Debt Purchasers

[OPTIMIST12]

I have read on a number of posts that there are companies that "buy" debts of people in IVAs from banks and credit card companies etc. and pay as little as 10% of the total debt when doing this. Is that really the end of it or do they have to pay the original "owner" of the debt more if an IVA paying a dividend of say 40% or 50% is successfully completed? If 75% of IVAs are successfully completed these companies must make an awful lot of money (still you cant blame them I suppose that is why they do it!!) and the "sellers" of the debt must lose a load of money.

The whole thing just seems weird. If a company "bought" 10 debts of £10000 each (total £100000) this means they would pay £10000 for the lot. If the average actual dividend on each debt was 35% that would be an actual total return of £35000. Say 20% of the IVAs failed they would still get about £28000 for their £10000 purchase. That seems like a very good return for the buying company so I am sure there must be something more to it.

Does anyone know much about debt purchasing? Do the banks advertise their debts as being for sale? Why do they sell some peoples debts and not others? If not how do the buying companies find out about them? Are the debt buyers still bound by all the proposals and modifications of the original IVA proposal?

[gizmo]

It happens very regularly - the debt buyers are bound by the terms of the IVA. At least half of my debts since being in an IVA have been bought by Max Recovery Ltd. From their point of view I suppose they get the advantage of the IVA completing and potential to make some profit.

[aguise]

Hi ther bwe also have sevral debts that have been bought by max recovery and eversheds.

Ang

Please visit my blog at http://aguise.blogs.iva.co.uk/

[Storm]

Debt purchasing is a risky business.

Companies don't just purchase your debt they will purchase a block of debt say £1million recievables and pay £100K-£200k (depending on a number of factors)

The model works on about 40% of this debt will be collectable in some form.

The costs of collecting this type of debt is high, people / infrastructure / direct costs etc etc.

Debt purchasers do make money but not quite the math you used.

An interesting development in this sector is an agreement with the CRA's to allow debt purchasers to view your credit file / data when the debt is purchased (currently they can't see this data) this will mean they will be able to set collection strategies which may see them being more agressive.

[OPTIMIST12]

Thanks for those replies. I did not realise it was such a big business.

Storm - when the debt purchasers see a credit file will they also see the personal details of the debtor or just the details of the debt - if you see what I mean.

[Storm]

Current plans are that they will see all public information ie CCJ's,Votors Role,IVA's etc plus the data for the debt they have purchased including all payment history.

Depending on the CRA they will also access a total indebtness % ie total utilised debt.

As debt purchases by more of a consumers debts they will get a better picture of payment profiles across multiple credit lines.

A further interesting move this week was one of the major players profiling the customer data against land registry house sale data.

Land Registry hold data of 5.8 million house transfers since 2000 - including amount paid information. They are also providing growth index data by postcode so the future potential value of property will also form part of the collection strategy.

[catullus]

Storm

Do you think that the fall out in the sub prime mortgage market will affect this area of the market.

It seems that liquidity is fast hissing out of the system and I would doubt that there will either be the funding or the appetite for risk for a while.

If that was the case it might make some of the more hostile creditors (who now can't sell their debt on)
becoming more receptive to the deals on offer through an IVA

[Storm]

There are two primary funders that provide debt funding to the debt purchasers - Merrills and Barclays.

Merrills are well versed in the subprime market and Barclays are probably one of the largest senior debt providers and don't take excessive risks.

I know one of the largest UK debt purchasers is looking at realising debts quicker to keep the money moving hence the use of strategy collection systems. We might see these guys becoming less receptive.

There are a number of factors which in my view will see the whole credit industry turned upside down in the next 24 months -

General slow down in consumer spending

Lenders implementation of Basel II and IFRS is nearing completion. Lenders higher bad debt rates are being masked by this transition.

Changes to the Consumer Credit Act

Increased regulation from FSA - secured lending will come under there remit with similar advice requirements as mortgages.

Top banks in the UK joing together to share information on consumers primarily indebtness figures.

All these could of course have either effect in terms of IVA acceptance but will no doubt have a direct impact on the number of IVA / bankrupcy proposals as consumers struggle to make ends meet.

[OPTIMIST12]

Does that mean that debt purchasers borrow from debt funders to buy other peoples debts? This business is really complicated!