Debt Collectors Buying Bad Debts Make a Killing in a Bad Economy

Posted by as Ask Steve, Beware, Blog, Credit Cards, Economy

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Oh what a wonderful time to be a debt collector and to buy bad debt. You’ve got to love a system where the very banks that are selling bad debts, finance it for the debt collector to buy for less than four cents on the dollar.

All they have to do is get people to promise to pay more than eight cents on the dollar back and they are way ahead. I know, if only it were that easy.

With the economy tanking, banks hoarding cash and more consumers getting deeper into hock, collectors of defaulted credit cards such as Encore Capital Group are finding opportunities for growth.

“We’re … in the perfect storm of a higher supply (of charged-off credit cards), lower demand and pricing going down,” said Paul Grinberg, chief financial officer.

For the nine months ended Sept. 30, Encore purchased $5 billion in charged-off credit cards at an average 3.4 cents on the dollar, investing about $166 million.

The cash to buy the defaulted portfolios comes from a $335 million line of credit provided by a syndicate led by JPMorgan Chase, and includes some of the same banks that owned the debt, including BofA and Citibank.

The business comes down to collecting from people experiencing tough times. The goal is not to intimidate, but to get debtors to agree to some type of repayment schedule.

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Source: Debt Collectors Charge Ahead in Faltering Economy