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A debt buyer is a corporation that acquires loans from lenders at a reduced price. Debt buyers, including collection agencies and private sector debt collectors, purchase overdue or charged-off loans from debt sellers for a percentage of their face value.
The debt buyer subsequently recovers the money either by themself or by employing a collection agency or reselling parts of the debt, or by a combination of these options.
Debt collection is a complex and wide-ranging industry. The debt collection industry is big—an estimated $18 billion industry, in fact — and growing. Thousands of debt collectors exist, including collection agencies, law firms, and debt buyers. According to IBISWorld’s Debt Collection Business study, the industry employs more than 130k people.
Yahoo Finance has outlined the current trends in the industry in their United States Debt Collection Agencies Market Report.
Understanding Debt Buyers
Debt buyers typically pay a relatively small fraction of the debt’s face value – occasionally as little as pennies on the dollar. Debt buyers can be tiny, privately held organizations or huge publicly traded corporations.
They are categorized as active if they attempt to collect the debt directly or passive if they use a collection agency or legal firm to recover a loan. The debt-buying industry is worth billions of dollars.
Why are Debt Buyers Used?
If a creditor, such as a mortgage provider or financial firm, becomes unable to collect the money on an existing debt under the conditions of its funding, it may seek to reclaim a portion of its loss. In certain cases, a lender has little or no chance of recovering the funds within the time range specified when the loan or credit was issued.
After acquiring ownership of the account receivables, the debt buyer can undertake several techniques to regain residual value. This might involve settling on new repayment conditions with the borrower or employing fresh collection strategies through a collection agency to force payments.
The debt buyer may collect on their own, hire a collection agency, repackage and sell pieces of the bought portfolio, or employ any combination of these strategies.
Five large collection companies are estimated to have generated $3.5 billion in sales during 2021, a 6.8% increase over 2020 levels. This $3.5 billion represents 23.5% of total industry revenues, amounting to approximately $15 billion in 2021.
Who is the Largest Debt Buyer?
In the United States, there are around 10,000 debt collectors and debt buyers.
Encore Capital Group, based in San Diego, CA, and its affiliates comprise the country’s largest debt buyer and collector. Encore, as a debt buyer, buys overdue or charged-off debts at a discount to the debt’s face value.
Despite paying a lower amount for the loan, they may try to collect the entire amount demanded by the initial loan company. They acquire the right to claim overdue consumer debts such as credit cards, phone bills, and other accounts.
Encore Capital Group and its affiliates are the nation’s largest debt buyers and collectors, having businesses and interests in North America, Europe, Asia, and South America.
Encore Capital Group is a global specialized financial firm that offers debt collection as well as other associated services to customers dealing with a wide variety of financial assets. Encore buys retail debt portfolios from financial institutions, credit unions, and utility suppliers through its subsidiaries across the world.
It buys pools of delinquent consumer debts at steep discounts on face value and administers them by assisting individuals in repaying their commitments and regaining financial stability. Defaulted receivables are unfulfilled financial obligations made by customers to credit originators such as banks, credit unions, consumer financing businesses, and retail shops.
Receivables in default could also include those susceptible to insolvency procedures.
Encore works with people to assist them in paying off their debts, putting them on the path to financial rehabilitation and, eventually, enhancing their financial health. Encore is the only firm of its type to function under a Consumer Bill of Rights, and it offers customers top-line services.
Encore is a NASDAQ Global Select corporation (NASDAQ: ECPG) and a member stock of the Russell 2000, S&P Small Cap 600, and Wilshire 4500 indices.
In 2021, the company’s revenue was $1.40 billion, a decrease from $1.48 billion in 2020. FY2021 US GAAP net income of $351 million was up 66% year on year.
It moreover offers loan servicing as well as other portfolio management services to debt issuers in Europe for non-performing loans. Via Midland Credit Management, Inc., they are involved in debt portfolio acquisition and collection in the United States. Cabot Credit Management Limited provides debt management solutions in Europe and the UK.
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