Debt collection boom good news, bad news

Sometimes it seems as if all our economic news is bad news.

Then a ray of sunshine pierces those clouds. We hear of an industry that is thriving. Whose various companies provide a lot of jobs, a valuable service, a healthy contribution to the public good through taxes, and contributions to charity. An industry like the one that contributed an estimated $311 million to Washington’s economy in 2010, and $30 million to Idaho’s, according to a new report.

An industry like debt collection.

According to the Association of Credit and Collection Professionals, about $55 billion in unpaid debts was collected by third-party agencies in 2010. Not quite a third of those debts were less than 90 days old. About 70 percent were longer-term debts than that. Bad debt. More than half of all these economy- boosting, job-creating, taxpaying debts were health care bills. Which are also the source of well over half of all bankruptcies filed in America.

Excellent news, huh?

Maybe not. For one thing, there’s the whole downside to a lot of people not being able to pay their bills, at least if you accept the argument that not every one of these debtors is an utter deadbeat. Bad debt is a bad sign, and the fact that someone was able to collect it doesn’t do much to offset that. Then there’s the nature of some debt collection in this country – it’s an enterprise that has to be wrestled into compliance with consumer-protection laws on a regular basis.

The Washington attorney general’s office just released its annual tally of consumer complaints by industry. Debt collection ranked second, behind telecommunications, with 1,577 complaints filed. I suppose you might consider that a modest improvement over last year, when collections won the whole shebang, but Attorney General Rob McKenna seems not to view that as such a positive sign.

“The fact that collection agencies and mortgage lenders continue to generate so many complaints is a reminder that too many people are struggling during these tough times,” McKenna said in a news release.

Obviously, not all debt collectors are nefarious villains. Debts are obligations; unpaid debts hurt the companies that carry them and, by extension, the rest of us; and lawful efforts to collect the debts are needed. And yet the violations are persistent, consumer advocates say – debt collectors who harass debtors beyond legal limits, who threaten legal action without authority, who aggressively pursue collections on debts that have been settled and who charge usurious interest rates.

“We certainly have had problems with some debt collectors,” said Brett DeLang, deputy attorney general for the state of Idaho. “I know there are a number of companies that behave professionally and do a job that has to be done. … We’ve had our unfortunate share of those who haven’t.”

This week, Idaho and 18 other states settled a deal with one of them. NCO Financial Systems Inc., among the largest collection agencies in the nation, is paying hundreds of thousands of dollars to settle complaints, including nearly $1 million for restitution to consumers. Among the problems with NCO practices were: collecting debts that were not owed; collecting more than was owed; charging improperly high interest; harassing debtors with repeated calls; threatening legal action without authority; and using false or misleading representations to collect debt.

Now there’s an economic impact.

In Idaho alone, NCO will set aside $50,000 for consumers to claim in restitution and more than $26,000 to cover the costs of a three-year investigation. Washington did not participate in the case.

The new report from the debt-collection industry, which was performed by accounting firm Ernst & Young, notes that one of the economic impacts of the industry is the nice commissions it earns on collections. Of $55 billion the collectors collected, they earned $10.3 billion in commissions. About 19 percent.

That $10 billion provides 133,900 full-time jobs. A total tax contribution of $1 billion or so, the report says.

And, once it subtracts commissions, the report says, the industry returned $44.6 billion to “creditors and the U.S. economy.”

So, yeah, that’s good and all. The economy could use the money. And if you yourself find it hard to keep up with the bills these days, maybe you could show a little initiative and go into business for yourself.

“An obvious business to start,” says About.com in an article about the best businesses to start during tough times, “would be a debt collection agency since many people can’t afford payments on credit cards or other debt during a recession. To reduce your overhead costs, you can actually run this type of business out of your home.”

Opportunity is where you find it.