Payscout, a payment service provider, commissioned a recent, joint study from the Urban Institute and Encore Capital Group’s Consumer Credit Research Institute. This study indicates that the careful evaluation of the current regulatory environment is necessary in order to ensure that the debt collection and debt buying industries are allowed to carry out their role in the U.S. economy.
According to this study, an estimated 77 million Americans currently have debt in collections. In addition, 35% of consumers with credit files reported to a major credit bureau. Researchers also revealed that the numbers are basically unchanged since the Federal Reserve’s study of 2004. In that particular study, it was found that 36.5% of people with credit reports had debts in collection.
Collection agencies are heavily regulated, but they are very unpopular among the majority of Americans. Nevertheless, Payscout CEO, Cleveland Brown, assures that they are a necessity to the economy. In 2013, agencies recovered approximately $55.2 billion in total debt. Of that amount, the agencies earned $10.4 billion in commissions, and nearly $44.8 billion in debt was returned to creditors.
Thus, the average amount saved for a U.S. household was $389 in 2013. This amount represents the dollar amount households would have spent if businesses had been compelled to raise prices in order to cover bad debt.
According to Collections & Credit Risk, “U.S. debt collection agencies in 2013 directly contributed an estimated $724 million of federal tax, $400 million of state tax and $287 million of local tax, for a total tax impact of more than $1.4 billion”.
The collection agency industry has other positive effects on the U.S. economy. The industry has provided nearly 231,000 jobs, with a total payroll impact of $12.4 billion. In addition, while companies and institutions could make their own collections, most business entities do not have a staff that includes a professional collector.
According to Brown, “A bookkeeper may feel uncomfortable or embarrassed calling a good customer to collect an invoice, or she may simply not have time. Even when she does make the calls, she may not have the skills needed to work through proffered delays or objections and set up a payment schedule”.
For businesses, collections professionals can greatly increase the business’ chance of receiving their payments; this is especially true for doctors’ offices, hospitals and government agencies. Another reason the collections agency can greatly aid the U.S. economy. The Bureau of Labor Statistics anticipates that the debt collection industry will increase by 23% between now and 2016.
The findings of this recent study are encouraging for those who are entering the industry. Even though the collections agency industry is labelled as high risk by traditional lending sources, businesses can still secure the payment processing they need through a collection agency merchant account. A collection agency merchant account from a high risk provider allows a business to secure a merchant account despite the inconsistent revenue streams that the industry experiences.Get Started Now