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With high gas prices, a housing crisis and rising unemployment, the economy has emerged as the central issue in the campaign for U.S. President.
But with no town hall meetings or televised debates to address Fair Debt Collection Practices Act reform or litigation-clogged courts, how each candidate's economic plan could affect the collection industry is a mystery.
Collection and credit executives are choosing to look at the candidates' positions on the broad issue of economic reform for hints about how to judge Republican John McCain and Democrat Barack Obama. In general, the candidates' economic positions line up in fairly traditional ways by party.
Obama advocates more government control over issues such as credit policies. He proposes economic programs that would seek to stimulate growth by providing more assistance to middle class families. These include more subsidies for
college education and help with homeownership amid new controls for the mortgage industry in the wake of the subprime credit meltdown.
McCain takes a more hands-off approach to business regulation and the need for the government to intervene on consumer issues. He would keep current tax policies and instead focus on job creation through small business. His advisors have indicated that some specific initiatives also would support small businesses, although details were sketchy at press time.
Everyone agrees how the economy is managed is critical but "either candidate will have a tough time making headway with this economy," says Robert P. Ingold, president at the Commercial Collection Corp. of New York, in Buffalo, N.Y.
There is no doubt the economy is slipping and placements of bad debt have risen. Liquidation rates are falling too, industry executives say. The question is whether a new President can do much to help the economy and consumers' ability to repay debts on time.
Marc Hirschel, chief operating officer at McKenzie Becker & Stevens, a commercial collection agency in Lakeville, Conn., doubts whether either candidate offers true change.
Hirschel's mood is "cautiously pessimistic." He thinks the downturn will be worse than previous recessions but balks at the idea that a Republican naturally will be better for business. "We just had a Republican for eight years and we're going into a very dark recession," he says. "That kills that theory."
The larger issues of the war in Iraq and a ballooning federal budget deficit will impact the economic outlook and business, too. Commercial collection executive Ingold attributes much of the economy's woes to spending on the war. "Whoever can end it and balance the budget is who I will vote for," he says.
Some executives believe it will not matter much, at least for the industry, which candidate is elected. The President is not that involved in issues directly related to collections, they say.
Others, including Jay Gonsalves, president of Action Collection Agency in Middleboro, Mass., and newly elected president of ACA International, argue that the choice is important. Many collection agencies are small businesses, he says, thus new tax policies could matter greatly.
Still, there is little doubt the make-up of a new Congress could be more important to the industry as calls for consumer protections rise and delinquencies and bankruptcies climb. McCain's Web site says little about consumer protections while Obama's plan includes several pages on mortgage and credit card reform.
And what about talk of overhauling the Fair Debt Collection Practices Act? Frustrated collection agencies and attorneys say the law was written long before new technologies such as cell phones and e-mail. Revisions are needed to let individuals decide how they would prefer to be contacted. The industry is expecting a report from the Federal Trade Commission after meetings last fall on FDCPA reform. The FTC earlier this year issued its annual FDCPA report to Congress. Most think the FTC is simply overburdened and the report will be issued eventually. But everyone agrees that reforms are needed and soon.
Health care reform is another area that could have a big impact on the collection industry. The new President will appoint a Federal Trade Commission chairman, a key post for an industry seeking to change cumbersome rules and regulations.
McCain's plan seeks to lower health care costs, including a $5,000 tax credit for families to pay for insurance. Other key elements of his plan include Medicaid and Medicare reform and tort reform to eliminate frivolous lawsuits. Obama advocates guaranteed eligibility for citizens under a plan similar to the one available to members of Congress.
At Action Collection Agency, about 90% of the agency's business comes from health care collections. As such, Gonsalves prefers McCain's health care plan. (ACA International and other industry groups do not endorse candidates.)
Gonsalves explains that McCain's plan is market based and similar to the current system as opposed to Obama's call for near universal coverage. "Obama's plan stops short of a single-payer [health care] system," he says. "But there's no doubt it would put the country on track for that."
A shift toward a single-payer system such as Medicare would represent an upheaval in the health care system and collections, Gonsalves says. He worries that more government oversight will mean higher taxes and perhaps fewer bills to collect.
"There are doomsayers who think our industry will end," says Gonsalves. He does not go that far, adding, "I think there will always be business." Under a single-payer system, for example, more first-party type receivables work could be needed.
Interestingly, Gonsalves' company operates in Massachusetts, which has enacted a health care plan similar to one advocated during the primaries by Democrat Hillary Clinton. Gonsalves notes that the Massachusetts program is being implemented in phases. "We have not seen an impact yet," he says.
But many are watching Massachusetts to gauge the success of its program. The Massachusetts program has enrolled 340,000 new people, according to a report by the Kaiser Family Foundation, a health policy and research organization.
But the cost of reforms has exceeded projections because more participants have enrolled than anticipated and health care costs continue to rise. The budget request of $869 million for 2009 is about $400 million more than for 2008 and this amount may fall short, the report says.
Fear of the unknown about the health care system concerns Chris Wunder, president of the ROI Companies, based in Baltimore, and immediate past president of ACA International. "McCain's plan resembles more of what we have today and that would be understandable to the industry," he says. "If things go in a different direction, things could be way better – or be devastating."
If, for example, reimbursements become more complex, agencies could benefit by offering technology services to handle that function.
On the other hand, more regulation and higher taxes, under an Obama Administration, could stifle the industry's growth, Wunder says. "That's a concern for any business owner."
The candidates have very different views on taxes. Senator McCain would extend the 2001 and 2003 tax cuts enacted by George Bush and reduce the corporate tax rate from 35% to 25%.
To stimulate job growth through small businesses, McCain would keep the top tax rate at 35%, along with a 15% rate on dividends and capital gains. He has promised to balance the federal budget in his first term by reforming Medicare and Medicaid and slashing wasteful spending. A deficit of $482 billion is projected for the budget year ending in September 2009, the highest number ever recorded.
Obama's plans feature help for the middle class and repeal tax cuts for taxpayers with annual incomes greater than $250,000. The maximum rate on capital gains would be raised along with the top tax rate on dividends.
Fixing health care, creating jobs for clean energy technologies and manufacturing and offering tax assistance to the domestic auto industry would stimulate economic growth. "We are no different from any other small business," says Wunder. "Whatever happens from a tax standpoint will impact our business."
An analysis by the independent non-partisan Urban Institute shows that McCain's plan primarily would benefit individuals with high incomes.
On the question of whose plan would generate the most growth, the report concludes McCain's plan could improve economic efficiency and increase domestic investment but would result in larger future deficits. Obama's plan would reduce tax revenues by about $2.8 trillion over the next 10 years, and McCain's plan by $4.2 trillion.
The growing government budget deficit is a big worry, adds Hirschel. "We can't just keep printing money. Taxes are going to have to go up to meet the revenue needs of the country no matter who is elected." CCR
