In the past three months I arranged to meet with the owner of a collection agency over a coffee. This individual has worked in the collection industry for more than three decades. For the remainder of this post I will simply refer to this person as Hal.
Creditors have been squeezing collection agencies for years
Hal’s number one beef is that creditors have been squeezing collection agencies for years. Over the past three decades commission rates paid by creditors to collection agencies have declined dramatically. Costs associated with operating a collection agency, however, have not declined. The only way for collection agencies to overcome declining commission rates is to increase the number of files worked.
Creditors endless pursuit of better returns is encouraging bad behavior in the collection industry
Hal pointed the finger at creditors when it comes to the rising tide of consumer complaints against collection agencies. The fact that creditors have increasingly been treating collection agencies as a commodity has placed tremendous pressure on collection agencies to meet certain benchmarks or risk losing business. This, in turn, has lead collection agency management to place pressure on front-line collection staff.
Relationships with creditors are becoming less important
In the past relationships between a creditor and a collection agency might have counted for something. Today many creditors are simply looking to find the lowest cost collection agency. Hal cited the emergence of bidding websites including Merx and Biddingo.
Government regulators have made life tougher for collection agencies
Hal also raised concerns about how government regulators were making it more difficult for collection agencies to be financially viable. At one point collection agencies were contacting consumers using automated messages. The federal government ruled that those making these automated messages had to disclose on whose behalf these calls were being made. This decision meant that these automated messages were illegal under provincial law which prohibited collection agencies from disclosing the existence of a debt.
Collection agencies operate under a tough business model
Unlike most businesses, 100 percent of the revenues of a collection agency are commission based. Most of a collection agency’s expenses, however, including rent, overhead, and labour costs are fixed. This means that a collection agency that has some rough months faces the prospect of closing its doors.