Debt buying has seen much change over the past few years. A boom in the market not that long ago lead agencies of all sizes to throw in their hat. Even the FTC, an agency that is often last to the party when it comes to understanding debt collection and how it functions, noted the dynamic nature of debt buying’s growth. In a workshop report (Collecting Consumer Debts: The Challenges of Change in 2009) published in 2009, the FTC noted:
“The most significant change in the debt collection business in the past decade, however, has been the advent and growth of debt buying ( i.e., the purchasing, collecting, and reselling of debts in default).”
Since the creation of the CFPB in 2010 and the increased scrutiny that came with it, many collection professionals have re-evaluated their portfolios making some tough decisions. While many have abandoned the debt buying aspects of their business model, others have chosen to weather the storm hoping the CFPB would provide clarity on their threats of business crippling rules. In November 2013, the CFPB issued an Advanced Notice of Proposed Rulemaking (ANPR) seeking comment to learn more about the transfer of information from original creditor to third-party collection firms and debt buyers. This attempt to engage in a dialog has seemed to do very little to calm an already volatile debt buying market.
Brad Klein, president of Paid In Full, one of the directors of the Arizona Collectors Association, and debt buyer for over 10 years noted creditor anxiety as one reason why good paper is a lot more difficult to find these days.
“We, like many of the folks that were buying debt, were buying mostly credit card debt,” said Klein. “And with the CFPB and all the regulation that came about, the major issuers are just not selling. Those that are, are selling to the nation’s largest with no resale.”
There is little doubt the attention the CFPB is giving debt buying is due in large part to the dubious activities of certain agencies who started buying debt for a quick buck. Klein said lumping collection professionals in with such operators is ridiculous.
“They’re of the opinion that all debt buyers are created equal and that we’re all going out there and re-aging accounts and selling the same account multiple times but not on the resale side,” said Klein.
Resale (or retrade) difficulties are also cited by Gary Beet as reason for debt buying’s trouble. Beet has purchased debt for over a decade, managing acquisitions for companies including Arrow Financial Services and most recently Liberty Acquisitions.
“What happened was the market be-came somewhat proliferated with opportunistic debt buyers that came in along side the big 20 debt buyers,” said Beet. “That market supported itself because people were buying large national portfolios and breaking them up into a variety of different segments; by state, by region, by classification aging, etc. They were making a significant amount of money by being able to take that large portfolio and break it up. What has happened is that can no longer be done because of the restrictions on retrades. So what has happened to the market is it has become polarized. Now you have, let’s say, half a dozen major debt buyers and a few others that are just picking up the morsels of ac-counts that were purchased on contracts that previously committed retrade. That is obviously a finite, rapidly-decreasing market because the few contracts from all of the major debt buyers include provisions that don’t allow for any kind of re-selling of those accounts.”
Perhaps what is more detrimental to debt buying is what the CFPB has not done. The releases of vague information and guidance have led to much speculation as to how far solidified regulation will go. In some cases, this uncertainty has led to fear of what the future might hold for the industry.
“It wasn’t directly from the CFPB and the regulators but there is an indirect fear of what was going to come,” said Beet. “The CFPB really haven’t legislated, they have only fined… It (debt buying) has changed because of regulation and, moreover, from the fear of regulation.”
The shortage in prime paper has led many collection professionals to look at roads less traveled. According to Klein, diversifying the portfolio has become a viable option.
“It’s not what it use to be… That has forced guys like me to go down different paths, to look for stuff that maybe we would have passed on before.
“When someone would approach me with some other type of debt, I would typically pass on it for 1) lack of time to handle it or 2) fear that it wouldn’t work out as well as what I was accustom to,” Klein added.
As adaptable and resilient as the industry is, can debt buying return to the way they were? Beet sees great change with several possibilities.
“In my opinion, it’s never ever going to get back to what it was like 15, 20 or even 10 years ago,” said Beet. “We’ve had very cyclical pricing and sales. There’s a fundamental shift in the marketplace. It’s not your typical microeconomics; it’s more-over a shift in perception, legislation and the regulatory environment that we have to operate in.”
“Right now we’re hearing some of the majors, the Wells, the Chase, Bank of America, considering some form of sale strategy. So if they open up more then it will come back. It won’t be what it was but there will be a slight increase in activity.”
Being proactive seems to be one of the best things to do at this point. If the current debt buying situation is to be im-proved then increasing the size of one’s network and wielding it as a means to spread the truth is necessary. Klein cites examples in this same vein.
“I think becoming involved in the industry such as trade associations is critical,” said Klein. “Being receptive to interviews. I gave an interview to an economy reporter about two weeks ago… Some people’s opinions might be the media never says anything good so we’re just not going to talk to them. Unfortunately, that doesn’t do anything to get out a good message.”
Klein continued. “We have to educate our legislators. They’re the ones that are making the decisions. They’re the ones that will hopefully counteract an overzealous legislator that may feel differently… We need to educate them and tell them how much we contribute back to the economy; how many employees we have, how much we donate to charity, and from the debt buying side, what we do to purchase debt. All of that will be beneficial to us.”
While further detriment to the debt buying field can possibly be stopped by good public relations and spending time educating lawmakers, some do not believe all of the damage can be undone.
“But it’s too little too late,” said Beet. “Unfortunately a lot of people have made a lot of money and have not necessarily considered the long-term impact of some of the ways they have made their money.”
One must also make an effort to maintain perspective. History does have a way of repeating itself in some ways. Klein said in his talks with industry veterans, many described similar circum-stances when the FDCPA was established in 1978 and the initial response to it.
“It did appear to them that the sky was falling and we were all going to be out of business in a matter of years, but the industry is still thriving,” said Klein. “If that remains the case, then I would say the future is at least as good as it is today. The dust will settle. The CFPB will hopefully set some good policy that allows hard-working, honest debt collectors and debt buyers to continue re-turning money to the economy but will also minimize unscrupulous collectors and debt buyers out there. That would be a good thing. I think there’s hope. I don’t think it will ever return to the way it was. The strong, the wise, the shrewd, the honest…I think those of us that do things in an upstanding, ethical fashion will continue to thrive.”