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Recession Sparks Bonanza for Collection Agencies

Some collectors have resorted to illegal or overly aggressive tactics . / Credit: Debt collection image via Shutterstock

The Great Recession has left debt collection agencies flush with accounts, a new industry analysis shows. As household wealth declined in the downturn and the middle class has shrank, consumers piled up a mountain of credit card debt and financial distress caused many to fall behind in their payments. This has been a bonanza for collection agencies.

The collections industry grew by 3.9 percent in 2011 to $12.2 billion, according to a report compiled by Marketdata Enterprises, a market research company. This year will see a 4.6 percent gain, boosting debt collection industry revenues to $12.8 billion

But collectors are working harder to collect — making more calls and, in many cases, negotiating partial payments. Competition is fierce, based on recovery rates and service fees, and profitability has fallen, the survey shows.

[Top 10 Consumer Complaints]

As a result, some collectors have resorted to illegal or overly aggressive tactics, raising the ire of state attorneys general, the Federal Trade Commission (FTC) and the public.

The FTC and the National Association of Attorneys General recently reported that debt collection topped the list of consumer complaints in state offices during 2011. The FTC recently shut down two companies that used a call center in India to defraud Americans out of more than $5 million over the past two years. According to the FTC, these collectors made more than 8 million calls to consumers since 2010.

"Heading into the fall of another difficult year for many consumers, the recovery is still fragile," said John LaRosa, Marketdata's research director. "Unemployment remains high by historical standards and is likely to improve slowly. Consumers are still strapped by high gas prices. Although the number of placements at collection agencies has increased, their collectability has fallen. Agencies have to work much harder to collect, making more calls, using more aggressive tactics. But, this is backfiring, as the number of consumer complaints hit record levels and the FTC imposes fines and actions on agencies that violate the Fair Debt Collection Practices Act. While this is good news for consumers, it affects the top-line revenue growth of collections firms."

Reach BusinessNewsDaily senior writer Ned Smith at Follow him on Twitter @nedbsmith.We're also on Facebook & Google+.

Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and held a masters in journalism from the University of Arizona.