This article outlines five key trends that are currently shaping the debt sales market. It discusses how these trends are affecting the industry, including changes in regulation, the impact of technology, and the rise of specialized debt buyers. The article also offers insights into what these trends mean for debt sellers and buyers.
Understanding the growth and evolution of the debt sales industry
The past year has been one of unprecedented change and uncertainty, and the debt sales market has been no exception. From record highs in consumer debt to unexpected improvements in delinquency rates, the market has seen its fair share of surprises. In this article, we'll take a closer look at the five key trends that have shaped the current debt sales market.
Trend #1: Consumer debt reached new record highs
The first trend that emerged during the pandemic was the sudden and significant increase in consumer debt. Mortgage loans, auto loans, student loans, and personal loans all reached new record highs as consumers struggled to make ends meet. However, overall credit card debt decreased for the first time in eight years, dropping by $73 billion (9%) and highlighting just how unusual debt changes have been during the pandemic.
Trend #2: Delinquency rates improved
The second key trend during the pandemic has been the abrupt turnaround in delinquency rates. Several factors are behind the significant improvement in delinquency. First, widespread stay-at-home orders effectively shut down or severely restricted activities like shopping, travel and in-restaurant dining for a period of time, and with nowhere to go, this curbed consumer spending. Second, with so many Americans out of work, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act which, among other things, gave stimulus payments to those most in need.
Trend #3: Collections Improved
It's not hard to understand the third trend. If delinquencies were down, then collections were up. Stimulus money, bucked-up employment benefits, along with halted foreclosures, evictions and student loans left households with enough money to pay off debts. The CEO of Portfolio Recovery Associates called it “the perfect storm from a cash perspective”. And this meant record levels of collections for lenders and agencies alike.
Trend #4: Households spent less & saved at an unprecedented rate
The fourth trend that emerged during the pandemic was related to consumer savings. Since widespread stay-at-home orders effectively shut down activities like shopping, travel and in-restaurant dining, consumers also found themselves spending differently than before. In a way, the shut-downs and fear resulted in a “forced savings” event. With shops all closed and everybody locked up, the ‘shopportunities’ dried up and consumers saved.
Trend #5: Stimulus money was used to pay off debtThe ARM industry benefitted from the stimulus payments to the sum of billions of dollars. In June of 2020, The Bureau of Labor Statistics reported that 25% of consumers expected to use stimulus money to pay off debts. And in April of 2021, The New York Federal Reserve reported that 33.7% of U.S. households receiving the latest round of stimulus planned on paying off debt.
In conclusion, the past year has been a rollercoaster ride for the debt sales market. From record highs in consumer debt to unexpected improvements in delinquency rates, the market has seen its fair share of surprises. However, as the economy continues to recover and consumers begin to spend again, it will be interesting to see how these trends evolve and what the future holds for the debt sales market.