Third-Party Debt Collections Industry at a Crossroads as Slow Technology Advancements Impede Industry
November 05 2019 - 7:00AM
The collections industry is at a crossroads. Collections balances
in the U.S. continued to grow in the last decade, yet at the same
time, the number of third-party collections companies declined
dramatically. A new TransUnion (NYSE: TRU) and Aite Group report,
The State of Third-Party Collections 2019, found that contraction
in the industry is largely due to strong consumer credit
performance combined with a regulatory environment that has slowed
modernization efforts.
At the end of 2018, 79 million consumers had at least one
collection tradeline with outstanding balances totaling $211
billion. Despite the extreme level of debt, the number of
third-party debt collections companies declined from about 10,600
in 2007 to around 8,500 in 2016 (latest data available).
“Third-party collections plays a critical role in the health of
the American economy,” said Peter Ghiselli, vice president of
third-party collections at TransUnion. “Not only does the
collections industry provide gainful employment for thousands of
professionals, it keeps the cost of credit low for consumers that
seek it. For the industry to thrive once again, modernization must
take place. Yet this can only happen if both the industry and
government officials work side-by-side to create an environment
that fosters healthy discourse between collectors and
consumers.”
Presently, collectors rely on physical mail and the telephone as
primary channels to communicate with consumers. The report found
that it is increasingly difficult to reach consumers, indicating
that communication preferences and behavior have shifted in the
modern era of electronic and online convenience. Nearly six in 10
collectors (58%) said that contacting consumers today is more
difficult compared to five years ago. More than half (53%) of
collections organizations are considering using text messaging to
contact consumers in the next two years — along with social media
(23%) and email (22%).
Third-Party Debt Collectors Finding it
Much More Difficult to Reach Consumers*
Difficulty Contacting Consumers Relative to Five Years
Ago |
Percentage of Respondents |
Far more difficult |
32% |
Somewhat more difficult |
26% |
About the same level of difficulty |
26% |
Somewhat less difficult |
12% |
Far less difficult |
4% |
*Source: Aite Group “The State of Collections 2019” Report
In addition to the lack of technological progress, the industry
has faced other challenges in the last few years, such as low
unemployment, reduced delinquencies, heightened regulation,
information security requirements and shrinking margins. Many have
tried to offset these obstacles through diversification, with 72%
collecting multiple types of debt, and 63% collecting either
pre-charge off or out-of-statute debt.
Changes may be on the horizon for consumers and
collectors
The report found that change may only come if guidelines are
updated. The CFPB’s Notice of Proposed Rulemaking (NPRM) (May,
2019), seems to contemplate, in part, allowing debt collectors to
adopt communication technologies that have emerged since the FDCPA
became law in 1977. Many industry stakeholders would embrace a
transformation that enables communication in ways that are more
transparent, convenient and attractive to the consumer.
TransUnion recently launched CreditCompass™ to help consumers
secure actionable recommendations to improve their credit health
based on the analysis of the actions of millions of other
consumers. The solution, powered by the VantageScore® 3.0 credit
scoring model, provides consumers with more visibility about their
overall credit health, which could include collections activity,
while educating them about collections account(s).
“The report reinforces our belief that the collections industry
has an opportunity to rejuvenate itself for the first time in 42
years. The use of modern technology could address fundamental
challenges and allow the industry to implement a consumer-first
approach to collections — facilitating an amicable, productive
experience for all parties,” concluded Ghiselli.
About the reportThe State of Third-Party
Collections 2019 is a joint initiative between TransUnion and Aite
Group to explore trends, challenges and innovations occurring in
third-party debt collections. Data was gathered from a myriad of
industry stakeholders through quantitative survey work, qualitative
interviews and secondary research compiled from May through June,
2019. The report is driven by TransUnion’s work helping third-party
collection agencies, debt buyers, law firms and business process
outsourcers (BPOs) access credit-based and specialized risk
solutions to effectively recover debt. The full report is available
here.
About Aite GroupAite Group is a global research
and advisory firm delivering comprehensive, actionable advice on
business, technology, and regulatory issues and their impact on the
financial services industry. With expertise in banking, payments,
insurance, wealth management, and the capital markets, we guide
financial institutions, technology providers, and consulting firms
worldwide. We partner with our clients, revealing their blind spots
and delivering insights to make their businesses smarter and
stronger. Visit us on the web and connect with us on Twitter and
LinkedIn.
About TransUnion (NYSE: TRU)Information is a
powerful thing. At TransUnion, we realize that. We are dedicated to
finding innovative ways information can be used to help individuals
make better and smarter decisions. We help uncover unique stories,
trends, and insights behind each data point, using historical
information as well as alternative data sources. This allows a
variety of markets and businesses to better manage risk and
consumers to better manage their credit, personal information, and
identity. Today, TransUnion has a global presence in more than 30
countries and a leading presence in several international markets
across North America, Africa, Europe, Latin America, and Asia.
Through the power of information, TransUnion is working to build
stronger economies and families and safer communities worldwide.We
call this Information for Good.®
https://www.transunion.com/collections
Contact |
|
Dave
Blumberg |
|
|
TransUnion |
E-mail |
|
david.blumberg@transunion.com |
Telephone |
|
312-972-6646 |
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