The third-party debt collection industry—comprising collection agencies, business process outsourcers, debt buyers, and law firms collecting debt—is at a critical crossroads. Some collection firms are innovating to meet rising challenges while others are languishing and allowing their clients to view their services as a commodity.
To understand the current state of the third-party collections industry, Aite Group surveyed a large cross-section of these firms and conducted a series of interviews with industry thought leaders. Here are a few major takeaways from the resulting report, sponsored by TransUnion:
- Consolidation of the debt collection industry continues. While nearly 80 million consumers have at least one debt in collections, the industry has experienced significant consolidation. The number of firms has declined by almost 20% since 2007, with smaller firms more likely to close or be acquired. Pressures on margins and an inability to invest in new technology are some of the factors spurring this trend.
- Consumers are increasingly hard to contact, especially with outmoded forms of communication. The majority of collectors report that consumers are harder to contact today than they were just five years ago, with many not picking up their phone to answer a call from an unknown number. A significant share of collection firms are interested in communicating via text, email, or social media, but regulatory uncertainty inhibits innovation.
- The Consumer Financial Protection Bureau’s rulemaking will bring needed certainty to the industry, but challenges remain. Rulemaking is underway that can bring needed clarity to the collections industry and provide sorely needed updates that take today’s technologies into account. While those in the industry largely view these upcoming changes as positives, other challenges—such as ensuring adequate staffing and maintaining up-to-date security for sensitive information—persist.