Collections Agencies: On the Rebound?

  Times weren't so good for collections agencies three or four years ago when brash new debt-buying companies such as Commercial Financial Services and Creditrust came onto the scene, swooping up non-performing debt that credit card issuers and other lenders traditionally had placed with third-party agencies.
  But CFS and Creditrust eventually imploded; their business models of paying premium prices for bad debt proved unsustainable. And that has agencies breathing a sigh of relief.
  That sigh is more than just figurative. According to a recent survey by Kaulkin Ginsberg Co., a Bethesda, Md.-based specialist in collections-industry mergers and acquisitions, the industry is showing a new stability. The evidence is strength in contingency fees and relatively low collector turnover.
  According to Kaulkin Ginsberg's first-ever survey of major industry trends, third-party agencies are earning average contingency fees of just under 25% of the amount of debt they collect. While there are no comparative earlier data, Michael D. Ginsberg, president and chief executive of Kaulkin Ginsberg, is certain that the average contingency had been softening for quite some time.
  "Over the years we have seen a drop-off in fees," he says. "However, we have also seen recently more of a rebound."
  That new bounce for agencies is due to the industry shakeout and the resulting drop in prices. That led many issuers to return to third-party agencies, says Ginsberg.
  "The amounts of placements (to debt buyers) were of concern to agency owners," he says. "Now, today, they are less concerned with that."
  Meanwhile, annual collector turnover reported by the agencies was only about 30% in the aggregate, somewhat lower than what Ginsberg had expected. Turnover tends to be highest in employees with three to six months' tenure.
  Agencies specializing in commercial debt had the lowest turnover rates, 16%, while bank card and private-label credit card collections firms had the highest, 42%.
  Other survey highlights:
  * Agencies definitely are not do-it-yourselfers when it comes to collections software. Nearly 75% of the responding collections agencies use off-the-shelf software programs. Among card specialists, the rate is 90%, which Ginsberg attributes to the experience and breadth of knowledge software companies have in serving the card market.
  * Card receivables accounted for about 50% of the debt worked, though the highest-percentage of responding agencies-38%-specialized in heath-care receivables and only 10% focused on cards. Some 25% of the agencies said they were generalists, with less than half of their revenues coming from any one type of debt.
  The third-quarter survey includes responses from 106 agencies.