Timesaver Inc., a Rockville company that helped thousands of consumers obtain credit over the past decade, is broke.
H. David Meyers, 39, Timesaver's founder and president, said he did not want it to end that way. "All we ever tried to do was to help people get credit," he said.
All of the assets of the company will be sold this week for $200,000, if a U.S. Bankruptcy Court in Rockville approves an offer from Timesaver's largest single creditor.
Money from that sale will be used to retire some of the company's $4,275,471 in known liabilities. But Timesaver also faces millions of dollars in civil lawsuits.
One of those suits is a $17 million claim alleging fraud and breach of contract. It was filed jointly by Key Federal Savings and Loan Association, of Randallstown, Md., and Key Financial Services Inc. of Newark, Del. -- related companies that together served as Timesaver's biggest banker. The allegations in that lawsuit are denied by Meyers.
The bankruptcy "may have in excess of 35,000 creditors," according to a description of the case in court records. Timesaver's insolvency may make it impossible for creditors suing the company to recover, even if the suits are successful.
Timesaver's main business was to get credit cards for people who otherwise might have had difficulty obtaining credit, such as students, unemployed spouses and moderate-income, self-employed individuals.
According to Timesaver's management, rising operating costs wiped out the company's already narrow profits, forcing the bankruptcy. Key Federal in its lawsuit has blamed the failure, instead, on "fraud and mismanagement."
Bankruptcy court records show that most of the company's creditors are consumers who are due $25 refunds on credit card applications that were rejected by Key Federal or other banking institutions that did business through Timesaver.
"The identities of all of these individuals are not fully known" at this time, according to the court records. Many of those people, even those who are known, will never get refunds.
Timesaver employes who are owed a total of $75,526.61 in back wages and commissions may fare better. They "most certainly will be paid," said Lee A. Blumberg, a director of the company.
Wages, taxes, employe benefit contributions and items such as rent deposits owed by a debtor are listed as "priority debt" in bankruptcy filings. That means such debts are paid first, as money becomes available. But items such as subscription refunds are nonpriority debt, which means that they are paid last, if at all.
This is particularly true under Chapter 7 of the Bankruptcy Reform Act of 1978, the law Timesaver is using to seek protection from its creditors. Timesaver wants to liquidate its assets, with the proceeds used to pay off some debts, and to escape as much debt as possible. And that means that Timesaver, actually incorporated as a District of Columbia company on May 5, 1974, is finished.
Meyers said he started the company with the idea that there were many people who were credit-worthy but who were being denied credit because of preconceived notions about their ability and willingness to pay debts.
Thus began what essentially was a credit tryout program. Basically, it was supposed to work this way:
For a fee of $25, Timesaver would process a consumer's credit card application through a financial institution -- such as a savings and loan association or a bank licensed to offer MasterCard or Visa credit cards.
As a condition of credit approval, the applicant was obliged to establish a savings account with the financial institution issuing the credit cards. The lending institution had sole responsibility for credit approval.
The approved credit line would be commensurate with the amount -- actually a form of collateral -- deposited in the savings account. If the consumer established a record of paying his or her credit card bills on time, the initial line of credit could be increased beyond the amount deposited in the savings account.
A key stipulation was that the credit-granting institution would honor only applications made through Timesaver. The bank or savings and loan association would earn a certain percentage of the revenue from the credit card sales. Timesaver would make its money through the $25 fees, assessed annually, and through other services marketed to its credit card customers.
Timesaver officials said in separate interviews that the company helped more than 175,000 customers establish credit in the last 3 1/2 years, mostly in dealings through Key Federal. Of those consumers, more than 15,000 were able to upgrade their credit lines, Timesaver officials said.
"For many of those people, Timesaver was the only way they could get credit established," Meyers said. "The program works. The only mistake I made was not getting involved with a bank that was big enough to carry out the program."
But the suit filed by attorneys for Key Federal and Key Financial Services in Montgomery County Circuit Court says otherwise.
Timesaver's demise was caused by "fraud and gross mismanagement," the Key complaint says. Making similar allegations of fraud and mismanagement, Key attorneys petitioned the U.S. Bankruptcy Court last October to place Timesaver's assets in the hands of court-appointed trustee Leslie Scott Auerbach.
The major contentions in Key's civil lawsuit include:
* Breach of contract. Timesaver repeatedly broke marketing and other agreements made with Key Federal and Key Financial, the complaint says. Specifically, Timesaver refused to refund $25 fees to consumers whose credit applications were rejected and "has utilized deceptive, unauthorized and unwarranted trade practices in attempting to acquire new accounts," Key said.
For example, according to the suit, Timesaver on a number of occasions failed to tell credit card applicants that they would be required to make an initial savings account deposit equal to their requested credit line.
