Consumer collections issues have become greater news items in recent months. With a greater paradigm change in the debt sales marketplace has come new perspectives on how the marketplace should function in the future. While such issues need to be worked out, here is a look back at what brought us to this point over the last few months.
1. The bad players are being called out and forced out of the business. With many business slowdowns, part of the natural cycle is the people and companies who are doing business unethically and illegally tend to get squeezed out, because many of their business practices are poor. Dishonesty, double selling, and refusing to follow reasonable regulations are pushing many of the bad players out of the debt marketplace.
2. The price of debt is going down. With demand generally low (even with supply limited), and companies closing shop or being reticent to purchase, consumer debt prices on what debt is available are generally low, and many groups are buying what they can with limited funds and holding onto it.
3. Industry leaders with good business practices are positioned for success. Companies which do business the right way are positioned well to ride out the storm. The abilities to outlast the bad players in the industry, and take a position to change the nature of the business on some levels are necessary to survive in the modern debt marketplace.
1. Available debt is of poor quality. Gone are the days of fresh credit card paper sold to a wide market. Much of the debt on the marketplace is old credit card debt, DDA’s which are toxic due to recent scandal, and payday loans which have a poor reputation to begin with. Also, many of the debts have longer chains of title, and the multiple owners have gleaned much of the value out of the portfolios.
2. Government shows higher interest and more interference. The Consumer Financial Protection Bureau has been aggressive in pursuing debt collection violators, and is only likely to push harder in consumer protections without promoting responsible repayment of legitimate debts.
3. Selling is down. With increased legal pressure at several governmental levels, debt sales (particularly for small buyers) have been severely limited. Large companies are working direct deals with large banks, and have limited (if any) resale ability, which is making the smaller debt markets hurt for paper. Other debt types have been limited as well due to other legal issues and generally poor reputation of certain collectors. Originators are hesitant to sell their debt, and many buyers are hesitant to resell their debt.
Going forward in the debt marketplace will require a paradigm change for companies at all levels. Most of the above points are likely to hold true for the near future, even under more favorable government and legal environments. Companies are going to need to adapt to new innovations, markets, and ideas to be able to survive and thrive in the consumer receivables market.