September 2, 2002 Vol. 160 No. 10
Making Money Off Deadbeat Dads
Private collection agencies are going after delinquent parents who owe child support. But do the companies benefit kids [EM] or themselves?BY NADYA LABI
Suzanne Simmonds was fed up. For 6 1/2 years, she had been unable to collect the child support her ex-boyfriend was legally required to pay. So in January 2001 she signed a contract with Child Support Network. She agreed to pay the Arizona company a $500 application fee and a 35% commission on any collections of the $3,800 owed to her daughter. After five months, the agency had pocketed $885, and Simmonds had received just $215. When she tried to get out of the contract, the company refused, ordered her to pay more than $1,800 for its efforts and sent her a scolding letter. "This is shameful conduct on your part and makes you no better than a non-custodial parent," said the letter. "Do you think those payments started coming through divine intervention? I think not."
JOHN NOLLENDORF FOR TIMEBeck's e-wife owes more than $25,000 to their four kids in Kearney, Nebraska
As if deadbeat parents were not bad enough. Now aggravated spouses have a new gripe: profiteering companies that offer to help chase down the more than $89 billion in child-support payments that American parents have failed to make. Deadbeat bounty hunting is a small but growing field. There are at least 38 private businesses, up from a smattering a decade ago. The biggest of them, Supportkids, has 30,000 open cases and has collected more than $120 million from deadbeats since it was founded 11 years ago. But it has also kept $40 million for itself, which raises the question, Do companies like Supportkids profit children or mainly themselves?
State agencies and nonprofit organizations have received hundreds of complaints in the past few years from clients who feel bilked. Some custodial parents don't realize how difficult the contracts are to cancel and find themselves paying exorbitant fees for services that aren't fully delivered. "We have all sorts of people who have gone to private agencies and feel ripped off and lied to," says Geraldine Jensen of the Association for Children for Enforcement of Support, whose members are low-income parents seeking child support. Channeling the collective anger, Charles Barr, a lawyer in Milwaukee, Wis., has filed a class action accusing Supportkids of misleading advertising and unconscionable contracts.
The bounty-hunting industry might not exist if the government were more competent. The state is supposed to collect child support free of charge. The welfare-reform act of 1996 tried to make the job easier by linking government databases and requiring firms to report new employees to child-support agencies. The Bush Administration made deadbeats an issue in July when it began arresting dozens of delinquent parents nationwide. But collection rates are still feeble. The amount of unpaid child support nearly doubled from 1996 to 2000, according to the latest available figures from the General Accounting Office, paving the way for more and more private firms to move in. "When a custodial parent comes to us, they have on average not been getting money for four years," says David Conder, president of the national association of private collection agencies. "We bring money into the household. Very rarely do we take it out."
Supportkids promises to hunt down deadbeats and devote personal attention to custodial parents. Many customers are appreciative. Nancy Fox, 46, lost patience with the child-support office in Ann Arbor, Mich., after a decade of trying to squeeze payments out of her ex-husband. Months after hiring Supportkids in 1999, she gladly received a lump-sum payment of $7,590--after Supportkids took its 34% commission. When the state agency suggested that she might be better off canceling her contract with Supportkids, she recalls asking, "What are you, crazy? Then who's going to collect the money for me?"
But Supportkids' aggressive tactics have angered others. The company requires clients to sign a change-of-address form that directs support payments first to its office in Austin, Texas. The company takes its cut and then disburses the remainder. Dan Beck, a radio operations manager in Kearney, Neb., initially agreed to the arrangement. He hired Supportkids to collect the $25,000 in arrears that his ex-wife owed their four children. Then he discovered that the company had taken 34% out of four tax intercepts money that the Internal Revenue Service, not Supportkids, had withheld from her tax refunds. He managed to get that money back, but he could not get out of his contract. Ok Cha Adams, a housewife in St. Louis, Mo., similarly agreed to turn over a third of nearly $17,000 in child-support arrears to the company. Then she learned from a Cleveland Plain Dealer reporter that it was not Supportkids but the military that had garnished her ex-husband's wages. Supportkids counters that it deserved the money because of its efforts to secure payment. It adds that the overwhelming majority of its clients are satisfied customers, noting that fewer than 1% file "official" complaints.
Supportkids maintains that it has no way of knowing whether checks are government intercepts or wage garnishments that Supportkids put in place. It says its policy is not to charge fees on funds that its 400 "enforcers" do not collect. But Paula Gardner, who resigned as an enforcer at Supportkids earlier this year, says that policy meant little in practice. "We were asked to have employers reroute wage-garnishment payments to Supportkids whether we filed those garnishments or not," she says. She recalls her first case in November of last year. "We did nothing for it, and Supportkids took a third of the money," she says. "The mom's name was Mary, and she sent me a handwritten thank-you card."
The Bush Administration, while aware of the complaints, does not seem to want to get involved. (Supportkids' CEO, Casey Hoffman, worked on Bush's transition team.) "If a family chooses to engage a private collection firm, parents ought to have that option, so long as the agreement is clear up front," says Wade Horn, Assistant Secretary for Children and Families at the Department of Health and Human Services. But some critics of the private sector urge the Administration to do more. "Here we have an industry where some of the companies, by almost any measure, are alleged to be doing bad things," says Vicki Turetsky, a senior staff attorney at the Center for Law and Social Policy, a nonprofit organization that works on behalf of low-income families. "But there's no message coming from the Bush Administration that these practices won't be tolerated." A few states, including Connecticut, have passed laws capping commissions. At the federal level, however, there are no rules governing child-support collection, even though consumer-debt collection has been regulated since the 1970s.
Still, an industry that turns up the heat on others is learning how it feels. Gary Katz, CEO of Child Support Network, the nation's second biggest deadbeat-collection firm, worries that a small number of complaints could endanger what he feels is "a critical option for moms seeking help." He adds that his company brought an array of investigative resources to bear upon Suzanne Simmonds' case and therefore earned its fees. And for the record, his company no longer uses the form letter sent to Simmonds but not because it contained harsh language. Katz explains, "We stopped using it because it wasn't effective."
With reporting by Deirdre van Dyk
© 2002 Time Inc.