This report provides a brief overview of two types of third-party debt collections tradelines reflected on credit reports compiled by the nationwide consumer reporting agencies (NCRAs) — debt buyer tradelines and non-buyer debt collections tradelines. Debt buyers purchase portfolios of charged-off debt from creditors, generally for a fraction of the original face value of the debt. By contrast, the majority of debt collectors, measured by revenue, attempt to collect debt that is still owned by the original creditor. It is possible for a single debt collections firm to collect both on debts it owns and debts that others own.
A tradeline is information about a consumer account that is sent, generally on a regular basis, to a consumer reporting agency. Tradelines contain data such as the account balance, payment history, and the status of the account (e.g. current, past due, or charged-off). Debt collections tradelines, which are considered negative, generally may appear on a consumer report for up to seven years. Credit scoring models, such as those produced by FICO or VantageScore, use the information contained in tradelines to generate a consumer's credit score.
An entity that sends information that relates to consumers to a consumer reporting agency for inclusion in consumer reports is known as a "furnisher." A consumer may dispute information in his or her credit file under the Fair Credit Reporting Act (FCRA) indirectly with a consumer reporting agency, directly with the furnisher, or both. If a consumer files a dispute with the consumer reporting agency, the consumer reporting agency is generally required to investigate the consumer's claim to determine if the disputed information is accurate, which includes notifying the furnisher of the dispute so that the furnisher can conduct an investigation. If a consumer files a dispute with the furnisher, the furnisher is generally required to investigate the consumer's claim to determine if the disputed information is accurate. The furnisher may not thereafter furnish the information to any consumer reporting agency without notice that the information is disputed by the consumer, in which case the consumer reporting agency must indicate that fact in each consumer report that includes the disputed information. If a consumer disagrees with the outcome of a completed investigation by a consumer reporting agency, the consumer may file a brief statement setting forth the nature of the dispute and the consumer reporting agency generally must, in any subsequent consumer report containing the disputed information, clearly note that it is disputed by the consumer and provide either the consumer's statement or a summary of that statement. While some credit scoring models ignore certain information from tradelines indicating an active dispute, these models may factor in information from accounts where a dispute is considered resolved, even if the consumer disagrees with the results of the investigation.
This report considers only tradelines furnished by entities other than the original creditor, which it refers to as "third-party debt collectors." Starting with the universe of third-party debt collections tradelines, any tradelines listed as coming from debt buyers are flagged as "buyer tradelines." Any third-party collections tradelines not listed as coming from debt buyers are flagged as "non-buyer tradelines." "Total third-party collections" refers to the universe of third-party collections tradelines and includes all buyer and non-buyer tradelines.
This report is based on information from the CFPB's Consumer Credit Panel (CCP), which is a longitudinal, nationally representative sample of approximately five million de-identified credit records from one of the three NCRAs. The figures in this report cover various time periods, each beginning with the time period when the data for which the analysis is conducted becomes available in the CCP.
All of the findings above are descriptive and the data do not allow for a conclusion on the cause of the effects observed.
FIGURE 1: PERCENTAGE OF CONSUMERS IN THE SAMPLE WITH AT LEAST ONE THIRD-PARTY COLLECTIONS TRADELINE
As of Q2 2018, more than one-in-four consumers (28 percent) in the sample had a third-party collections tradeline on their file. Figure 1 shows that between Q2 2004 and Q2 2018, the percentage of consumers in the sample with a third-party collections tradeline on their file never went below 27% or above 34%.
Because third-party collections tradelines can generally remain on a credit record for up to seven years, the presence of such a tradeline is not necessarily an indication that the debt collector is actively seeking to collect from the consumer. One alternative measurement looks at the percentage of credit files on which a new third-party collections tradeline appears within the preceding 12 months. Using that measurement, as of Q2 2018, 13 percent of consumer credit files in the CCP contained a new collections tradeline. Note that not all newly reported collections accounts are necessarily the subject of collections activity whereas older collections accounts may be, so that this measurement is an imprecise means of measuring collections activity.
