Top 9 Collection Industry Predictions for 2019
1. Consumer debt will continue to rise during the first quarter as the U.S. slips into a recession. Many believe the Federal Reserve will be forced to halt any rate hikes and could even lower interest rates to stop the recession. ARM professionals should brace themselves for increased charge offs and in turn increased inventory of debt less than 36 months old.
2. The flood of new debt will support current collection agency business valuations and possibly drive sale prices even higher.
3. Equity investors representing completely new markets will find a new interest in the accounts receivable management industry. Telcom, cable and EBOs may all find collection agencies to be a perfect complement to their current business.
4. Agency valuations will hold at all time high levels through Q2. The collections industry is, by definition, a responsive industry. It reacts to changes in the credit cycle and is typically the last segment of the credit cycle to suffer the impact of a recession.
5. The Consumer Financial Protection Bureau (CFPB), enjoying the fall back to its original name, will publish the new proposed rules for debt collection. This will trigger a compliance scramble much like we experienced when the CFPB launched its Larger Market Participant collection agency, debt buyer and collection law firm examination program in 2012.
6. Robocalling restrictions imposed by the Federal Communications Commission (FCC), and the marketplace’s corresponding response with new, robust consumer call access controls will make text messaging programs the #1 contact system of choice for debt collection purposes.
7. Payment portals will explode, as will the lawsuits claiming noncompliance with the Americans with Disabilities Act (ADA), Fair Debt Collection Practices Act (FDCPA), and Electronic Funds Transfer Act (EFTA). Small fonts, pictures without captions, unauthorized disclosures of a debt, improper disclosures of fees, and payments will all drive portal litigation.
8. Data privacy statutes will become the collection industry’s new Health Insurance Portability and Accountability Act (HIPAA). Just as HIPAA turned agencies and their clients’ upside down and inside out about privacy and security responsibilities in 2003, so too will new state and Federal laws regarding data privacy impact how consumer data is collected, stored, shared and sold. This means the reckless, cross pollination of consumer data, including demographic data among and between accounts and creditors, will come to a screeching halt.
9. Maxine Waters (D-CA), Chair of the House Financial Service Committee, will not rock the boat. Armed with subpoena power, Waters is more likely to launch investigations into banking, lending and payday loan practices rather than drive a legislative agenda that has no hope of passage. She is no stranger to the Committee however, and this may just be the calm before the storm.
Over the years the debt collection industry has expanded its arms across numerous verticals be it healthcare, finance, production etc.
The year 2018 was full of surprising facts and developments for the debt collection industry. While the year 2010 saw only $40 billion recovered globally out of $150 billion debt placed by businesses across the United States, the year 2019 is seeing a steep rise in debt with the global debt amount crossing $233 trillion. On average, the industry has only been able to retrieve 20% of the amount in 2018 compared to the 30% amount it was able to secure a few years ago.
The most significant chunk of this debt ($63 million) belongs to the non-financial companies, and then there are the world governments which are the greatest borrowers. The U.S. industry in the year 2018 had more than 300,000 jobs associated with the debt collection and bill repayment roles; however, the year 2019 is likely to see a 3% rise. This decline isn’t due to any decrease in debt but is primarily due to automation coming into the picture.
According to experts and past data analysis, the demand, as well as the debt collection market size, has risen in the past five years after there has been a steep increase in global debt. However, an interesting observation here is the fact that despite an increase in demand the revenue for the industry hasn’t seen any substantial gain. Household debt is the most common form of debt across the industry, the values of which went high in the year 2015 and is predicted to reach even greater levels by the year 2022.
The industry tends to make contacts with almost a billion people every year and in the past year was able to recover around $30 million on an annual basis.
Industries With Largest Debt
Approximately 30 million U.S. residents tend to have one or other kind of account with the players of the debt collection industry. Below are the different industries listed along with some surprising facts and numbers associated with them:
Mortgage stands as one of the topmost contributors to the overall U.S. debt scenario with a single household owing $150,000 on an average. The year 2018 saw 700,000 mortgages with a combined value of $200 billion in total.
2. Credit Card Debt
Credit cards stand as one of the prime sources of debt across the U.S. with an ordinary citizen owing approximately $15000 on an average. In the year 2018, nearly 7 million credit cards were issued against which the users secured a total loan of $29 billion.
3. Student Loans
The year 2018 saw approximately 900,000 students applying for a loan which in its combined total added up to over $15 billion in debt. The numbers have increased by almost 47% compared to those seen in 2017.
4. Medical Bills
An average citizen owes approximately $579 in debt as their medical expenses. Calculating the mean, this number comes down to $207 per citizen.
Numerous factors such as an unexpected financial emergency or a sudden loss of a job often tend to make people default on their debts soon after which banks and other similar institutions pass the account to the collection centers. Credit card default is the most common default encountered by the debt collection professionals, followed by student loan default which is estimated to be approximately $29,000 on an average per student.
The Growing Trend of Hiring Third Party Companies
Institutions in the North American regions, as well as the APAC banks over the years, have started outsourcing the debt collection efforts to third parties. This has shown them a 10-12% rise in the recovered amount while at the same time reducing their costs.
This primarily can be accounted to the fact that legal proceedings and the cost of labor is high in Latin America and thus it makes sense to outsource the task and get it done at the reduced rates. However, companies are increasingly facing challenges outsourcing the job given the labor costs involved, and the commission itself adds to 30-50 percent of the recovered amount leaving companies with practically half of what they lent.
How Bad is the Global Scenario?
Experts back in the day had warned about the possible rise of the international debt beyond recovery. While governments are trying their level best not to burden their economy with a tremendous amount of debt, things look a bit tough for nations like China where corporate bank borrowing has exploded since the financial crisis.While the U.K. is trying hard to take in control the excess debts incurred due to credit cards as well as mortgages, countries like India, which are a growing economy are trying to establish regulations which prevent default or fraud by individuals.