Mike Ginsberg's Take on Recent ARM Developments

Mike Ginsberg

It has been a very active period for impactful developments in the ARM industry. Let’s take a look at some of the news that will have a long-term effect on the debt collection industry.

Standardization of debtor information takes center stage at FTC/CFPB workshop

One of the most talked-about themes that emerged at last week’s FTC / CFPB joint roundtable in Washington DC was the need for standardization of debtor information used in the collection process.  Representatives of debt collection agencies, banks and debt buyers urged federal regulators to set a single national standard for the amount and types of information that must be transferred along with consumer accounts.

Loraine Lyons, the senior vice president and general counsel at debt collection firm FMA Alliance Ltd, expressed on behalf of consumer collectors that setting standards for what types of information need to be sent forward could streamline the process and make sure the consumers are not pursued for debts they do not owe.  To underscore what the ARM industry can expect by universal standards, insideARM’s Patrick Lunsford, pointed to an afternoon presentation by two FTC attorneys that featured recently enacted state laws that enumerate requirements for account data  before a debt collector or buyer can file a suit and in some cases commence debt collection activity. The ARM industry will pay particular attention to developments on this front.

Unemployment continues to challenge ARM companies

It is critical for credit and collection professionals to keep unemployment in perspective.  The Labor Department announced last week that the U.S. added 175,000 jobs in May.  The U.S. economy has been creating an average of 194,000 net new jobs per month over the past six months.  The unemployment rate dropped six-tenths of a percent over the past year, to 7.6%. On the surface this good news but to keep this in perspective, the Federal Reserve estimates that normal “full employment” corresponds to a measured unemployment rate around 5.6%.

According to Alan Blinder, Americans used to think 7.6% was an unemployment rate found during a recession and it is that perception that US ARM companies need to be aware of when factoring improvements into their liquidation projected results for the remainder of 2013.

Another perspective on the same topic, the Brookings Institution’s Hamilton Project estimates the “jobs gap,” defined as the number of jobs needed to return employment to its pre-recession levels, is 9.9 million jobs. At a rate of 194,000 a month, it would take almost eight more years to eliminate that gap.

Recent acquisition announcements illustrate broader market changes

Debt buyers continue to join forces through mergers and acquisitions to position themselves for market and regulatory changes.  Over the past couple of weeks alone, Encore Capital announced that it will acquire 50.1% interest in Cabot Credit Management with an option to purchase the remaining interest over the next 4-6 years.  This announcement was made on the heels of Encore’s announced acquisition of Asset Acceptance.  Also, UK based Lowell Group acquired Interlaken Group, creating a combined business with 950 employees and $265 million in combined revenues.  We expect this trend of debt buyers amassing critical size through portfolio and/or corporate acquisitions to gain momentum over the second half of 2013.

Healthcare revenue cycle and receivables management consolidator The Outsource Group was acquired by Parallon, a subsidiary of HCA. Healthcare services, particularly revenue cycle management continues to attract considerable interest from strategic and financial buyers seeking to enter, or add to their position, in this expanding market segment.