The amount of defaulted debt that is available to be purchased is increasing, and the price to buy that debt is falling, yet most of that debt is unavailable to be bought by the rank-and-file members of the industry, according to a published report. In fact, the larger debt buyers that have the best chance at purchasing those portfolios are doing what they can to keep them out of the hands of anyone else.
The price for defaulted credit card debt has dropped to between 10 and 15 cents on the dollar, compared with 13.5 cents to 20 cents two years ago, according to the report. Debt buyers, meanwhile, are doing much better at collecting on those debts. The cash collections multiple at Encore Capital, for example, a metric that details how much it collects from individuals relative to what it paid to buy the loan, is at two, meaning the company is getting twice as much back as what it paid in the first place. That figure was at 1.8 two years ago.
Write-offs from the five largest credit card issuers — JPMorgan Chase & Co., Citigroup Inc., Capital One Financial Corp., Bank of America Corp. and Synchrony Financial — are expected to hit nearly $30 billion this year.
Meanwhile, the three largest debt buying operations — Encore, PRA Group, and Sherman Financial — are telling investors that more write-offs from the large banks may help their pricing on what they pay for future portfolios.