Rising Consumer Credit Should Benefit Collectors

The mix of good and bad news affecting the accounts receivables management industry looks to continue into the next few years, according to Mike Ginsberg, president and CEO of Kaulkin Ginsberg Corp., an advisory firm to the ARM industry.

Ginsberg was moderator of the key note panel "Hot Topics in Collections: Issuer & Agency Executive Roundtable" at the 16th Annual Card Collections Conference in Phoenix today. Also scheduled to appear on the panel were Pat Carroll, president and CEO of Nationwide Credit; Adam S. Cohen, co-chairman and CEO of Phillips & Cohen Assoc.; Tom Henry, vice presdient with JPMorgan Chase Card Services; Steve Leckerman, executive vice president of NCO Group; Anthony Riggio, senior vice president of Encore Capital Group; Mike Tucci, senior vice president at Citi; and Rick Wittwer, president of CreditAssist Financial Services.

Outstanding consumer credit in the U.S. will rise to about $3.3 trillion in 2011, up nearly one-third from $2.5 trillion this year, Ginsberg reported.

Macroeconomic numbers this year are mixed with historic low levels of unemployment countered by rising prices, and declining interest rates offset by rising charge off rates, noted Ginsberg.

In the industry, the contingency collections segment grew 3 percent in 2006, generating revenues of $10 billion. The slow increase was due to rising expenses and pressure on fee income, said Ginsberg. Meanwhile debt buyers saw revenues of $3.7 billion, an 11 percent rise, as consumer charge offs and defaults rose.

First party collections rose a meager 2 percent to $1.9 billion in 2006, with intense price competition impacting players. Legal collections are the smallest but fastest growing segment in the industry with revenues growing 16 percent to $1.2 billion last year. 

These collectors closely watch four major client sectors.

The U.S credit card sector in 2009 is expected to have 176 million cardholders spending $2.7 trillion, and generating $962 billion in outstanding debt, according to Ginsberg. That high debt will come with higher delinquencies and charge offs, and lower levels of collectability. The card sector is concentrated, with a dozen large issuers accounting for more than 90 percent of cards in circulation.

In contrast, the healthcare sector remains locally focused with providers across the country. The average bad debt as a percentage of revenues was 10.74 percent for for-profit hospitals in the second quarter. Bad debt will likely increase in healthcare as employers reduce or cut healthcare benefits.

In the government sector, federal education collections account for more than $27 billion of the nearly $200 billion in total government collections. City and county collections offer a promising opportunity to the debt industry with about $40 billion in outstanding receivables.

In the telecom sector, three companies accounted for nearly two-thirds of the industry’s $292 billion in revenues last year. AT&T, Verizon and Sprint Nextel are bundling services to U.S. households that spend on average about $200 a month on various telecom services.

Ginsberg also commented on last week’s workshop held by the Federal Trade Commission to look at the collections industry and the huge number of consumer complaints it generates. Ginsberg said the industry needs to bulk up its staff training and internal compliance departments while making sure it keeps abreast of state and local regulations.

Kaulkin Ginsberg is the parent of insideARM.com