Mike Ginsberg on the Future of Collections

Mike Ginsberg

Over the past two weeks, we looked back at the history of collections and we reviewed the current playing field for collections.  Today we are going to focus on the future of collections.

On the regulatory front, state and federal legislators will continue to ratify legislation that defines the process by which ARM firms can perform their services.  Hot topics include:

1. CFPB’s proposed “supervision rule” which is expected to come into focus this fall.

2. The FDCPA’s addressing out of statute (OOS) timeframes; states already changing statutory periods.

3. TCPA’s restricting use of auto-dialer or prerecorded message to call a consumer’s cell phone.

4. Truth in Lending Act (TILA) is being re-evaluated

5. State Attorneys General offices aggressively pursuing claims/suits against ARM companies.

Consumers (a.k.a. debtors) will continue reducing their debt loads, except for student loans.  Because of volatile economic conditions, we anticipate no significant improvement in overall liquidation results in the foreseeable future.

On the client front, we see significant potential upside on at least three fronts:

1. Private student loans, currently generating 15% of SL revenues, will increase as banks, other lenders and colleges/universities increase loan origination to students.

2. Nationally, hospitals, physicians and other healthcare providers will continue to come together to cut costs, combat shrinking government reimbursement and add leverage with private insurers.

3. Regional banks are moving back into the credit card market, presenting a growth area for ARM companies equipped to purchase or service in this asset class.

Changes abound for ARM service providers, including:

1. The large ARM consolidator will become part of industry history, replaced by large collection players who are dominant in particular market segments.

2. Expect additional consolidation and attrition among collection agencies, collection law firms and debt buyers.

3. Some collection law firms will continue expansion into additional states to support credit card issuers and other credit grantors’ growing desire to outsource directly.

4. Substantial barriers-to-entry will emerge due to regulatory oversight, compliance, infrastructure and data security costs.

5. The most highly sought after positions will be compliance officer as the CFPB begin focusing on collections and because clients will not tolerate compliance issues.

6. Executives and owners of large ARM companies will watch the performance of Performant’s stock carefully as they determine their own exit strategy.

7. Collections will continue to be identified as a growth industry as the economy stabilizes, more governments and business outsource and as international expansion opportunities present themselves.

The recovery of bad debt is an essential part of any credit economy.  Make no mistake about it, conditions are rough right now and major challenges exist in the market.  With great challenge also comes great opportunity.  Collections will not only survive. It will thrive as it always has.  Collectors are a resilient bunch who adapt well to market conditions.