The Role Third-Party Debt Collection Plays in the US Economy #4
The Role of Debt Collection (con’t.)
Data provided by the Federal Reserve Bank of New York shows that around 14% of consumers had debts collection in 2015. On top of this, other research has shown between 90% and 95% of outstanding consumer debt will be paid on time in compliance with consumers’ contractual obligations. These high repayment levels are partly attributed to how effective debt collection is seen as being in cases of non-payment. This is why debt collection, which is guided by laws and regulations, is an important part of the consumer credit marketplace as an extra incentive for repayment.
Debt collection agencies are also in a unique position to recover consumer debt that is now past-due. As organizations dedicated to debt collection, they come up with ways to collect a debt that are more efficient than anything a lender can devise. Lenders are unable to dedicate the time and resources necessary to recover debts, which is where debt collection comes into play. Collection companies are generally small businesses that work in a local area, armed with the first-hand experience of how the economy is performing for the consumers they target. This information is important to collect a debt as a collector has to be able to be able to recognize the difference between a consumer is unable to pay and one that is unwilling to pay even though they’ve got the ability to do so. Debt collection can also reduce lending risk, which has the added effect of increasing the amount of available unsecured credit and reducing the cost of this credit for a consumer. This paper will now look at the role debt collection plays in the overall availability of unsecured consumer credit.