The collection agency industry is subject to aggressive regulatory control, often requiring state licenses, and under the mandate of several federal rules. With a constant flow of aging accounts, a bank is better off employing a third-party agent than to devote its collection resources.
Collection agencies have felt the pain from COVID-19. In front of the charge-off cycle were payment deferrals, which decreased account delinquency flows. With fewer aging customers, collection agency referral placements plummeted. This trend translated to lower delinquencies, and now the Federal Reserve indicates that only 7% of consumers have accounts placed with collection agencies, down from a pre-COVID level of 15%. The downward credit delinquency trend still holds in the U.S. market. There are some stress signs, but on the whole, the numbers look strong.