The $600 You Receive Each Year from Debt Collectors
Offering an alternative to the increasingly negative media coverage of the collection industry, this article focuses on its positive and understated aspects.
Contrary to popular belief, debt collection agencies are not filled with irresponsible and uncaring agents from hell who see nothing more than the bottom line. In fact, debt collection companies are heavily regulated by both the state and federal government, and are – more often than not – comprised of licensed and insured professionals. This is part of a larger effort to ensure collection agencies maintain industry standards and follow clear policies.
Business model extends credit based on the premise and expectation of being repaid:
The need to make sure that the borrowing-payment turnover is maintained at a healthy rate is very crucial. As the economy relies heavily on credit, and likewise, consumers are dependent on credit to procure goods and services. A smooth flow of the financial system downturns when borrowers fail to pay their loans, and everyone else suffers the consequence.
The cascading impacts include inflating the cost of consumer goods and services, increasing the cost of borrowing, difficulty accessing and securing loans, and undercutting the bottom line of businesses in every category. In other words, it is not just the financial industry that suffers the consequences – we all do. That’s why there is a stringent collection effort to recover defaulted borrowings.
This is reinforced by a 2017 difference-in-differences analysis that compared consumer outcomes in states with greater legislative restrictions with those of consumers in more lenient states. Conducted by economists based at Princeton, the study found consistent evidence that restricting collection activities leads to a decrease in access to credit and to a deterioration in indicators of financial health.
(Access to Credit and Financial Health: Evaluating the Impact of Debt Collection. Julia Fonseca, Katherine Strair, and Basit Zafar.
Federal Reserve Bank of New York Staff Reports, no. 814
May 2017 JEL classification: D12, D18, G18, K30)
According to a report by Ernst & Young – one of the largest professional services firms in the world – the money debt collectors recover on behalf of companies results in an annual savings of nearly $600 for each household in the country.
By recovering delinquent accounts, debt collectors improve company revenues. This, in turn, helps these companies to maintain, even grow, their work force – seeding economic growth. Money that would otherwise not get collected is injected into the local economy, providing more opportunities for businesses and workers.
There is also a direct link between businesses that focus on accounts receivable and the communities and consumers they serve. There is a strong sense in which collection agencies give back to their broader communities, including contributing millions of dollars annually in state and federal taxes, donating to food banks, and participating in fundraising events.
The Association of Credit and Collection Professionals’ International Education Foundation even provides financial aid opportunities to college students. More broadly, collection agencies make direct contributions to employment by hiring agents and other support staff at their offices.
Given these factors, a successful debt collection can benefit both the agency and the individual or family that is getting out of debt. In fact, collection agents are often able to arrange favorable settlements that allow people to remove negative accounts from their credit reports and thereby empower them to purchase cars, homes, and other assets.
Resolving these accounts frees up money that can be injected back into the economy, where it can improve everyone's economic situation. On an individual level, getting out of debt often dramatically reduces stress levels. This improvement to one’s quality of life cannot be overstated.
The next time you receive one of these dreadful calls, it is best to maintain a calm demeanor and keep an open mind. As an executive who has worked at the Fair Capital collection agency for many years, I can attest to the fact that there are ongoing initiatives focused on creating a positive experience in the debt collection process, ensuring people are treated with dignity, respect, and are helped to get back onto their feet.