These should be boom times for debt collectors, with more Americans in arrears than ever. After gorging on credit over the past five or so years, consumers owe more than $2.57 trillion, according to the latest Federal Reserve estimate.
But while debt collectors are undeniably booking more business with nervous creditors eager to chase down overdue accounts, that doesn't necessarily translate into increased profits.
"You can't get blood from a stone," says Michael Ginsberg, president and CEO of Kaulkin Ginsberg, a consulting firm for the collection industry in Rockville, Maryland. "In this economy, a lot of people just don't have the money to pay up right now."
Of the 6,500 debt-collection agencies in the U.S., most are small shops with less than $10 million in annual revenue. Seventy percent are contingency collectors, meaning they get a cut of what they collect. The remaining 30 percent are debt purchasers, which buy debt for pennies on the dollar and keep all they collect.
Contingency players are reporting record placements from businesses, says Rozanne Andersen, executive vice president of ACA International, the industry's trade group. Increasingly, they're also hearing from troubled municipalities eager for help in collecting overdue taxes, parking tickets, and even library fines.
The downside, she says, is that "recoveries have been much lower than expected." So low that despite more clients with enormous debt portfolios, collection agencies aren't making any more money and, in many cases, have begun to lose money. "They're feeling crunched," she says.