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Before the recession, the drastic increase in US debt stimulated Debt Collection Agencies industry growth from 2003 to 2007. During this period, revenue rose as consumers funded spending through credit cards, mortgage financing and home equity loans. But after a rising tide of debt swamped the economy, collectability rates fell, canceling out the spike in debt-collection opportunities and hurting revenue. The economy is set to recover over the next five years, though, with improving debt recovery rates, declining unemployment and higher housing prices. As a result, debt collection agencies will experience renewed demand, resulting in modest revenue growth. For these reasons, industry research firm IBISWorld has added a report on the Debt Collection Agencies industry to its growing industry report collection.

Los Angeles, CA (PRWEB) June 10, 2012

The rising tide of US debt swamped the economy in 2008. As defaults escalated, credit markets froze and the recession ensued. Typically, the Debt Collection Agencies industry benefits from this scenario because the rise in default rates produces a spike in debt collection opportunities. But the depth of the recession produced another outcome, says IBISWorld industry analyst Eben Jose, “The increase in debt collection opportunities was offset by a fall in collectability rates, which is the percentage of delinquent accounts collected compared with the total value of outstanding delinquent debt.” Because fewer debtors were able to meet payments during the recession, industry revenue is expected to decline at an annualized rate of 1.1% in the five years to 2012 to $12.6 billion.

Before the recession, the drastic increase in US debt stimulated Debt Collection Agencies industry growth from 2003 to 2007. During this period, revenue rose at an annualized rate of 2.1% as consumers funded spending through credit cards, mortgage financing and home equity loans. “At the same time, banks and other institutions lowered lending standards in order to expand loan operations,” says Jose. “Default rates spiked significantly as the economy turned sour.” Credit lending institutions also outsourced debt collection services at higher rates to manage cash flow and operating costs. The industry remains highly fragmented, with a significant share of the industry comprised of sole proprietors and partnerships due to the industry's low barriers to entry. Market share concentration is expected to increase over the next five years as firms look to mergers and acquisitions for increased revenue, a trend continued from the past five years. The most notable acquisition occurred in 2007 when major company NCO Group Inc. acquired Outsourcing Solutions. Acquisition activity is common in a mature marketplace. Greater reliance on information technology and the ability to leverage economies of scale in business transactions is forecast to support future acquisition activity, increasing market concentration.

As the economy and credit market sector continue to recover, revenue is expected to grow in the five years to 2017. Debt recovery rates will improve as the unemployment rate declines and housing prices stabilize. Improving recovery rates will ensure positive returns on favorably priced debt portfolios purchased during the recession. Many debt collection companies took advantage of the marketplace's aversion to debt exposure during the recession by buying up debt at fire sale prices. Other important trends in the next five years will include consolidation of agencies, technology improvements and accounting changes. A rise in collections from legal entities, government institutions and healthcare establishments will also support growth. For more information, visit IBISWorld’s Debt Collection Agencies in the US industry report page.

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IBISWorld industry Report Key Topics

The Debt Collection Agencies industry includes businesses that pursue payments on debts that individuals and businesses owe. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Other agencies purchase debt portfolios from creditors at deep discounts and then pursue outstanding balances for their own gain.

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About IBISWorld Inc.

Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.

Gavin Smith
IBISWorld
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