Debt collection agencies face uncertainty on road to recovery

New research into the outlook for the UK consumer debt collection industry has been released, which identifies market challenges and offers an insight into the potential for future growth.

Business intelligence organisation Apex Insight, whose clients include 1st Credit, Macquarie and OC&C, has based the research and forecasts on its experience of working in the sector, current industry trends, customer needs and the impact of macroeconomic factors.

Frank Proud, Director of Apex Insight, says that during the recession, conditions for collections agencies have become far less favourable: “Consumers have taken steps to reduce borrowings, pushing unsecured debt levels below 2005 levels, while higher unemployment has led to more problem loans but also a far worse collections environment,” he says. “As a result, agencies find that a higher proportion of debtors are simply unable to keep up repayments.”

The report shows that although the consumer debt collection industry, now valued at around £500m, returned to profit in 2010, margins remain significantly below pre-credit crunch levels with several operators having invested to purchase debt portfolios as a way to secure business for their collections operations.

Apex Insight does not foresee immediate relief on the horizon, with 2012 GDP growth forecasts tumbling, risk from the smouldering Eurozone crisis and the impact of government austerity policies prolonging high unemployment high and hence weakness in ability of the indebted to pay.

A further possible complication comes from the growing Payday Loans industry. Evidence suggests Payday loans are being used by many hard-pressed consumers to meet payments on credit cards and other unsecured loans. This means that, if the OFT’s review of that industry leads to the widely called-for tightening of regulation, the collections environment would worsen even further, while failure to regulate could simply create a bigger problem down the line.

Despite short-term challenges, Apex Insight’s market forecast does expect the market to recover once a return to GDP growth and falling unemployment deliver a more benign collections environment. The report sets out how, and when, this recovery might take shape.