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Credit card charge-offs not yet placed with a collection agency are selling for 7 cents to 9 cents on the dollar heading into the fourth quarter, down several cents on the dollar from the past two years, according to debt-buying industry insiders. Al Brothers, a senior executive at debt buyer Cavalry Investments, based in Hawthorne, N.Y., says collection agencies that buy debt are no longer able to afford paying 10-plus cents on the dollar for charge-offs in all asset classes, not just credit cards. "Margins for buyers really haven't improved and that seems to be widespread across the industry," he says. With the fear of a U.S. recession, Aaron Hadam, senior vice president at debt broker National Loan Exchange Inc., expects buyers to continue discounting portfolios to account for an unknown collections environment. "This will contribute to additional, albeit relatively minor, pricing pressures for the fourth quarter," he says. Many buyers that purchased multimillion-dollar debt portfolios in 2006 and 2007 did so at prices that assumed higher liquidation rates achieved at the time. But with collection rates down, many have taken portfolio impairment charges or expect to do so soon. NCO Group, the largest accounts receivable management company, reported an $18.2 million loss in its Portfolio Management unit for the second quarter ended June 30.
