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W hat happened to Credit Card Center? Well, it's dead - or at least dying. Webster's Dictionary defines death as "a permanent cessation of all vital functions." In the case of this Philadelphia-based ISO, which deployed and did the processing for thousands of ATMs, that permanent cessation has made leasing much more difficult and has created a watchdog mentality among ATM manufacturers.

How did it happen? When did the first signs of dysfunction start to show at Credit Card Center?

For the answers to these difficult questions, one has to go back to before June 6, 2001, when CCC filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Eastern District of Pennsylvania. Among its leading creditors were major players NCR and Tidel Technologies. At that time, CCC reported it had total assets of $57 million and total liabilities of $78 million.

In the months preceding the bankruptcy filing, several class actions and civil complaints had been brought against CCC, one initiated by CCC's largest distributor, Tidel. When CCC filed bankruptcy, it owed Tidel approximately $27 million, excluding interest and other charges. That obligation was secured by a collateral pledge of accounts receivable, inventories and transaction income.

According to Tidel, CCC hadn't made any payments since January 2001. Since filing its complaint in May 2001, Tidel stopped shipment of any product to CCC. Perhaps Tidel's complaint was the big straw that broke CCC's back and led to its bankruptcy filing. Some people at Tidel felt that way. After all, bankruptcy does halt litigation and collection efforts.

The fallout continued. Tidel issued a statement in June warning of potential significant changes in its earnings for the quarter ending June 30, 2001 as well as future earnings. Tidel subsequently wrote off $18 million of its $27 million CCC-centric loss in its third-quarter financial report.

In September 2001, Tidel and NCR signed a deal with the Federal Bankruptcy Court to acquire more than 4,000 of CCC's machines throughout the country for $8 million. The inventory consisted of ATMs, along with parts and supplies, originally manufactured by Tidel, NCR and other companies. As part of the deal, Tidel placed $1 million in escrow, and both Tidel and NCR received credit against accounts receivable owed them by CCC.

In a separate agreement between NCR and Tidel, NCR paid Tidel $1,032,300 to purchase NCR ATMs listed in the acquired inventory. This included 650 new NCR ATMs and about 1,000 used NCR ATMs in need of refurbishing or parts.

With this deal, Tidel expected to recover between 1,500 and 2,000 of its own ATMs from CCC storage locations, representing approximately one-third the total number of units not paid for by CCC. Tidel saw this deal as an important step in its efforts to recoup CCC losses.

Things didn't improve for Tidel, though. In November 2001, attorneys in New York filed a lawsuit against Tidel on behalf of everyone who had purchased publicly traded securities of Tidel from April 6, 2000 through Feb. 8, 2001. Filed by Schoengold & Sporn, the complaint alleged that Tidel falsely reported its sales of ATMs at a "record" pace.

According to the complaint, those false claims and the consequent unrealistic inflation of the company's stock price allowed Tidel to begin trading on NASDAQ, an impossibility without such misleading information. Named as defendants in the suit along with Tidel were James T. Rash, Tidel's Chief Executive Officer, Chief Financial Officer and chairman of Tidel's Board of Directors; Mark K. Levenick, Tidel's Chief Operating Officer and a director of Tidel; and James L. Britton III and Jerrell G. Clay, both directors of Tidel.

The saga continued. Three members of its Board, including Rash, filed Form 4 reports with the Securities and Exchange Commission showing open-market purchases of the company's common stock in October. Clay purchased 40,000 shares, and Rash and Raymond P. Landry purchased 10,000 shares each.

At that time, Tidel also reported that Britton, who had served as a member of the Board of Directors since 1990, had tendered his resignation on Oct. 11. Britton had acquired 100,000 Tidel shares for $81,500 through the exercise of warrants on July 12, 2000. He then sold 133,800 shares for a profit of $1,556,494 over the next 12 days.

A month earlier, Rash had sold 250,000 shares for a profit of $2,917,839 over an eight-day period beginning on June 13. Levenick also sold 105,000 shares from June 14 to 16 for $1,246,070 in proceeds. But Tidel claimed that at the time of the stock sales, no one in the company anticipated future problems with CCC. Let's wait a moment for the laughter to die down.

During this time, CCC was keeping busy in court as well. Pending sales of its assets were put on hold. Hearings were held to determine the best possible entity to take over the collapsed CCC empire. In Pennsylvania's Eastern District Bankruptcy Court, Judge Kevin Carey was hearing proposals from E*TRADE ATM, TRM Corp. and XtraCash ATM of San Diego, all eager to pick the bones of CCC's carcass.

Who would prove the best provider of an overall solution for the bankruptcy estate? The winner was XtraCash. On Oct. 9, 2001, Amicus Financial, the electronic banking division of Canadian Imperial Bank of Commerce, announced that under its ATM operation arm, XtraCash, it had been awarded the opportunity to solicit all of CCC's former merchants in an effort to assume the nearly 15,000 ATM machines nationwide.

At that time, Amicus Financial was managing about 8,000 terminals throughout the U.S. and Canada. It was good news for those merchants caught in the crossfire. A reputable banking organization had won the exclusive right to keep those terminals operational. For Amicus, it meant an opportunity to become the second-largest ATM deployer in North America.

Smaller companies also had gotten into the act, such as two restaurants - Allegro Pizza in Philadelphia and K'Ching in Florida - who filed class-action suits against CCC in May 2001, alleging, among other things, breach of contract. These class-action suits alleged CCC owed monies to more than 10,000 merchants across the country. They claimed CCC had stopped paying surcharge revenues, monthly ATM advertising revenues and processing revenues.

