Why Debt Collection is Good For the Economy

Debt collection struggles to get good press.  News outlets love to promote debt collection horror stories that give a black eye to an industry that otherwise serves a very good purpose for our economy.  The bad actions of a few unscrupulous characters have frequently overshadowed the value and importance of an industry that diligently returns money to the US economy and ultimately into the pockets of every American family.

This savings to each family is real and comes in ways that are not easily calculated.  There are commodities that would otherwise have higher prices without third-party debt collectors helping counsel people financially to complete their obligations to pay for those commodities.  Returning delinquent debt to the economy helps lower lending interest rates, mends credit scores for the individual, and strengthens the overall economy for large and small businesses, impacting hiring and wages for millions.

Many states have aggressively and heavily regulated the debt collection industry.  Collection agencies are highly scrutinized and have strong guidance watching over their actions in many states.  This generally means that a licensed debt collection agency has worked hard to transparently achieve compliance with state and federal rules.  Here is a deeper look at the benefits of debt collection for the economy. 

 

4 Ways Debt Collection Helps the Economy

 

Stabilizing Lending

The area in which the debt collection industry contributes the most is in the stabilization of lending. This can be looked at from two perspectives: individuals and financial institutions and lenders. 

For individuals who are looking for loans, debt collection agencies are instrumental in ensuring that everyone who needs a loan has a fair opportunity to get one. There are always going to be challenges for people who need a loan, but cannot receive one because of defaults from other individuals or companies. Needing a loan but not being able to secure one is not only frustrating but can add stress and overall be a detriment to their mental health, well-being, and economic growth.

Debt collection agencies can alleviate this stress and ensure that everyone has an equal chance of receiving a loan during times of need. They do this by helping financial institutions collect and closeout previous loans, giving them the resources they need to conduct more loan agreements. 

This leads directly to how collection agencies help not just those who need loans, but the lenders themselves. Financial institutions and lenders would like to loan more money out to individuals, but if they have too many defaulted loans, it isn’t feasible to do so. Debt collectors can help limit this problem by ensuring financial institutions have the capacity to approve more loans. 

 

Returning Revenue to the Economy

According to an ACA International report, in 2013, the total figure for gross revenue returned by collection agencies was $55.2 billion. Just a few years later, in 2016, that number jumped to $78.5 billion—this according to an Ernst & Young study.

So not only do collection agencies have an important role in returning revenue, but their impact on that front has continued to increase with each year. 

The same ACA International study found that collection agencies play a vital role in many different industries too. The report illustrates the following percentages of debt collected through third-party collections in 2013 for the following industries: 

Health care – 37.9%

Student loan – 25.2%

Financial Services – 12.9%

Government – 10.1%

Retail – 3.1%

Telecom – 3.2%

Utility – 2.2%

Mortgage – 2%

Other – 4.7% 

As these percentages show, the influence of debt collection ranges far and wide. 

 

Lowering the Price of Commodities

The Ernst & Young study also found that collection agencies also help with ensuring organizations make payroll. In 2016, the collection industry brought $12.6 billion in total payroll nationally, an increase of $2 million from 2013. 

Third-party collection agencies help government agencies and businesses recover money owed to taxes, fines, accounts receivable and other fees, resulting in lower prices. These third-party agencies are responsible for collecting billions of dollars of delinquent debt and returning it to the economy. Other than lower prices for consumers, other benefits to US businesses include lower bad debt costs. And for government agencies, decreased future tax and fee increases or spending cuts. 

 

Job Creation & Making Payroll

Third-party collection agencies also directly employed nearly 130,000 people in 2016, with a payroll that almost eclipsed $5 billion—according to that same Ernst & Young survey. The survey also concluded that indirectly, the industry had also influenced the creation of about 90,000 jobs. 

The Ernst & Young study also found that collection agencies also help with ensuring organizations make payroll. In 2016, the collection industry brought $12.6 billion in total payroll nationally, an increase of $2 million from 2013. 

Overall, the results of Ernst & Young’s research clearly illustrates the importance of debt collection when it comes to the growth of the economy—whether national, state or local.

 

Need Help Getting Your Collection Agency Up and Running? Contact Cornerstone Support Today! 

If you’re interested in starting your own collection agency or are simply looking for some help in ensuring your agency has the licenses it needs to operate, Cornerstone Support is here for you. 

We offer the following services for collection agencies to make sure they have everything they need to operate and be a productive contributor to the economy: 

 

Collection Licensing

As the premier licensing service for collection agencies, debt buyers, and attorneys, Cornerstone Support facilitates the entire licensing process, from the initial applications to the final approval from the state. We’ve been through the application process a lot (25,000 times a year, in fact), so you know you can trust us to get the job done. 

 

Insurance

We have over 20 years of experience in the accounts receivable management industry, meaning we’ve seen it all and know what it takes to help you succeed. Because we focus solely on debt collection agencies, we can provide products and services that other insurance agencies simply cannot offer. 

We also have unparalleled customer service because we believe that your success is our success. We want your agency to thrive, and we’re willing to go above and beyond to make that happens. 

 

Bonds

Some licenses require bonds; others do not. This can make it extremely complicated to go through the licensing process without a trustworthy licensing agency to help you along. Just like with our licensing services, we are extremely proactive in providing hassle-free bond renewals. 

We’re also well-connected and have an expansive network of surety companies that can write the bonds you need to succeed.