* Fraud. Timesaver allegedly billed customers for phantom charges. That created a huge number of "chargebacks," items charged back to Key by credit card companies because the charges had no consumer authorization. Key was then responsible for the charges.
In April 1984, "Timesaver had chargebacks of $46,218 on sales of only $123,253," the Key suit said. The suit also accuses Timesaver of attempting to hide unauthorized charges by submitting charge slips "which purported to reflect sales of Timesaver's Credit Card Registry and Credit Card Association" and other Timesaver services.
* Intentional interference with contractual relations. Key's attorneys accused Timesaver of "unauthorized use" of Key Federal's own credit card holder lists, and of making false representations to people on that list, thus undermining Key's relationships with its customers and with other financial institutions.
Meyers said that Key's charges are "totally without merit" and are being made to cover up what he called Key's own shortcomings in the credit card business. "We have never done anything which is illegal, unethical or immoral," he said.
"They're just throwing around charges to protect themselves. . . . The business failed because Key did not have the requisite net worth to really run this program. They were running scared. They destroyed the program, and now they're looking for a scapegoat," Meyers said.
David H. Wells, Key Federal's senior vice president, disagreed.
He said that Meyers' program was based on a good idea but was mismanaged. Wells also pointed out that Key asked the bankruptcy judge to appoint a trustee, based on its allegations about Timesaver's conduct. The trustee was appointed, although the court did not resolve the allegations.
"We have made several adjustments in the program since our disassociation with Mr. Meyers. . . . We have been able to bring down our delinquency rate 35 percent. We hope to make money on the thing," Wells said.
In November 1983, in a separate matter based on consumer complaints to the Maryland Consumer Protection Division, Timesaver agreed to refund up to $294,000 to consumers who said they were the victims of misleading advertising.
The agreement with Maryland State Attorney General Stephen Sachs was one of the largest settlements in the history of the Maryland Consumer Protection Division, which conducted a two-year investigation.
Timesaver was accused of failing to tell consumers about savings account deposits required for credit approval. The company also was accused of persuading applicants, for a fee, to join a credit card counseling service they did not need, and of accepting applications from people whose annual incomes were below the minimum amount -- usually $15,000 -- required by most credit card companies.
Timesaver admitted no improper conduct in the Maryland state consent agreement.
Besides its legal problems, Timesaver's business costs were beginning to outrun its income. On April 30, 1984, the company signed a $679,339 promissory note with Key Financial to help underwrite expenses. But on Aug. 8, Key severed all of its business relationships with Timesaver, citing numerous alleged contractual breaches, including failure to make loan payments in a timely fashion.
Timesaver turned from Key to the bankruptcy court last Sept. 21. The company initially sought protection from creditors under Chapter 11 of the federal bankruptcy law. That meant that Timesaver still would try to pay most of its debts, pending a reorganization of its business activities.
But Meyers said loans he hoped to get did not come through. Nearly one month later, the court approved Timesaver's petition to change its bankruptcy case to the more drastic Chapter 7 filing.
Auerbach, the court-appointed trustee, also took over at that time. An appraisal of Timesaver's assets -- at liquidation prices -- subsequently was made by Ronald L. Rasmus Commercial Auctioneers-Appraisers of Alexandria, Va.
Rasmus put the value of Timesaver's computers, mailing lists, desks and other assets at $223,382, nearly $600,000 below what Timesaver had estimated in September to be the value of its property.
Peter Blumberg, a brother of Timesaver director Lee Blumberg, offered to buy the company's assets for $200,000. In effect, Blumberg was trying to cut his losses, according to his attorney. Timesaver owes him nearly $1.3 million in payments on business loans, according to court records.
Richard H. Gins, Peter Blumberg's attorney in the matter, said the purchase deal is "very favorable" to his clients and to creditors represented by Auerbach.
Auerbach will save money for his creditor-clients by avoiding the hefty costs of advertising and paying an auctioneer to sell Timesaver assets item by item at prices possibly lower than that offered by Peter Blumberg, according to Gins. And Peter Blumberg will get a chance to redeem his investments in the company, perhaps by starting it up again under another name and different management "and try ing to make a go of it," Gins said.
Auerbach said he hopes the court approves Blumberg's offer. The alternative is to continue paying $21,900-a-month rent on an office building without a business, in addition to payments for security and insurance to protect the building's contents, Auerbach said.
That continued cash drain from Timesaver's estate is drying up the amount of money available to creditors, the trustee said.
For his part, Meyers said that he is going to enter business again.
"If you know me, you know that I'm not a quitter," he said. "I believe that my program was every inch a sound program. . . . I believe we helped. I'm not running away. I'm not going to die over this." CAPTION: Picture 1, Stickers on Timesaver's office door; Picture 2, Sign above office in Rockville that bankrupt Timesaver still is renting for $21,900 a month. Photos by Frank Johnston -- The Washington Post