FIGURE 2: PERCENTAGE CHANGE IN TRADELINES REPORTED IN THE SAMPLE RELATIVE TO Q2 2004 LEVELS
As shown in Figure 2, the number of buyer tradelines in the sample increased more than 350 percent between Q2 2004 and Q3 2009. The number of buyer tradelines in the sample then fell until Q4 2016, when the number was 50 percent higher than Q2 2004 levels. The number of buyer tradelines reported then turned upwards, reaching a number 75 percent higher than Q2 2004 levels by Q2 2018. The number of non-buyer tradelines in the sample increased over 75 percent between Q2 2004 and Q1 2013. It then fell, with the number of non-buyer tradelines reported in Q2 2018 only 11 percent higher than the Q2 2004 level.
These data may reflect changes in the number of collection accounts being handled by buyers and non-buyers; the increases observed through 2012 for non-buyers and 2009 for buyers is consistent with the fact that during and after the Great Recession, an increasing share of consumers fell behind on their bills. These data may also reflect changes in the practice of furnishing information on such accounts.
FIGURE 3: PERCENTAGE OF TOTAL THIRD-PARTY COLLECTIONS TRADELINES REPORTED BY BUYERS
Figure 3 shows that buyers have never reported more than 25 percent of the total third-party collections tradelines in the sample. However, the composition of total third-party collections tradelines furnished by buyers and non-buyers changes over time. Between Q2 2004 and Q2 2009, the share of total third-party collections tradelines reported by buyers increased over 150 percent. The share then fell steadily, reaching levels similar to 2004 by 2015 before turning upward slightly. Buyers reported 12.5 percent of collections tradelines in Q2 2018.
There are an estimated 9,330 debt collectors and debt buyers in the United States, but only an estimated 4,000 have any paid employees. Most debt collectors are small (roughly 98 percent are small businesses as defined by the Small Business Administration) and therefore unlikely to report to any consumer reporting agency. Indeed, based on data in the CCP, it appears that only a small fraction of collectors furnish third-party collections tradeline information. In Q2 2018, there were just under 900 unique furnishers of third-party collections tradelines in our sample. As the CCP is a 1-in-48 sample at the credit report level, it is probable that some furnishers of third-party collections tradelines were not captured. Furthermore, many collectors likely reported to only a single NCRA and so may be missed in the CCP which is based on data from one NCRA. Table 1 shows the number of unique furnishers of third-party collections tradelines reported in Q2 of each year in the CCP.
Total Third-party Collectors
TABLE 1: TOTAL NUMBER OF UNIQUE FURNISHERS OF THIRD-PARTY COLLECTIONS TRADELINES IN THE SAMPLE REPORTED IN Q2 OF EACH GIVEN YEAR
The number of unique total third-party collections tradeline furnishers in the sample peaked at 2,298 in 2005, but then fell 61 percent to 898 in 2018. The total number of unique buyer furnishers peaked at 162 in Q2 2009, but then fell 75 percent to 40 by Q2 2018. The total number of unique non-buyer furnishers peaked at 2,255 in Q2 2005, but then fell 60 percent to 898 in Q2 2018.
In Q2 2018, the top four debt buyers furnished 90 percent of buyer tradelines, up from 66 percent in Q2 2004. In Q2 2018, the top four non-buyers furnished 13 percent of non-buyer tradelines, up from 10 percent in Q2 2004. This increased concentration of third-party collections tradelines reported by larger furnishers, especially non-buyer furnishers, coupled with the decline in the number of unique buyer and non-buyer furnishers may reflect ongoing consolidation in the collections industry, a change in the furnishing practices of smaller entities relative to larger entities, the furnishing practices of buyers relative to non-buyers, or some combination of all of these.
There is a marked difference in the types of third-party collections tradelines reported by buyers as compared to non-buyers. Figure 4 shows that buyer tradelines primarily reported banking, retail, and financial debt while Figure 5 shows that roughly two-thirds of non-buyer tradelines reported medical debt in Q2 2018. By comparison, only about 1 percent of buyer tradelines reported medical debt in Q2 2018. The buyer focus on banking and financial debt may stem, at least partially, from the historical origins of debt buying as a response to the savings and loan crisis of the late 1980s.
