The Role of Debt Collection and Third-Party Debt Collection Services
The average delinquency rate—the percentage of accounts 30 to 59 days past due (DPD)—across all debt categories has decreased by 38 percent in the last decade,” according to Experian. Payments 60 to 89 days past due fell by 55 percent, while extremely delinquent accounts—those 90 to 180 days past due—fell by 44 percent since 2009.
While most sectors use third-party debt collection companies to some extent to collect delinquent debt, some industries rely on third-party services more significantly than others.
According to ACA International data from 2013, the following sectors outsource debt collection efforts to third-party debt collection agencies:
- Healthcare: 37.9%
- Student Loans: 25.2%
- Financial Services: 12.9%
- Government: 10.1%
- Retail: 3.1%
- Telecom: 3.2%
- Utility: 2.2%
- Mortgage: 2.0%
- Other: 4.7%
Third-party collection firms returned $55.2 billion in debt to creditors in 2013, with a net return of $44.9 billion. According to the Federal Reserve Bank of New York, over 14% of consumers in the United States have at least one account under third-party collection as of 2015. According to the report, “the likelihood of having an account in collection varies significantly across the credit score spectrum, with borrowers at the low end of the credit score spectrum averaging four accounts in collection and borrowers with credit scores above 700 averaging fewer than one account in collection.”
Debt collections, both as a whole and in terms of third-party debt collection services, play a critical role in the availability of credit to consumers, who rely on credit for a variety of purchases ranging from homes to vehicles, household appliances, and, in the case of credit cards, sometimes even everyday living expenses. Lenders are more likely to give loans to borrowers who are regarded riskier when there is an effective debt recovery strategy in place (such as those with lower credit scores). The prospect of predicted recovery when a borrower defaults compensates to some extent for the borrower’s higher likelihood of defaulting, thanks to successful debt collection.
As a result, despite the ire of some customers, debt collection is really good for consumers since it increases the availability of consumer credit to people who would otherwise be unable to obtain it.
Consumers profit from debt collection when borrowers offer reduced interest rates as a result of a surge in post-default debt recovery.
Additionally, debt collection can help raise consumer awareness, however, this is complicated by the increased regulatory constraints that make debt collection more difficult. Between 2000 and 2012, state regulations in 21 states changed 29 times, with 22 of those changes likely to make collecting on outstanding debt more difficult.