National Study Finds Debt Collection Industry Essential to U.S. Economy

ACA International, the Association of Credit and Collection Professionals (ACA) today released a new study that demonstrates, for the first time, the value of the third–party collection industry to the U.S. economy. The landmark study reveals that the industry returned $39 billion in 2005 to businesses that extend consumers credit.

The economic effect of this debt collection activity has been to keep prices lower, thus saving the average American household $351. The report, titled "Value of Third–Party Debt Collection to the U.S. Economy: Survey and Analysis," was authored by global advisory firm PricewaterhouseCoopers and based on a national survey of third–party debt collection firms.

"Debt collection companies are proud to play a vital role in the U.S. economy," said ACA Chief Executive Officer Gary Rippentrop. "Businesses large and small rely on ACA member agencies not only to collect unpaid bills, but also to help keep their prices lower for all consumers."

"Debt collection reduces the risk of loss for business; permits greater business expansion; makes it possible for healthcare providers to maintain access to care in their communities; and allows for the privilege and convenience of credit as a positive financial tool for American consumers," Rippentrop added.

The study reveals a growing, positive impact of employment in the third–party debt collection industry, which has more than doubled in the last 15 years—from fewer than 70,000 employees in 1990 to nearly 150,000 in 2005. The direct and indirect economic impact models used in the study estimate that the industry, including business purchases and personal purchases by its owners and workers, supported a total 426,700 American jobs with payroll totaling $15 billion in 2005.

"Many people are surprised to learn that debt collection companies employ state of the art technology, provide great benefits and excellent pay to thousands of Americans," added Rippentrop. "Debt collection firms successfully work for both small businesses and Fortune 500 companies that rely on us to professionally contact and work with their customers."

Essential to Consumers

Included in the price of all goods and services is the cost of business losses arising from bad debt. Consumers benefit from the work of debt collectors through real reductions in consumer prices and greater consumer purchasing power. The study reports that the amount of debt returned by collection agencies in 2005 saved the average American household $351. This amount represents dollars households would have spent if businesses were forced to raise prices to cover bad debt.

"The annual savings is the average household equivalent of 19 bags of groceries, 155 gallons of gas, or more than four months of electric bills," said Rippentrop. "We would all pay higher prices to cover the unpaid bills of others if they were not collected."

Essential to Business

Businesses of every kind and size benefit from third–party debt collection because such services help them keep costs down and reduce their risk of loss. Private businesses charged off an estimated $141 billion in bad debt in 2005. The industry successfully returned $39.3 billion to American businesses last year, representing a 22 percent reduction in private sector bad debt.

"The amount returned to the U.S. economy was equal to three percent of all U.S. corporate pre–tax profits," said Rippentrop. "Many companies might even end up in the red or in bankruptcy without the assistance of debt collection services."

Essential to Creditors

The $39 billion returned by third–party collectors in 2005 represented 62 percent of total "new loans"—the net change in consumer credit outstanding during the period. Furthermore, the returns accounted for 11.4 percent of the pre–tax profits of domestic financial corporations.

"For companies that extend credit or provide financial services to consumers, the effects of bad debt can be especially troublesome. Today’s economy increasingly depends on the wide availability of credit at low cost," said Rippentrop. "As credit risk increases, lenders must tighten their credit policies—resulting in reduced consumer spending and lower sales, which could lead to an economic recession."

Essential to Government

Third–party collectors are increasingly working with federal agencies and state and local governments. In fiscal year 2005, the federal government referred $13.7 billion in delinquent receivables to private collection agencies resulting in collections of $693.5 million; up from $351.3 million in 2000. For example, the $603.1 million private collectors returned to the U.S. Department of Education in 2005 represented the average student loan aid received by 122,681 college students during the 2004/05 academic year.

"Debt collection companies are proud of the trust placed in us by the federal government because we help tax dollars go further," said Rippentrop. "In the area of student loans, we’re helping more kids go to college."

A Highly Professional Industry

While the value of the collection industry to the economy is clear, most Americans hope they are never contacted by a debt collector. However, there is no such thing as an unpaid bill. Personal finance can be a very emotional, stressful subject. But contrary to outdated myths, debt collectors have a surprisingly positive record of helping the people they contact. Today’s credit and collection professionals are often the first to engage a consumer in a problem–solving dialogue about their financial challenges.

"ACA International–member companies are committed to the highest standards of professionalism and ethical behavior," added Rippentrop. "ACA’s code of ethics goes beyond the law to guarantee that consumers knowtheir rights and responsibilities and are treated fairly."

Stringent consumer protection laws demand collectors use cooperative resolution rather than intimidation asthey act on their clients’ behalf. ACA supported the Fair Debt Collection Practices Act which became law in 1977 and continues to support the efforts of state and federal regulators to ensure consumers’ rights and collectors’ responsibilities are balanced in an ethical and professional industry.

To view the entire report, please visit ACA’s web site.