A new reportby the Urban Institute and Encore Capital Group’s Consumer Credit Research Institute shows 77 million Americans– 35 percent of those with files at a major credit bureau– have a debt in collection.
Nevada has the worst record, with 47 percent of consumers with a credit file showing a debt in collections. In twelve other states, including Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, South Carolina, Texas, West Virginia as well as the District of Columbia, more than 40 percent of residents with a credit file have a bill in collections. In some smaller areas, the in-collection number is as high as 61 percent.
The report also shows that 1 out of 20 Americans hold debt that is “past due,” i.e., more than one month delinquent, though not yet in the collection process. Collection usually kicks in after 180 days past due.
Meanwhile, about 22 million Americans make so little money that they do not have credit files.
Poverty is Profitable
But as you can expect, there is always someone profiting from poverty.
For example, in another area of debt, writing checks that exceed the amount in an account (bouncing a check), often in hopes of creating faux credit planning on money to flow in before the check is actually cashed, American banks collect $30 billion a year in overdraft fees.
Collection companies can be seen as a great investment. The companies buy debt cheap and collect high. For example, Bank A itself has no interest in chasing a person for, as an example, a $1000 overdue payment. That’s not the bank’s core business, banking is. So they sell it to a collections company for say 10 percent, or $100. If the company can get back from the consumer anything more than the $100, that’s profit. It can be a lot of profit– one hyper-successful company boasts of a 239% return. A more typical return on investment for a collections company is 20 percent, a nice profit in itself.
In 2010 agencies collected about $40 billion from consumers. Business seems good: there are 4,100 debt collection agencies in the United States, employing nearly 450,000 people, and the industry expects to grow by 23 percent over the next three years. The Association of Credit and Collection Professionals, the industry’s largest trade association, spent more than $660,000 on Congressional lobbying over three years.
So Stop Spending. You Don’t Need that Big Screen
The average American holds $15,000 in debt, about half of that on credit cards (though others put the credit card number at about $4000.) But more significantly, the national averages for mortgage debt are $154,365 and for student loans, $33,607.
A common statement at this point regarding those credit cards is “So stop buying things you can’t afford, especially with high interest rates. Duh.” While there are no doubt people who misuse their credit to buy frivolous things, credit cards are to many in the middle class what pay day loans and pawn shops are to the poor: easy to access money for daily needs when there are no alternatives.
However, according to an analysis of spending from First Data, a major payment processing company, Americans increasingly used credit to purchase food and other everyday necessities. “During the month studied we saw consumers reducing the growth of their discretionary spending at retail merchants and increasingly resorting to credit for necessities,” said a statement. Spending in clothing stores, restaurants and bars declined, while credit spending at general merchandise stores, including value retailers and discount stores, increased.
BONUS: Some 46 million Americans receive benefits from the Supplemental Nutritional Assistance Program, what food stamps are now called. Hmmm… More than 1 out of 3 Americans are indebted, and about 1 out of 6 are dependant on the government to eat. Why, you’d almost think that was a strategy of control or something. But, naw, couldn’t be.
Photo by Ari under Creative Commons license