The $600 You Receive Each Year from Debt Collectors.
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, collection agencies are not filled with irresponsible and uncaring agents from hell who see nothing more than the bottom line. Both the state and federal governments heavily regulate debt collection companies. They are – more often than not – comprised of licensed and insured professionals. This is part of a more significant effort to ensure collection agencies maintain industry standards and follow clear policies.
Credit is extended based on the premise and expectation of being repaid:
Therefore, it is crucial to ensure that the borrowing-payment turnover is maintained at a healthy rate. 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 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 businesses' bottom line 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 relentless collection effort to recover defaulted borrowings.
This is reinforced by a 2017 difference-in-differences analysis comparing consumer outcomes in states with more significant legislative restrictions with 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 a deterioration in financial health indicators.
(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)
Economic benefits:
According to a report by Ernst & Young – one of the largest professional services firms globally – 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 workforce – seeding economic growth. Money that would otherwise not get collected is injected into the local economy, providing more opportunities for businesses and workers.
Community contributions:
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 the 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.
Debt relief:
Given these factors, a moral debt collector can benefit the individual or family in getting out of debt. Collection agents can often 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. In addition, getting out of debt often dramatically reduces stress levels on an individual level. This improvement to one's quality of life cannot be overstated.
Closing words:
The next time you receive one of these dreadful calls, it is best to maintain a calm demeanor and keep an open mind. As a debt collector at Fair Capital, I can attest to the ongoing initiatives to create a positive experience in the collection process.