FIGURE 4: DISTRIBUTION OF ORIGINAL CREDITOR TYPE AMONG BUYER TRADELINES IN THE SAMPLE IN Q2 2018
FIGURE 5: DISTRIBUTION OF ORIGINAL CREDITOR TYPE AMONG NON-BUYER TRADELINES IN THE SAMPLE IN Q2 2018
Figure 6 shows the original creditor type for all third-party collections tradelines. As nonbuyers furnished most third-party collections tradelines, the distribution for all firms in the market resembles the non-buyer distribution. Total third-party debt collections tradelines primarily reported medical, telecommunications, retail, banking, financial, or utilities debt in Q2 2018. More than half (58 percent) of total third-party debt collections tradelines were for medical debt alone. More than three out of four (78 percent) total third-party debt collections tradelines were for either medical, telecommunications, or utilities debt; these represent nonfinancial debts where positive payment information is generally not reported to consumer reporting agencies. The largest single furnisher of total third-party collections tradelines furnished just 5.5% of the total third-party debt collections tradelines in Q2 2018.
FIGURE 6: DISTRIBUTION OF ORIGINAL CREDITOR TYPE AMONG TOTAL THIRD-PARTY COLLECTIONS TRADELINES IN THE SAMPLE IN Q2 2018
It is interesting to contrast these data with estimates as to the sources of collection industry revenue. In particular, a leading industry analyst estimates that healthcare, which represents 58 percent of reported third-party collections tradelines, only generates 11 percent of collection industry revenue. This may reflect differences in the reporting of different types of collections accounts, differences in the revenue generated per account across different types of accounts, or a combination of the two.
Prior CFPB research has found that, under the FCRA, consumers dispute third-party collections tradelines at a greater rate than they dispute other types of tradelines. For example, in 2011 disputes were filed with respect to over 1 percent of third-party collections tradelines compared to .29 percent for student loans, the next highest category. This in part reflects the fact that third-party collections tradelines are inherently negative so that consumers have a larger incentive to dispute these tradelines, but it may also reflect differences in the underlying accuracy of the data.
As previously noted, a consumer may dispute information in his or her credit file indirectly with a consumer reporting agency, directly with the furnisher, or both. If a consumer disagrees with the outcome of a completed investigation of a dispute by a consumer reporting agency, the consumer may file a brief statement setting forth the nature of the dispute and the consumer reporting agency generally must, in any subsequent consumer report containing the disputed information, clearly note that it is disputed by the consumer and provide either the consumer's statement or a summary of that statement. If a consumer files a dispute with a furnisher, the furnisher may not thereafter furnish the information to any consumer reporting agency without notice that the information is disputed by the consumer, in which case the consumer reporting agency must indicate that fact in each consumer report that includes the disputed information. Figure 7 reports for each quarter the number of tradelines with a new flag compared to the total number of tradelines for buyers, non-buyers, and the total third-party collections market.
FIGURE 7: PERCENTAGE OF TOTAL TRADELINES REPORTED IN THE SAMPLE WHICH INDICATE NEW INSTANCES OF CONSUMER DISAGREEMENT WITH A COMPLETED FCRA DISPUTE INVESTIGATION
The percentage of buyer tradelines in the sample that showed a new instance of consumer disagreement with a completed FCRA investigation was small in absolute terms throughout the observation period. However, it has increased steadily, with a few fluctuations. For non-buyer tradelines, it has been very low and close to flat. By Q2 2018, 0.09 percent of total third-party collections tradelines, 0.6 percent of buyer tradelines, and 0.02 percent of non-buyer tradelines showed new instances of this status. In Q2 2012, 0.03 percent of total third-party collections tradelines, 0.07 percent of buyer tradelines, and 0.02 percent of non-buyer tradelines showed new instances of this status.
Some of the differences highlighted here may reflect differences in furnishing practices between buyers and non-buyers. Also, the likelihood of errors in furnishing resulting in a consumer dispute may increase if a given debt is placed with a succession of non-buyers or sold and resold among buyers. The data do not allow for a conclusion on the cause of the effects observed.