Third-Party Debt Collections Industry at a Crossroads as Slow Technology Advancements Impede Industry

CHICAGO, Nov. 05, 2019 (GLOBE NEWSWIRE) -- 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*

*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 report
The 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 Group
Aite 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