Fed Official Details Debt Buying Industry Situation at Trade Show

Interest in the debt buying industry continues to grow even as the economy crawls along in the early stages of a recovery.

“A lot of people want to get into the industry; they see a lot of opportunity. What better time is there than when prices are at the bottom and liquidation rates are on the rise,” said Roger Knauf, executive director of DBA International, the main trade association for debt buyers. “As the economy improves, consumers should have a better ability to pay back debt. We can assume that unemployment rates will be going down, though slowly.”

This interest in the industry, along with improved traditional marketing and social media efforts, were behind record attendance and exhibitors at DBA International’s recent annual conference, according to Knauf.

The record attendance of 1,450 was somewhat surprising, especially considering the heavy snow in the mid-Atlantic that kept at least a few of the speakers from attending and travel budgets that are still restricted by many companies. The previous record attendance was 1,240 two years earlier, according to Knauf.

The number of exhibitors grew as well. DBA had originally planned for 130 booths, but had to add another 18. Exhibitors were from various industry service providers, Knauf said.

Other draws of the conference, according to Knauf, included educational seminars and presentations.

Among the most popular presentations were DBA’s own legislative update and the discussion of the industry’s importance to the economy by Robert M. Hunt, senior economist for of the Federal Reserve Bank of Philadelphia.

Hunt pointed out that recent legislation has focused on debt prior to charge off. The “Credit Cardholders Bill of Rights,” which takes effect Monday, could alter the size and composition of revolving credit. Other regulations are likely to affect mortgage products.

Hunt added that the Fair Debt Collection Practices Act (FDCPA) is ripe for reauthorization. Other state and federal laws could also be revised. The debt buying industry can help influence these revisions.

Consumer complaints against the accounts receivable management industry have continued to grow, Hunt noted. To mitigate this problem, he urged the industry to develop good policies, using measurements as building blocks.

“We know that creditor remedies affect credit supply and pricing,” Hunt said. But the last 20 years of formal research has focused on bankruptcy. Formal research on non-bankruptcy outcomes died off around 1990.

Hunt urged collection firms to develop systematic measures of collection activity, including the number of accounts placed or sold, outcomes of collection efforts; how accounts are rank ordered for collections and why; number of judgments and garnishments; and debts bought and sold and how those debts are collected.

This is the bare minimum necessary to make progress, Hunt said. This is necessary to establish basic facts about the collection process and to identify any cause and effect relationships.

Hunt also pointed out some of the economic factors facing the industry:

Since September of 2008, $91 billion in credit card receivables have been charged off. The charge-off rate had stayed between 2 percent and 6 percent since 1985, with the exception of a brief increase to nearly 8 percent in 2002, then rocketed to nearly 10 percent in 2009, according to Fed statistics.
The percentage of borrowers more than 120 days late on payments leapt from just over 3 percent in 2007 to more than 6 percent in 2009.
Since the third quarter of 2008, outstanding revolving credit balances have fallen $110 billion, the number of open credit card lines have fallen 10 percent and credit lines have fallen 25 percent – a total of $1 trillion
As a result consumers are retrenching and have sharply boosted their savings rates

Due to the factors above collection industry receipts had jumped to more than $10 billion by the end of 2007 (the last year for which figures are available), according to Hunt. He added that collection industry employment had risen to 140,000, while the industry has become dominated by firms with more than 500 employees.

Since September of 2008, $91 billion in credit card receivables have been charged off. The charge-off rate had stayed between 2 percent and 6 percent since 1985, with the exception of a brief increase to nearly 8 percent in 2002, then rocketed to nearly 10 percent in 2009, according to Fed statistics.
The percentage of borrowers more than 120 days late on payments leapt from just over 3 percent in 2007 to more than 6 percent in 2009.
Since the third quarter of 2008, outstanding revolving credit balances have fallen $110 billion, the number of open credit card lines have fallen 10 percent and credit lines have fallen 25 percent – a total of $1 trillion
As a result consumers are retrenching and have sharply boosted their savings rates