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STOP Collector Blog From the law firm of Lemberg & Associates

A Peek into the Business of Debt Buying

As we’ve often discussed, there are a three primary types of debt collectors. The first consists of debt collectors who are employees of original creditors (e.g., the hospital employee who calls about a medical bill); the second consists of third-party debt collectors (e.g., the company to which the hospital outsources collections); and the third consists of debt buyers (e.g., the company that buys the hospital’s debt for pennies on the dollar when its own collectors and third party collectors have been unsuccessful).

Seeking Alpha
has an interesting analysis of one of the country’s largest debt buyers, Portfolio Recovery Associates (NASDAQ: PRAA). In fact, Portfolio Recovery Associates is the third-largest debt buyer, after Sherman Financial and Encore Capital, and before Asset Acceptance. The analysis looks at the trend of consumers paying down their debt, and concludes that there may be less debt for Portfolio Recovery to buy in the future. Yet it counterbalances that by saying consumers are likely to revert to old behaviors and that smaller or newer debt buyers “flame out,” leaving companies like Portfolio Recovery holding steady.

The article also pulls the curtain back on how Portfolio Recovery is diversifying, for example by expanding into the U.K. by purchasing a debt collection agency and by moving into bankruptcy collections. Ultimately, the author predicts that Portfolio Recovery will have revenue growth of nine percent and return on equity of 20 percent.

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Author
Sergei Lemberg

Sergei Lemberg is the principal at Lemberg & Associates, a consumer law firm that defends consumer rights in the areas of fair debt collection law, fair credit law, and lemon law, among others. He is regularly labeled by the debt collection industry as one of the “most active consumer attorneys” in the U.S.

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