Predictions for 2007; What’s Next for ARM?

In 2006, the ARM industry was not alone in seeing historic levels of deal activity.  Although this figure seems too high to be true, the U.S. economy produced a record $4 trillion in M&A transactions last year – up from the previous record of $3.3 billion in 2000, during the height of the dot com boom.  These transactions involved bread and butter companies of the U.S. economy – including clients of many ARM companies.

As is always the case when major clients like AT&T-BellSouth, Bank of New York-Mellon Financial, and Capital One-North Fork Bancorp merge, some collection agencies will be on the winning end of the deal while others stand to lose significant amounts of business. 

The privatization of companies causes similar opportunities and challenges for ARM companies.  In the healthcare industry, the privatization of HCA will cause decision makers to consider ways to manage their receivables more effectively, including reducing rates or, more positively, increasing outsourcing or even selling accounts for immediate gratification. 

I do not expect that the pricing levels of purchased accounts will come down in the foreseeable future.  Some experienced buyers will continue to sit on the sidelines, telling the market that they are waiting for sensible pricing to return.  This hasn’t prevented portfolios from being sold to other buyers.  And, as the resell market becomes more established and legal collections become more integral to recoveries, debt buyers will take a more bullish attitude toward making purchases at the higher prices and even collecting these portfolios over longer periods of time through legal judgment.   Critical size and access to cheap capital will become even more of a factor that separates the haves from the have-nots as credit grantors seek to sell larger portfolios than ever before and as established debt buyers seek to recapitalize their own businesses by selling their entire inventory in one sizeable transaction. 

The FTC will be on the prowl again

In 2006 the final chapter of the CAMCO book was written with a $1 million settlement and the banishment of the company’s founders from collection activities.  As I’ve written previously, CAMCO was one bad apple and not indicative of an epidemic in the industry.  Sadly, however, I am confident that the FTC will come down hard on at least one more ARM company in 2007.  While it is true that the FDCPA obtained the clarification that it desperately needed last year around “mini-Miranda” disclosures and collection during the 30-day validation period, a Democratic Congress is likely to place more pressure on the enforcement of arm of the FTC and the agency may be more active as a result. 

On the state level, investigations and enforcements by attorneys general such as Elliot Spitzer may produce even more of an effect on our industry.  Truthfully, it amazes me that there haven’t been more sizeable fines levied against collection agencies in recent years with the vast amounts of accounts that are being handled.  For all of these reasons, 2007 will continue to award ARM companies that know how to collect debt while staying out of trouble.