expenses of some offices.

Ruvin requested that his company be allowed to work all the portfolios owned by Manny Hanny.  Then he began to get secondary and tertiary portfolios. Using QUEST, Ruvin was able to control the costs and still liquidate the portfolios at a profit. “Once the marketplace, the banks, found out we could liquidate these aged receivables, then Chase Manhattan came aboard, Citibank followed and we started growing nationwide in that market, more so than in the primary market. We became known as the premier secondary agency in the US. It was new!” Referring to working smarter “We were just one of the founders of that concept.” This smarter strategy pushed the secondary placement to Coldata and made the industry notice.

“There was less pressure on us to collect that receivable than on primary. The audit control was lessened.” proclaimed Ruvin. I recalled stories that Coldata was performing better in later months of the batch tracks and getting beat badly in the first months of it’s primary placements. This was due to the collection strategy Ruvin had created by spending staff resources on skiptracing from day one.  The other agencies would get out of the gate quickly, making Coldata look bad. But by month 3-5 Coldata would blaze past the agencies that had already given up on that portfolio and moved on to the next one.

This emergence of the secondary and tertiary markets made the fees change as agencies lobbied the issuers for higher fees.  This allowed them to spend more money on skip tracing and enabled them to try to compete with Coldata.

When asked about his longevity in the industry he said, “We had a niche market, secondary/tertiary portfolios. We were not looking for early out portfolios because we knew the mandates on our time was too strict. They required you make so many calls a day and we did not work like that.  We had too many files to work that way.”     I thought to myself that I bet All of you wish that was your problem today, huh?

“Intellirisk was looking to purchase a number of collection companies in diverse marketplaces. We were traditionally a high end secondary agency”.  They were interested in the intelligent skip program that Ruvin had invented years before and was still using effectively, very effectively. “Using technology that I created called QUEST, which identifies probability factors for finding the debtor and then after finding him, determining the probability of collecting from the debtor. INTELLERISK  was definitely interested in that”, said Ruvin, speaking of QUEST.  After 4 months of due diligence Ruvin sold in 2000.

“What similarities do you see in the FDCPA and the current environment created by the CFPB”, I asked.

“When I started in this industry there were no regulations as to when you could call a debtor or a nearby relative, there were few regulations.” After the FDCPA was enacted in 1976, the landscape for collections changed. “We all had to adjust to the controls. Conceptually, we had to change the way we operated and it became more difficult to collect receivables under that constraint”.

Ruvin explained that using the scoring and intelligent collection strategies he had created, they discovered compliant ways to liquidate the portfolios.

After INTELLERISK, Ruvin created DRS  (Debt Recovery Solutions) with his sons, Elliot and Donald.  DRS was only able to work debt it owned under an agreement with INTELLERISK for the first few years after the sale. However, 10 years later contingency works as well. Ruvin has since retired and left his sons to run the business.  He is still on the phone often to advise or inspire Donald and Elliott.

When asked what the best advice he received a long time ago he stated; “Family is most important, but I did not follow it” Ruvin explained.  He said that he was business driven, working seven days a week and gone from home overseeing 7 offices and building his business.  My wife was the strong family force and is the reason my sons are compatible and complement each other in business.  They became and continue to become best friends”.

Ruvin related a funny story:

“When I first entered this business in the early 60’s, we went door to door for Rosen’s Jewelry.  I had a partner and he and I would go together to do door knocking. He used to carry a rubber stamp with him that read REPOSSESSED. We would go up to an apartment and ask the woman for the $3 she owed on the jewelry she had purchased.   She would say she did not have the money. I would then tell Julian, my former partner, to repossess the refrigerator.  He would take the rubber stamp out and press that stamp against the refrigerator.  Stunned, the woman would say, “are you are taking my refrigerator?” And that is how she would come up with a dollar or 50 cents.”

“If the issuer recognizes the fact that companies will only perform to the level of their financial reward, things will change. If the client will not dictate the level of activity, only look at the net return over a certain period of time, that’s a different world I would enjoy being in”

“At one point NY City Parking violations gave us ¾ of a million accounts in one dump” so he learned the value of working the accounts that we could locate and had a probability of payment, versus the ones that may not.  He had to work smart or go under. Today the cost of letters alone on a portfolio of 750,000 files would be over $350,000.00.

When asked if he misses the excitement of business he exclaimed “Yes, I miss it very dramatically at times but on the day to day anxiety level NO!”

Now Ruvin spends most of his time in his Palm Beach, FL home enjoying golf, travel and the Florida social life.  His final statement was “I live a full life!”

Thanks for your big contribution to the industry Mr. Schwartz, from all of us!