THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, December 11, 1994 TAG: 9412110081
SECTION: LOCAL PAGE: B6 EDITION: FINAL
SOURCE: BY JACK DORSEY, STAFF WRITER
LENGTH: Medium: 85 lines
Among the 133 Navy exchanges worldwide, only one - Norfolk - launched a credit program so flawed that it may have done more harm than good for its sailors.
The man in charge of the exchanges, Rear Adm. John T. Kavanaugh, blamed a number of factors for the problems of the Home Lay-Away program: haste to remain competitive; the unexpected popularity of the program; and, above all, poor bookkeeping, marked by carelessness and an absence of automation.
Some signs of the rush:
A $200 minimum purchase was required, in theory to restrict use to big ticket household items families need - appliances, automobile tires, furniture. Many critics say the requirement just encourages unnecessary spending.
Billed as a no-interest plan, it charged customers an upfront 3 percent handling charge and required that they repay the entire debt within six months.
This amounted to an interest rate over half a year that was roughly equal to what private credit cards charged.
Payment was required in person, and the long lines, paperwork handoffs and filing in shoe boxes created confusion.
Plus, unlike civilian department stores where credit cards account for 80 percent of sales, exchanges get only 37 percent from credit cards. The rest is in hard-to-handle cash.
The problem began in November 1992 when the Navy, fearing it would lose customers to a new Air Force deferred payment plan, threw together one of its own.
``This thing was totally manual, no mechanization, and the ground rules were very foolish,'' Kavanaugh said.
``There was great potential for error in that manual system.''
Still, sailors and their families rushed to take advantage of the deal. Projected to develop 20,000 accounts in the first year, the program had six times that many.
``We did not think it would be that successful,'' Kavanaugh said.
The Home Lay-Away program was canceled in October 1993.
``All of the bills should have been paid, in a perfect world, six months after that,'' he said.
But they weren't.
One reason is that Norfolk was ``more humane'' than other exchanges, trying to head off the final phase of the collection process - garnishment of wages.
A result was that last spring, unpaid debts mounted at an alarming number. The exchange decided to get tough and brought in a team of about two dozen people to work the problem. They sent garnishment statements to dozens, maybe hundreds of customers each week, relying on the shoe boxes alone for their records.
In all, 8,600 of the 120,000 Home Lay-Away accounts at the Norfolk Exchange were considered delinquent enough for garnishment.
The accounts ``inundated'' the fleet, Kavanaugh said.
But Kavanaugh learned a month later that the final notices had never been sent. They remained on a clerk's desk, set aside.
What happened next isn't clear, but the delinquent sailors eventually received their notices.
``My guess is they just mailed them out. In the month or two they sat there, some (customers) could have made payments,'' Kavanaugh said.
That would explain why so many people, perhaps up to 1,200, had legitimate complaints that they had paid their bills but were not properly credited.
``I think they are getting a handle on that now,'' he said. ``I don't know how many bad stories they have heard.''
For those with no proof of payments, there is little Kavanaugh and the exchange can do, he said.
``It bothers me to think about those who said they paid cash. Well, if the person didn't write it down on a chit, where did the cash go?,'' he said.
``It could have gone to somebody's pocket, but it probably didn't. . . . I don't have any indications that there is anything more untoward here, other than some poor bookkeeping practices that we caused because we went into this too fast.'' ILLUSTRATION: Graphic
WHOM TO CALL
For answers on Home Lay-Away or NEXCARD
Jim Winn, customer service supervisor 631-3905
Dominique Lopez, NEXCARD administrator 631-3908
Ron Carter, fleet liaison 631-3672
by CNB