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Top Five Reasons our Partners are Diligently Resuming 2022 Debt Sales

By Mark Zellmann, President, Jefferson Capital Systems, LLC

Wait and See . . . then Government Comes to the Rescue

When the COVID-19 pandemic first arrived in the Spring of 2020, many of our leading consumer financial services partners essentially “played turtle.” They paused all sales and servicing arrangements for their non-performing loan portfolios, ducked for cover, and waited to gauge the pandemic’s impact on their businesses. As their long-term partner, Jefferson Capital fully supported their wait and see approach.

These initial instincts were wise. Governments quickly came to the rescue of businesses and consumers. Flush with stimulus payments, and with a significant reduction in discretionary spending for dining out, entertainment and commuting, many consumers used excess cash to pay down their credit accounts. They did so in historically high numbers and amounts; our partners enjoyed record collections over the past twenty-four months.

What our Leading Partners Know. . . and Five Reasons Why They’re Contacting Us

But good times don’t last forever, and our leading creditor partners know this very well. Relying on the very same reflexes that initially triggered their “turtle” defense, they are actively resuming pre-pandemic operations and reaching out to Jefferson Capital for assistance. In recent meetings we’ve heard five primary reasons why they’re quickly seeking our help for servicing and sales of their distressed and bankrupt accounts.

1. Inflation Recently Hit a 40-year High (and isn’t done)

First, and most notably, inflation is the highest it has been since the early 1980’s. Unfortunately, they tell us, the worst is yet to come. Why is that bad for our creditor partners? Because high inflation erodes the purchasing power of consumers. In simplest terms, it takes more money to buy things. They know that when it costs more to buy groceries, consumers have less money to spend on other things like paying down their debts. Distressed and bankrupt accounts quickly result, and they’re planning for it now.

2. Interest Rates are Climbing Back Up

Second, interest rates are rising. During the pandemic the Federal Reserve Bank encouraged consumers to borrow and spend money in order to help the economy. It did so by lowering interest rates to historic lows which, in turn, made it less expensive for consumers to borrow (and spend) money. But with inflation currently at historic highs (see above), the Federal Reserve is now putting the brakes on consumer spending by raising interest rates for the first time in years. That means the cost of loans - including interest on credit cards and mortgages – is increasing. Because higher interest rates can mean higher borrowing and credit card costs, consumers have less money to pay down their accounts. Again, our partners know that distressed and bankrupt accounts quickly result and are planning for it.

3. Oil Prices are at Historic Highs

Third, the average price of a gallon of gasoline recently hit an all-time high. This is due to both supply problems arising from the Russian invasion of Ukraine, and strong consumer demand as the world moves on from COVID-19. Like rising inflation and higher interest rates, however, when consumers need to spend more money to fill their gas tanks and fuel their homes, they have less money to pay their creditors. Ultimately, our experienced partners know, this leads to more distressed and bankrupt accounts as debts cannot be timely repaid.

4. Stimulus Payments are Over

Fourth, the COVID-19 pandemic and state-issued lockdowns put the economy into its strongest contraction in history. The U.S. government responded by issuing three direct payments to some consumers, including initial $1,200 payments through the CARES Act as well as $600 per person payments approved in December and an additional $1,400 in payments being sent out now. But our leading partners believe the free money for consumers is over and a fourth round of direct payments is unlikely as Congress pivots towards an infrastructure bill and other priorities. As a result, they know that they will likely never again see the historically high collections received over the past twenty-four months. Indeed, our most experienced partners are already seeing account recoveries, delinquencies, and charged off volumes returning to pre-pandemic levels. As a result, they are contacting us.

5. Work From Home is Ending

Finally, employees are finally returning to their work facilities. Although many are able to enjoy a hybrid workweek, their monthly expenses are nonetheless increasing as they are no longer constrained in their homes and spend more for commuting, food, parking, and other costs incurred returning to the workplace. These increased expenses, once again, mean less money to pay down their accounts and our leading creditors see more distressed and bankrupt accounts on the horizon.

What this Means for You

These five marketplace indicators, especially when bundled together, have resulted in a significant resumption of pre-pandemic activities for receivables managers. We have seen this during the first quarter of 2022, with activity accelerating as we move into the second and third quarters.

As a company embarking on the twentieth year of servicing and acquiring charged off and bankrupt receivables, Jefferson Capital has seen and experienced the many up and down cycles of the business. Our partners have as well. Every single day we’re helping them navigate the currents of an oftentimes unpredictable marketplace, and we look forward to a busy and productive rest of 2022 for our industry.