Collection Agencies

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 3,100 collection agencies in the US collect and remit payments to clients. Major revenue categories include individual debt collection and commercial debt collection. Other services include factoring accounts receivables, bankruptcy assistance, and collateral recovery. Large firms may also be debt buyers. Companies involved in mortgage collections may also provide lending services.

Uncertainty in Collections

Defaulted receivables are difficult to collect.

Highly Regulated

The collection industry is heavily regulated by federal, state, and local laws.

Industry size & Structure

The average collection agency operates out of a single location, employs about 33-34 workers, and generates $5 million annually.

    • The collection agency industry consists of about 3,100 firms that employ 104,500 workers and generate about $16 billion annually.
    • The industry is concentrated at the top and fragmented at the bottom; the top 50 companies account for about 52% of industry sales.
    • Large companies with debt collection operations include Ocwen Financial, Alorica (formerly Expert Global Solutions), iQor, and Portfolio Recovery Associates. Large firms may have operations in foreign countries.
    • The census definition of collection agencies excludes debt buyers, although some large agencies also purchase debt. The debt buying market is concentrated.
    • The main sources of debt include health care, credit card/financial, utilities/telecommunications, student loans, and commercial and government debt.
                                Industry Forecast
                                Collection Agencies Industry Growth
                                Source: Vertical IQ and Inforum

                                Recent Developments

                                Nov 29, 2022 - Judge Blocks Biden’s Student-Loan Forgiveness Plan
                                • In August, the Biden Administration announced a plan to forgive some student loan debt for qualified borrowers. Pell Grant recipients who earn under $125,000 would be eligible for up to $20,000 in debt cancellation. Those earning less than $125,000 who did not receive Pell Grants could get up to $10,000 in debt forgiveness. The online application for student loan debt forgiveness officially opened on October 17, 2022. In November, a federal judge in Texas struck down Biden’s debt forgiveness plan, ruling it is an “unconstitutional exercise of Congress’s legislative power.” The Justice Department is appealing the verdict. The White House said it will retain any applications for forgiveness and will begin processing them if courts permit the program to proceed.
                                • US consumer debt, excluding real estate, increased at a seasonally adjusted rate of 6.8% in the third quarter compared to Q3 2021, according to the Federal Reserve’s latest Consumer Credit report. Revolving debt, which is mostly credit card debt, increased by 12.9% compared to a year earlier. The amount of US credit card debt is rising in tandem with credit card interest rates, which reached 16.3% in Q3 2022, marking the highest rate since 1994. In Q3, 24.7% of outstanding consumer credit was revolving debt. Of nonrevolving debt, 37.6% was for student loans, 29.7% was for auto loans, and 7.9% was for other types of debt.
                                • Record levels of loan and line-of-credit originations during the pandemic, combined with high inflation and ongoing economic uncertainty, may lead to more charged-off or delinquent accounts, according to InsideARM. Stricter enforcement of debt collections by the Consumer Financial Protection Bureau (CFPB) could prompt lenders and fintech firms to outsource any uptick in collections activity. Tighter enforcement by the CFPB includes investigations of non-bank lenders that the agency feels pose a risk to consumers. To ensure compliance and avoid any potential financial, legal, and/or reputational risk, lenders may seek the expertise of third-party collections firms.
                                • In late August, the Biden administration announced that the moratorium on qualifying student loan payments would be extended a final time and that payments, interest, and collections would resume on January 1, 2023. Payments on federal student loans were paused in March 2020 as a part of the CARES Act at the onset of the pandemic. The moratorium has been extended seven times – twice by former President Trump and five times by President Biden. The Biden Administration also announced a plan to forgive some student loan debt for qualified borrowers. Pell Grant recipients who earn under $125,000 will be eligible for up to $20,000 in debt cancellation. Those earning less than $125,000 who did not receive Pell Grants can get up to $10,000 in debt forgiveness. The online application for student loan debt forgiveness officially opened on October 17, 2022.
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