Collector - March 2020 - 41

BUSINESSOPERATIONS

repayment history. The asset class of the
debt affects the price as well; for example,
the average auto charge-off typically costs
at least 50% percent less than an average
credit card charge-off, according to
Chiodo. Over time, these prices fluctuate
based on the supply of non-performing
debt, the number of sellers (as well as their
willingness to sell), and demand for debt
portfolios from buyers.
According to Garnet Capital Advisors,
one of the largest debt brokers in the U.S.,
fresh credit card charge-offs averaged
roughly 15.5 cents on the dollar in the
second half of 2018. Prime charge-offs-i.e.,
those accounts that have been serviced by a
single collection agency-averaged around

8 cents, while secondary and tertiary
averaged 4 cents and 2 cents, respectively.
Prices have fallen in all four categories since
the latter half of 2015, with the average
fresh charge-off price declining at a rate of
10.3% annually, on average.
"Credit card charge-off prices peaked
a few years ago due to new entrants on
the buyer side, but the market has since
corrected," Chiodo said.
Falling prices, particularly with regard
to the most commonly bought asset class
in credit cards, are an excellent sign for
debt buyers in the financial services space.
Interestingly, while prime, secondary and
tertiary credit card charge-offs appear to
have fallen below their respective pre-

recession peaks in 2006, fresh charge-off
prices remain above their value at that time.
Going forward, this may allow room for even
further declines in the latter category.
Between rising charge-off levels and falling
prices, the financial services sector should
offer plenty of opportunities for the debtbuying industry. Firms looking to enter the
debt-buying market or expand their existing
operations may want to look to financial
institutions as their starting point.
Mike Ginsberg is president/CEO of Kaulkin
Ginsberg Company, which provides critical
strategic advice to accounts receivable
management firms. He can be reached at
mike@kaulkin.com.

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