The Tale of the Vanishing Debts

An interesting trend related to the number of debts placed with third-party agencies and the size of those debts continued in the third quarter, according to data released this week by the Federal Reserve Bank of New York, and may have some long-lasting impacts on how agencies work accounts for the foreseeable future.

Among a mountain of data related to household debt — which continues to climb and set new record — the quarterly report included this chart:

What is very interesting is that the number of individuals with a debt placed with a third-party agency continues to decrease while the actual amount of the debt that is being collected on those accounts continues to increase.

The most likely reason why fewer individuals have a debt in collections is that fewer agencies are reporting debts to credit bureaus. The debts that are being reported are likely higher-balance items, which is why that figure is increasing while the other is dropping.

This scenario becomes more likely as you look at the other data included in the report, which shows that, for the most part, delinquency rates are holding relatively steady, which means that the reason fewer debts are being placed with an agency is not because there are fewer debts to be placed.

The one type of debt that is not listed on the chart above is medical debt. And changes to how medical debts are being reported to credit bureaus is likely one reason why the number of individuals with debts in collection is dropping.

So what does all of this mean? In the grand scheme of things, probably not much. But it is very interesting to hypothesize what will continue to happen if more agencies decide to stop reporting debts to the credit bureaus. Along with lawsuits, reporting debts to a credit bureau is the only sanction that collection agencies have. It is definitely a trend that bears watching.

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