Credit Crunch

Credit crunch brings boom time for some

Debt collection agencies and debt management companies are among the few businesses finding that the credit crunch has meant an upturn in revenue. Likewise, pawnbrokers and companies providing payday loans are also thriving.

More and more debt is being sold on to collection agencies as customers default and large financial institutions want to rid themselves of the debt. The amount of debt sold on to debt collection agencies has risen from £8.6 billion in 2003 to what is anticipated to be over £22 billion by the end of this year.

The credit crunch has meant that more and more consumers can’t meet the repayments on their loans and other finance and with more lenders refusing to lend to high risk customers, many are finding they can’t even consolidate their debts to reduce their monthly repayments. Similarly some credit card lenders have stopped customers from being able to withdraw cash on their cards, so consumers are more frequently defaulting on debt.

Justin Urquhart Stewart, a stockbroker from Seven Investment Management, has stated that consumer credit difficulties have benefited pawnbrokers and ‘payday’ loan companies as people are desperate to raise cash quickly.

It’s not all good news for debt management companies however. Many are running into difficulties because creditors - such as banks - are rejecting IVA arrangements. This is because they only receive 40p in the pound on most debts. It is anticipated that this figure could fall even further so bad debt may become almost valueless for the purposes of reselling to collection agencies.