Collectors see less credit card debt
Volume of collectible card debt shrinks
Credit card holders are far less likely to get calls from a debt collector than in the past -- at least about their card debt, new figures from the collection industry show.
A survey of 300 collection agencies by the industry group ACA International found that card debt made up only about 3 percent of their business in 2013. That compares to a 20 percent share in 2010, the last time ACA did the analysis.
"The world was a different place," Public Affairs Director Mark Schiffman said.
ACA's forthcoming report includes only a fraction of the industry, he added, stressing that the results may not be universal. There are more than 5,000 third-party collection agencies in the U.S. that contract their services to creditors, according to Census figures.
However, a separate survey supported ACA's results. Since just 2013, bank cards have fallen from a top source of collection business to fourth place, said the report by payment processing company BillingTree and Inside ARM, a trade publication.
"Compared to 2013 results, revenues related to bank card collections decreased significantly," said the report based on 150 collection companies.
Changing credit card use
The surveys add to growing signs that Americans are changing the way they use plastic. Credit cards are being pulled out more often to make transactions, and less often as a means to tap into revolving debt. ACA's figures come on the heels of a report by the American Bankers Association showing increased use of cards as a payment device, as banks shift away from higher-risk consumers who are more likely to carry a balance.
Americans' total credit card balance has been rising lately, but May's $872 billion figure remains about $150 billion below the pre-recession peak reached in 2008, according to the Federal Reserve.
The collection industry surveys don't measure dollar figures, so it's impossible to tell how much the stack of credit card bills on collectors' desks has shrunk. And whatever the amount of the decline, other obligations -- including medical and student loans -- have zoomed in to fill the gap.
Health care was the No. 1 source of collection work in both collection industry surveys, and Schiffman said the amount of health care debt in collections is up. Also on the rise are debts owed to goverrnment entities. "State and local governments can't have a hole in their budget -- they can't run a deficit," Schiffman said, explaining a rise in collection business from the public sector.
Overall debt burden growing
Looking at the overall debt burden on consumers, the size of bills in collection is actually rising, according to the Federal Reserve Bank of New York. For people with at least one overdue bill in collection, the average amount of delinquent debt was $1,518 in the first quarter, up by $150 since the first quarter of 2010.
"I think we all know there are still a lot of people out there experiencing financial distress," said Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling.
NFCC members counseled 1.5 million distressed debtors last year, Cunningham said. The group doesn't track credit card debt problems, but anecdotal accounts from some counselors indicate that problems are increasing with payday loans, student loans and online installment loans.
So why are collectors dunning cardholders less?
Debt collectors say a squeeze on new credit card applications is at least part of the answer. "When we hit the recession, credit started getting real tight," said Nick Jarman, chief operating officer of Delta Outsource Group in O'Fallon, Missouri, and an ACA board member. As card companies screened out higher-risk applicants, that meant the people able to get cards were more likely to pay on time.
"Other business has made up the slack -- we still have a lot of volume," he added. Some collection accounts are coming from businesses that only recently began offering credit, such as gyms and swimming pool dealers.
Late payments on card debt are hovering near record-low levels, according to the American Bankers Association, a good reason for the drop in collection business. Only 2.44 percent of accounts were delinquent in the first quarter, ABA's quarterly delinquency bulletin said. The delinquency rate -- for bills more than 30 days overdue -- has been below the long-term average of 3.82 percent since 2010.
One other factor may be at work in the decline of card debt being placed with collectors. When banks do have problem accounts, they are more likely to sit on them than before, rather than sell them on the debt market, according to the debt buyers' industry association. Debt buyers often contract with collectors to bring in the debts they purchase from banks.
"I call it a paralysis," said Jan Stieger, executive director of the industry association, DBA International. Banks are largely waiting for regulators to finish crafting new rules that will govern how debt sales are conducted, she said. The Consumer Financial Protection Bureau is expected to propose debt collection rules around year-end. Banks "want to know what the rules are for debt sold," Stieger said. "I think it is a great chill to the market."See related: Know your rights: Fair Debt Collection Practices Act; Fed: Card balances extend growth
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