For the past nine years I have enjoyed all aspects of the DBA conference, from having 40-50 meetings with colleagues, clients and prospects; catching the latest rumors and gossip at the cocktail receptions and late night parties; and sitting in on a few sessions to keep current on industry events. And yes, doing a little gambling along the way…
This conference has been well attended in the past because it is the first major one of the year, and it occurs at the beginning of the tax return season – the best time of year to be in the debt collection business!
This year is gearing up to be a similar experience, but it feels a little different. Instead of talk about current portfolio prices, big portfolio deals, and how much money debt buyers are putting to work, the discussions seem to be geared more toward who is exiting the industry next and who will be the next victim of an FTC consent decree or state attorney general inquiry.
Given what has happened in the U.S. debt purchasing market over the past year, I guess I shouldn’t be surprised. Unlike the European debt purchasing industry, which experienced the recapitalization of four large debt purchasing companies this past year totaling roughly $1 billion in deal value (you can read our 2011 M&A Report), the U.S. market experienced four large debt buyers exiting the debt purchasing industry – NCO Group, Arrow, West Corp and B-Line, and we may see more in the near future.
While some industry veterans feel that the cause of these exits is driven by concerns regarding the increasingly challenging regulatory environment (i.e., Asset Acceptance’s recent announcement) and scarce purchasing opportunities, I believe it’s more a matter of risk vs reward. The owners of these debt purchasing companies weren’t seeing the necessary returns to warrant the risk of maintaining their debt buying businesses, and the changes in state and federal regulations have only made it harder to achieve the necessary returns. Add to this the ongoing concern of declining business volumes in the credit card market, which has historically represented as much as 90% of the debt buying market, and it’s no wonder certain players are heading for the hills!
While this unfortunate reality exists, I do not believe it is the new normal of the debt purchasing industry, but rather a by-product of our unstable economy coupled with a regulatory environment in transition. Eventually, the FDCPA is going to be updated, and hopefully the CFPB will include standards that are easier to comply with as compared to the current maze of state and federal regulations. It may take a while, even a couple of years, for all of this to work itself out but it will happen.
In the meantime, I have been extremely intrigued by recent discussions with industry veterans who are trying to change the model of purchasing and collecting charged off accounts. I’m not talking about Bill Bartmann’s seminar where intelligent, but ignorant, folks are being sold on the concept of paying an up front and monthly fee in exchange for an opportunity to spend more money on portfolios that Bill Bartmann’s company locates and then services on their behalf. I am referring to discussions regarding ways to make the debt purchasing and liquidation process more efficient and cost effective while maintaining full compliance with the federal and state regulations.
These conversations have given me confidence that this industry will survive albeit perhaps in a different way from where it was a few years ago, and opportunities will become available to those who can successfully navigate the market turbulence. I am excited about this year’s conference, particularly the sessions involving the FTC and CFPB, and I look forward to seeing all of you in Vegas next week!