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Data for today’s episode is provided by Mercator Advisory Group’s report – Credit Card Charge-off Collections Takes Brains not Brawn
When a cardholder’s account is uncollectable, institutions have 3 options:
- For uncollectable accounts, issuing banks can:
- user an internal recovery unit to collect
- Use a 3rd party collection agency
- Sell the debt to a buyer
- A collection agency typically receives between 20% and 33% of the dollar amount collected
- For accounts that reach secondary or tertiary placements, 50% to 65% commissions are common for collectors
- Roughly 1.5 million credit accounts reach write-off status annually
- Cardholders can terminate collections using bankruptcy, which is protected by Article 1 Section 8 of the constitution
- Bankruptcy peaked in 2010 during the Recession with 2.1 million
- 830 million bankruptcies is more typical (2019F), and low 800,000 is predictable for the next 3-5 years
About the Report
The Consumer Finance Protection Bureau is in the process of modernizing the Fair Debt Collection Practices Act (FDCPA), which is an appropriate move for the credit card industry. It is the perfect time for credit card issuers to consider their current collections strategies while the economy is performing well. Mercator Advisory Group’s latest research report, Credit Card Charge-Off Collections Takes Brains not Brawn The report explains the importance of third-party collection agents and why proposed regulatory updates are appropriate for the U.S. credit card business.
Readers will learn how the credit card aging process works, why third-party agencies help manage financial institution account overflow, and how the FDCPA creates guard rails for the industry.
“The timing of the original Fair Debt Collection Practices Act was perfect. Revolving debt in the U.S. hit $50 billion,” comments the author of the research report, Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group. “Today, the U.S. credit card market has more than $1 trillion of revolving debt. Loss rates are at normal levels, yet more than 1 million U.S. cardholders end up at collection agencies each year. FDCPA was born in a world before cellphones, email, and texts. FDCPA 2.0 addresses all these functions and curtails litigation in zombie debt. Both are appropriate next steps,” says Riley.
This research report contains 22 pages and 11 exhibits.
Companies and other organizations mentioned in this research report include: ACI Alorica, Banco Bradesco, Citi, Encore Capital Group, Equifax, Experian, Expert Global Solutions,FICO, NCO, Portfoliio Recovery Associates, PRA Group, TransUnion