The debt collection market in the US continues to show resilience. The industry is currently estimated to be worth $14.99 billion, with Market Research forecasting an average growth of 2.8% per year that will place its valuation at $16.7 billion by 2025. It has led to an invigorated debt buying sector, with average collection firms generating $4.1 million worth of receipts annually. That’s an incredible 78% increase from $2.3 million in 2007.
Major trends that drive growth include industry consolidation, business outsourcing, and innovations for collections such as artificial intelligence (AI) and the Internet of Things (IoT). Debt Catcher previously identified said factors as key changes that are happening now in the market. The last two, in particular, are instrumental in process alignment as they’re part of systems and technology, which is vital for minimizing non-compliance.
Considering the outlook above, debt buyers are expected to have more viable opportunities moving forward. Businesses and consumers start to stimulate stronger economic activity after holding back at the height of the pandemic. With that in mind, let’s go through some of the variables below that are the main causes of debt this year.
Data from The Fed shows that business debt is at around $17.7 trillion. Businesses affected the most by the pandemic, like restaurants and retail companies, are the top borrowers as they continue to recover losses. Some have inevitably resulted in charged-off debts, creating opportunities for buyers.
As discussed in our post Where to Buy Debt Portfolios be sure to do your research before taking the next step. Determining factors such as your target’s product, customers, and total amount for sale are vital to see if everything matches your objectives.
In another article, we highlighted the research published by the Kaiser Family Foundation and explained how patient debt ends up getting sold by hospitals and medical providers. And given the present global situation, consumers are racking up medical expenses more than ever. A big chunk of the costs is left to healthcare institutions, especially from patients without insurance or HMO.
Credit issuers are also frequent debt sellers due to the fact that credit utilization goes up even if credit lines are decreased. A report from the Consumer Financial Protection Bureau notes that even among “super-prime” borrowers – or those with high credit scores – the utilization rate can reach 78% when available credit is reduced. If this happens, credit scores also tend to go down. Upgraded Points outlines that credit utilization is the biggest factor in determining credit scores. With credit lines on max limits and lower credit scores, it’s harder to get additional funding. Ultimately, the chances of delinquency and having charged-off debts become higher.
Just remember that as you scour for credit debts to buy, check for the accuracy and validity of credit reports to avoid violations, especially with respect to the Fair Credit Reporting Act. We cited the case of Hinkle v. Midland where two charged-off debts were tagged as “verified” even with lack of documentation. If verification ends up inconclusive, the proper response according to the panel is to “delete the account or cease reporting it.”
The outlook on commercial mortgages is positive this year, with a $733 billion circulation value expected among lenders and borrowers in this particular category. Jamie Woodwell of the Mortgage Bankers Association shares that “most commercial real estate market fundamentals remain strong.” Loan demand from now until the next two years is anticipated to go up, and with it comes more prospects for debt buyers.
At the end of the day, no matter the options you’re considering, keep in mind that buying debt starts with finding the right future sellers. Our platform can connect you with the best candidates to help ensure that you’ll achieve a desirable ROI.