Welcome Tax Season

Taxpayers mourn the arrival of April 15th. To recovery executives and their service providers, however, first quarter months have long been among their best months of the year. In 2009 as in prior years, an uptick in recoveries is once again giving some credit issuers better performance numbers as well as some cause for optimism.

Liquidation rates have historically followed a cyclical pattern throughout the year. Consumers repay fewer debts (while using more credit) in November and December during the holiday season. Come first quarter, tax refunds from Federal and state governments cause predictable lift to recovery curves. Liquidation performance then wanes gradually through the summer months and into the fall, and the cycle repeats itself. Seasoned executives have observed this trend year over year.

The current recession has caused liquidation rates for fresh portfolios to fall as much as 50 percent. Older portfolios have performed somewhat better (or less worse), but recovery rates as a whole are still poor year over year. Given these unfortunate realities, recovery executives have been wondering if the seasonal pattern in collections would repeat itself.

Many report that it has. While increases in recovery rates in the first quarter have not been as pronounced as they have been in prior years, even with much poorer winter performance, recovery executives are feeling better now than they have in many months.

Will April showers bring May flowers? Stricter origination standards are increasing the quality of borrowers making up many portfolios. With prices of debt sales in the gutter, many issuers have successfully beefed up their contingency networks, and are beginning to see results. Many of the oldest receivables are finally getting cycled through the system. And if the recession reaches its nadir in the middle of 2009, liquidation figures should continue to trend upwards, shouldn’t they?

We’ll see in the summertime. For now, welcome tax season.

Paul Legrady provides management consulting services to creditors and receivables management companies. To confidentially discuss your interests, or to learn more about Kaulkin Ginsberg’s Recovery Review program, contact Paul at 240-499-3818, or by email.