Assessing the Consumer Credit Market with an Eye to ARM

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Since the Great Recession, the road to recovery for the accounts receivable management (ARM) industry has been particularly bumpy. Adjusting to economic fluctuations has been challenging for service providers and big business clients alike, especially when state and federal government agencies continuously impose stronger regulations in an effort to shift blame and find their scapegoat.

ARM firms who adapted their business practices are capitalizing on new opportunities as the economy improves. In our firm’s latest industry report, Change Creates Opportunity: Accounts Receivable Management in Review, which is due to be released by early April, we evaluate expanding market segments and forecast their viability for ARM businesses. One of the areas we examined is the consumer credit market.

The Federal Reserve Bank of New York’s (FRBNY) microeconomic release on third-party collection activity measures the percentage of accounts with third-party collection agencies and the value of those accounts with collection. Average collection amount per person and proportion of consumers with collection has been growing consistently since 2003 at an average annual rate of 1.1 percent and 0.82 percent, respectively.

Despite falling for two straight quarters, Kaulkin Ginsberg projects that both measures will begin to grow again at a much slower rate of approximately 0.82 percent and 0.46 percent, respectively, through 2018. This prediction is based on economic indicators, such as wage growth, employment trends, etc. However, confounding factors like subprime lending in the auto and credit card industries or shifts in consumer confidence could alter this trend significantly.

As for the rest of the consumer credit markets, delinquency rates continue to fall, on average. This is relaxing lending standards and increasing borrowing, which should in turn lead to more placements for outsourced ARM services.

Of the two primary subprime lending sectors – credit cards and auto – only credit cards are falling in delinquency rate while growing in value. The auto loan market is growing in both delinquency and value. Looking into the next six months, credit card and auto delinquency will continue to be a major area of focus for financial services.

Continuing the Discussion

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