In a recent post, “When Smart People Do Things Pay Attention,” we discussed how Portfolio Recovery Associates and other large debt buyers had increased their purchases of credit card charge offs in 2010 and how that provides confirmation to our business model. Well, after reading through the 2010 Annual Report of NCO Group I am even more optimistic about our future, but for a very different reason.
You see, NCO Group is the largest collection agency based on revenue. They have continually been one of the largest buyers of charged off credit card debt. Of the 80 some odd pages in this report, what is import to us can be found in one tiny paragraph in the portfolio management section and more exactly in one sentence:”
“Historically, the Portfolio Management segment had participated in the purchased accounts receivable business on an opportunistic basis. Beginning in 2009, we significantly reduced our purchases of accounts receivable and made a decision to minimize further investments in the future. This decision resulted from declines in liquidation rates, competition for purchased accounts receivable and the continued uncertainty of collectibility. We do not expect the Portfolio Management segment to make any future purchases (emphasis mine). However, certain international subsidiaries in our ARM segment may purchase small portfolios through forward flow commitments and may opportunistically purchase accounts receivable that allow us to leverage meaningful third-party servicing contracts. Our amended senior credit facility (see note 12 in our Notes to Consolidated Financial Statements) limits purchases in 2011 and beyond to $10 million per year.”
That’s right, NCO Group, one of the largest buyers on the street, is planning to exit the credit card debt buying business. Why? They are concerned about the tougher regulations coming from the newly formed Consumer Financial Protection Bureau that will make it nearly impossible for them to be profitable with their current “sue first, ask questions later” business model.
So how is that good for us? Well, NCO Group has forward flow agreements with the major banks. As they leave the business these banks will need new agreements with collection agencies who will be able to not only survive but flourish under the new rules.
Ropay Asset Investors has partnered with CFS II. It is our opinion that CFS II will become the poster child for how collections should be done. Bill Bartmann, the President and CEO, is currently in the process of trying to work out deals with Bank of America, Wells Fargo and others to capture their deal flow. As a member of his consulting group, we will have access to an endless supply quality paper
NCO Groups loss will be our gain!
Contact us today and find out how you can take advantage of this incredible opportunity.