I have seen many negative comments in social media about debt collectors, and as one would expect, people who welch on debts tend to be hostile to the debt-collection sector. One would not expect a defaulting debtor to approve of debt collectors. Also, some social media commentators are firms who encourage defaulting debtors to contact them – see http://fightdebtcollectors.com.au/
To be an unhappy investor in banks that sell debt at a discount to face value (typically circa 20% of face value) is a novel slant. My advice is not to fret over the loss to the banks, because they collect on debts in what they perceive is the optimal way – to wit:
Banks' internal debt-collection functionaries try to collect the debt, and in fact they are successful in most cases.
The next line of attack is to commission the likes of CCP to collect debt on a contingency basis. There are firms that specialise in providing this service, and since the acquisition of NCML and Baycorp, CCP is now increasing its share of this service business.
A small percentage of stubborn debt welchers are not worth pursuing, either by the banks or collections-as-a-service companies, but if the banks simply ignored these debts it would encourage repeat welching, just as turning a blind eye to bank robbery would encourage repeat robbing.
The optimal path for the banks to take is to sell the charged-off debt to debt-collecting specialists, rather than wasting money trying to collect from stubborn non-payers.
CCP buys charged-off debt in a counter-intuitive way – it works out the most it can viably pay for the debt, and prices it thus, rather than trying to pay the banks as little as possible. This makes good sense from the long-term perspective, because good relationships with debt suppliers is a crucial success factor.
Banks could clean their own premises, but they see merit in outsourcing that to cleaning companies. Supermarkets could run egg farms, but they see merit in outsourcing that to specialist egg producers.
CCP Price at posting:
$24.88 Sentiment: Hold Disclosure: Held
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