My last blog entry covered three of the top reasons why the ARM industry is in for a long recovery process, taken from my opening session of the ACA International conference earlier this summer in Dallas, “The State of the Debt Collection Industry.”
Today’s blog focuses on some of the pressures directly impacting ARM companies, including erratic liquidation results, increased regulatory and media scrutiny, and additional burdens confronted by small businesses.
Liquidation performance has been a roller coaster ride since the start of the recession
This table shows average liquidation declines by stage of delinquency for credit card debt:
Average Credit Card Liquidation Decline
|Stage of Delinquency||2007 to 2008||2008 to 2009||2009 to 2010||H1 2010 to H1 2011|
|Fresh||20% – 30%||30% – 40%||-10% – 5%||5% – 20%|
|Primary||20% – 30%||30% – 40%||-10% – 5%||5% – 20%|
|Secondary||25% – 30%||20% – 30%||-5% – 10%||5% – 15%|
|Tertiary||20% – 30%||20% – 30%||-5% – 15%||0% – 15%|
|Quads+||15% – 25%||25% – 35%||5% – 20%||0% – 10%|
- The negative numbers in 2009-2010 indicate average liquidation improvements.
- Q1 2011 started off strong, similar to 2010, but petered out quickly toward the end of March and beginning of April reflecting the seasonality of debt collection. Since then, we have seen slight reductions in liquidation performance across all stages of delinquency in Q2.
- One important note about these ranges – they represent a combination of low, mid-range and high balance accounts. When we look at performance by average balance size, we note that on average larger balances (> $3,500) are experiencing greater liquidation declines than lower balances.
- Reduction in government stimulation has impacted debtors’ abilities to make large, up-front payments or total payoffs.
Increased regulatory and media scrutiny placed on the industry
- The focus of the CFPB and FTC on collection practices has been the talk of the ACA and DBA throughout the summer and this will continue for the rest of the year and into the upcoming election year.
- Federal Legislation, including Truth in Lending Act (1968), Fair Debt Collection Practices Act (1977) and Telephone Consumer Protection Act (1991) is outdated and will be updated or rewritten
- 12 states are active with debt collection regulation and numerous State Attorneys General are focused on ARM procedures
- Various news and media outlets continue to paint ARM in a negative light
Small businesses in the ARM industry continue to grapple with jittery clients, rising costs and tight credit
- 70% of businesses in the US have no plans to expand staffs over next 12 months (US Bancorp survey)
- In the InsideARM survey 60% of agencies said they plan to increase staff
- 78% of companies surveyed project higher revenues a year from now but said the US economy is still in a recession and expect it to be there next year
- Clients across various market segments continue to lower fee rates, increase costs and reduce the number of agencies used
- Banks continue to be conservative when lending to debt buyers and collection agencies
- In May, the optimism index of the National Federation of Independent Business declined for the 3rd month in a row
- Small businesses account for more than 50% of private sector employment and gross domestic product
My next blog will focus on the number one reason why the ARM industry is in for a long recovery process.