Debt Buyer - Industry Overview

Industry Overview

Due to the historic profitability of the business, the debt buying industry has seen dramatic expansion since 2000. Debt buyers purchased approximately $110 billion in face value of delinquent debts in 2005, which is about double the amount bought in 2000. Credit card debt comprises seventy percent of the accounts sold to debt buyers, followed by automobile loans, telecommunications debt and retail accounts. However, purchased debts can also include personal loans, utility bills, medical bills, primary and secondary mortgages, etc.

Depending on the age and history of the debt, a buyer typically pays between 3 and 16 percent of the face value of the debt. Accounts that come directly from the original creditor without having been placed with a collection agency have the highest value, with prices decreasing based on the number of agencies that have previously attempted to collect the debt. As a result of the 2008 economic downturn, prices for the best accounts have fallen from the 2007-2008 high of 14 cents on the dollar to 4-7 cents. However, the large increase in delinquent accounts as a result of the recession has also resulted in sizable growth in the debt buying industry overall.

Debt buyers range in size from very small private businesses to multi-million dollar publicly traded companies - there are currently four publicly traded debt buyers. NCO, previously the largest debt collector, was taken private in 2006 after merging with One Equity Partners. As the visibility and profitability of the industry has grown, so too has competition, both in terms of the number of debt buyers and the rising prices of bad debt. Additionally, there is a secondary market in this debt, with the debt buyers reselling the debt.

Debt buyers may be classified as "active"—those who attempt to collect on the accounts they purchase, or "passive"—those who invest in the debt and then outsource the collection activities to a separate collection agency or collection law firm.