Debt Buyers Feeling Economic Pinch More than Collection Agencies

Debt purchasers have been hit with a tougher operating environment than their contingency collection cousins lately, according to the data collected from insideARM’s Quarterly Credit & Debt Collection Confidence Survey.

In the Summer 2009 survey, debt buyers rated their overall performance about the same as collection agencies. When asked to rate their recent performance on a scale of 1 to 5 – with 5 being the highest rating – debt buyer responses averaged 3.03 compared to an average collection agency rating of 3.08.

But digging deeper into the data reveals a sector of the accounts receivable management industry that is being challenged on a fundamental level.

When asked, “What is the status of account placements, or available portfolios for purchase, and what are your projections for the future?” more than 27 percent of debt buyers reported a significant or moderate decrease in purchase volume. Only 14 percent of collection agencies reported decreases in placements. Further, more than 63 percent of collection agencies reported moderate or significant increases compared to 48 percent of debt buyers.

Creditors are operating in a recovery environment that they feel favors placements over account sales. Debt portfolio prices have dropped steadily over the past year as collection volumes have suffered in the poor economy. But more banks need to get the bad loans off their books, creating a basic supply and demand dilemma. In the decreased pricing environment, many banks are simply not selling, electing instead to place accounts with collection agencies.

“I think there is a huge imbalance between supply and demand in the debt sales market,” Tom Henry, VP of Recovery Strategy at Chase Card Services, recently told insideARM. “In many respects, the market has overcorrected.”

With fewer accounts to work, debt buyers reported the highest levels of layoffs in the industry in the Summer 2009 survey. More than 41 percent of debt buying respondents said that they had laid off workers in the second quarter of 2009. In addition, more than 24 percent expect more layoffs over the course of this year. By comparison, 32 percent of collection agencies reported layoffs in the same time period.

View the full results of the Summer 2009 Credit & Debt Collection Industry Confidence Survey at http://www.insidearm.com/go/confidence-survey.