Consumer credit is a cog in the wheel that is the U.S. economy and both move in cycles. During the pandemic, banks tightened their underwriting criteria so they were lending less money, but consumers had cash and were using it to pay off debts. Today, the cycle has changed and banks have more debts to sell, but consumers have less cash to pay. That was one of the key messages delivered by Ashish Masih, the chief executive of Encore Capital Group during a call yesterday with analysts to discuss the company’s first quarter financial performance, which saw profits drop 89% from the same period a year ago.
Overall, the company reported net income of $18.6 million for the first quarter, down from $175.7 million during the same period a year ago. Revenue for the first quarter of this year was $313 million, down from $499.7 million a year ago. The company collected $462 million during the first quarter, compared with $519 million last year.
“A few quarters ago, we spoke about facing pressures on collections, revenues and earnings due to lower purchasing in recent years, and the normalization of consumer behavior,” Masih said during the call with analysts. “Our recent results have reflected these expected pressures. Now that our portfolio purchasing in the U.S. has turned the corner, and returns are improving we have begun to see these pressures subside on cash generation. The recovery of our U.S. market is evolving as we expect it. And we remain confident in our view of the business and are well-positioned to capitalize on this opportunity.”
One interesting tidbit that Masih provided in response to a question about payment behaviors is that the company is seeing consumers make lower initial payments than they have in the past, but they are seeing “better than expected payment plans” and consumers more willing to set up payment plans.
Noting that consumer behavior is “much more normal” now than it was during the pandemic, Masih did say that consumers are facing more pressure, but a low unemployment rate is keeping the economy from being in a recession.