Unpaid credit card bills remain the fastest-growing part of the debt collection industry, and bad checks appear to be losing ground as overall check usage declines, according to a survey conducted by the advisory firm Kaulkin Ginsberg Co.
The survey, which asked 183 debt-buying firms and collection agencies about the present and future states of their businesses, found that most were betting on more card debt growth. The second most auspicious-looking category was healthcare bills.
Mike Ginsberg, the chief executive officer of Kaulkin Ginsberg, of Bethesda, Md., said he was not surprised that card debt collection was perceived as the fastest-growing area of the industry. The products are heavily marketed, and credit is still relatively easy to obtain, and because the economy is still sluggish and unemployment remains high, "consumer debt will continue to rise."
Certainly in a weak economy there is more work to go around for the collection companies, but there are also significant competitive pressures. Lenders are trying to hold on to nonperforming portfolios, or selling them to other lenders. Bids for those portfolios are running very high, and ques-tions remain about whether companies can make money off of exorbitantly priced portfolios.
But Ginsberg said that the actual collections have improved. "Every year debt buyers are get- ting better at what they do. The debt-buying industry is not old. The industry is evolving some efficiencies."
Another finding that meshes with industry trends is the dimming prospects for collecting on bounced checks. By several measures, check-writing has been on the wane for a few years. Ginsberg said that one result of the survey surprised him-the respondents said they thought that student loan defaults would not grow significantly over the next three years. Kaulkin Ginsberg conducted the survey from March 1 to May 15. The companies were asked to evaluate their business last year and their prospects.
Questions were put to three types of companies: those that buy distressed debt or delinquent portfolios, those that collect bad debts on behalf of the companies that hold the paper, and law firms that collect debt. The law firms have a different business model than the other companies, because they do not have to hire a lawyer to sue to recover debt, Ginsberg said.
Thirty-two percent of the respondents said they did not lose any business last year, despite an economic climate in which some lenders might choose to keep their collection services in-house.
"In a down economy, the number of accounts tend to go up," Ginsberg said. "If that's the case, there is more paper or receivables to manage with agencies, and (companies) have choices. There may be turnover."
Executives at several debt collection companies said the survey's results seemed to mesh with their experiences.
"Ten to 15 years ago I did a lot of bad-check business," said Andy Tricules, the president and CEO of Capital Recovery Service LLC., a Fairfax, Va., collection agency. Today "the whole check business is down dramatically, because there is more and more credit and debit card usage."
The shift has not made borrowers any more responsible, but it has shifted volume away from checks and toward cards. Plus, with so many people without jobs, the overall debt burden has risen, he said. "Five years ago, household credit card debt load was $3,500 per household. Today it's pushing north of $9,000."
Tricules said that just before he joined Capital Recovery Service in January 2000, it commissioned a survey to find out what would be the biggest areas of debt delinquencies for the next decade.
Because credit cards, health care, and telecom/utilities scored the highest, Capital Recovery chose to specialize in serving companies in those industries. Competition is particularly fierce in the debt recovery industry these days, partly because of consolidation in the financial services industry, and partly because banks and card companies are more apt to sell distressed portfolios than to turn them over to an agency, he said.
Despite the heightened competition, Capital Recovery Services' revenues have increased over 30% in each of last three years, Tricules said, and he expects revenues to increase by about 20% this year.