Another class action was filed by a group of Pennsylvania bar owners against the leasing companies that financed their ATMs through CCC. The suit contended that because Credit Card Center was the agent for the named leasing companies, it must pay what the company promised. The leasing companies named in that suit were Advanta Leasing, Information Leasing Corp., QL Capital, United Star Leasing, Progress Leasing, Kinetic Leasing and Newcourt Financial USA.

Unable to settle these and the other mentioned civil complaints for nonpayment, CCC had no choice but to ease on down that road to bankruptcy court. Unfortunately, there was no Wizard of Oz in ATMland able to pull something out of a sack to whisk them back to Kansas. There were just lots of suits, lots of motions and briefs and lots of very unhappy customers, especially small to midsize merchants.

Luckily for the "little people," they had a strong ally in their corner, the Pittsburgh-based law firm of Eckert Seamans Cherin & Mellott, representing the Unsecured Creditors Committee. In Chapter 11 cases, the statute requires that a committee be appointed to speak on behalf of the unsecured creditors.

The banks and institutions have big legal guns to keep reminding the judge of the evil deeds done to their clients. For the mom-and-pop stores that suffered directly, their power came in the form of expert counsel. According to attorney Kitt Turner of the Eckert firm, anyone who is still processing transactions with CCC is receiving direct payment of their surcharge and revenues. Those monies are coming from Core Data or Money Access, among others, and have been since Aug. 1, 2001 as a result of the agreement CCC entered into with CIBC subsidiary XtraCash.

Creditors are moving on to a new processor with the blessing of the court. And those moves are being highlighted with legitimate financial merchant incentives.

"It is better than the situation they were in," says Turner. "It is an improvement in that they know they are going to get a quality company affiliated with a major institution. It's not perfect, but it is certainly an improvement."

Does that improvement carry over to the ailing Credit Card Center? According to CCC's in-house counsel, its attitude is optimistic.

"We're still under Chapter 11, a liquidating 11," says CCC attorney Thomas Pfender. "We're itemizing the assets of the company, liquidating them and at the conclusion will either convert to Chapter 7 (or) shut the doors and administer the claims." An auction for CCC furniture was held recently. A skeleton crew is still working onsite to clarify what's left of assets and administer claims. "We're trying to wrap it up," says Pfender.

Wrapping it up includes some ongoing operations as well. Its Web site, www.ccc-ATM.com, is still up and running with no hint of the hellacious storm the company is caught in. CCC is even receiving some limited monies for assisting XtraCash in reprogramming and reprocessing merchant accounts. Those monies are being paid immediately into the bankruptcy estate and eventually will be applied to creditors.

As for the original question about what happened to Credit Card Center, Pfender believes the answer centers mainly around leasing. CCC's major funder, Advanta Leasing, made a decision to stop funding ATMs. That hit CCC hard.

CCC had almost a 100% default portfolio cure rate, meaning any defaults were assumed by CCC, and there were many.

"In order for our leasing companies to lend money on machines, we had vendor agreements providing that we would clean leases up if any fell apart," Pfender says.

CCC was able to make those lease payments because it had programs that basically paid for the leases. Everything was running smoothly, but as more ATMs were placed, it became harder and longer for those CCC machines to mature and stand on their own. CCC was struggling with guaranteed leases, some for merchants on five-year programs.

Rapid growth made it more difficult for CCC to meet the bills. "We had to sell machines," Pfender says. But CCC couldn't sell because the financing had evaporated.

Once Advanta dropped out, other leasing companies followed suit, such as QL, ILC and Preferred Leasing. There just wasn't any money out there to fund the sale of ATM terminals, especially the major deal CCC had structured with NCR. That deal called for CCC to absorb and sell 50,000 NCR ATMs over a period of years. To do that, CCC had to expand its operation, but at the same time it lost funding. CCC couldn't pay the piper.

Financing may have been the key to what ailed CCC. Another bitter pill to swallow was the dramatic fall of ATM prices. Where once the machines were selling for $12,000, comparable terminals now can be had for as little as $4,000 and $5,000, with the Internet even offering used models for $1,000. A glut of machines on the market, lower prices and scarce funding all put nails in CCC's coffin.

According to Pfender, Advanta has completely stopped writing leases for ATM machines. Others are following their lead, and a number of leasing companies are making it more difficult for ISOs to qualify for funding.

Some large distributors and manufacturers are changing business tactics as well. They're partnering with leasing companies with a promise to assume financial risk incurred by loan defaults. One of the largest, Triton Systems, set up such a program in 2001 with CitiCapital for its Canadian distributors.

Others, however, are not willing to assume liability. Instead, they're doing their homework and are extremely cautious - such as New Jersey-based Marlin Leasing, which used to do business with CCC but stopped lease funding for ATM ISOs altogether after the crash of Credit Card Center. It now has opted to resume limited ATM funding for scrupulous, solid companies that meet its stiff criteria.

"I think the leasing companies are facing potential problems with defaults," says Pfender. "The climate is difficult because of what happened with CCC."

He believes there still might be opportunity for success in the ATM arena, but because of the stigma of CCC it certainly isn't as easy as it was in the late '90s.

What will be the epitaph for Credit Card Center? It has yet to be written, but the impact of CCC's demise is clear: You won't see another manufacturer rely on one deployer for the bulk of its business.

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