It sounds like the worst is yet to come for consumers across the country – many of whom are dealing with serious debts, don’t have much cash, and who are losing jobs in greater numbers. This also happens to be the view of many of the nation’s major debt collection groups.
These agencies have postponed any further purchases of problem consumer debt from banks and other financial institutions, in the hope that the costs will drop as the economy struggles.
Various groups such as Portfolio Recovery Associates, Encore Capital Group, and Asset Acceptance Capital Corp are seeking to obtain bad debt portfolios at drastically reduced prices even while defaults are rising and the unemployment rate continues to climb.
After the groups acquire the debt portfolios, they will pursue aggressive campaigns to obtain partial repayments from borrowers, using text messages, emails, and phone calls to get results.
Such companies are positioning themselves to make serious future profit gains if the debt prices drop and they may also gain better returns when the economy recovers.
Of course, the struggle of the consumer and the resultant write-downs and higher default rates are not the only reasons that the purchase prices are expected to suffer further setbacks. The portfolio prices may also drop due to drying up financing that groups like Portfolio Recovery depend on.
It is a common fact that debt collectors are beholden to banks to fund their purchasing. Since the credit markets remain thin, these groups are finding it more difficult to find borrow funds at reasonable prices.
A number of collectors are cautioning that to buy bad debt may also be based on past experiences. In previous years, heavy prices were paid for some debt portfolios and there were record impairment charges against their results as collection became difficult and fell short of estimates.
Tags: debt collection, debt recovery, bad debts
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