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1.3.4.3 Average Price of Debt

Debt buyers purchase debt for pennies on the dollar, but the exact amount depends on a variety of factors such as the type of debt, the age of the debt, the number of times that it was previously placed for collection, and the amount of debt for sale in the market at that time. The table below collects different sources of data regarding the average price paid to purchase debt.

Collection of Data about the Average Price of Debt as a Percentage of Face Value
Average Price of Debt as a Percent of Face Value Year(s) Debt Purchased How Average Price Paid Was Determined Source of Data
12%–17% (fresh debt) March 2007 unclear Kaulkin-Ginsberg, as reproduced by the Government Accountability Office161
4% July 1, 2006 to June 20, 2009 review of 3,400 debt portfolios purchased by debt buyers that contain a variety of debts. Federal Trade Commission162
5.5%–7.5% (fresh debt) January 2009 unclear Kaulkin-Ginsberg, as reproduced by the Government Accountability Office163
5–10% 2012164 unclear Office of the Comptroller of the Currency165
11% 2014 survey of credit card issuers Consumer Financial Protection Bureau166
less than 1% January 2015 to August 2015 review of information about 298 portfolios of debt for sale in three online marketplaces Consumer Financial Protection Bureau167
9.2% 2016 debt buyer’s calculation with internal records Encore Capital Group168
8.6% 2016 debt buyer’s calculation with internal records PRA Group, Inc.169

The price for debt that is older or has previously been placed for collection is typically lower.170 For example, a CFPB survey of major credit card issuers found that in 2014 the average price for credit card debt sold from originators to debt buyers soon after charge-off (called “fresh debt”) was approximately sixteen cents on the dollar, the average price for secondary debt was about nine cents on the dollar, and the overall average

price was about eleven cents on the dollar.171 Similarly, the average price of less than one cent on the dollar for debt sold in online marketplaces is likely due in large part to the fact that the accounts were typically over five years old and had often been sold to two or more debt buyers.172 The CFPB estimated that “the price of debt in the portfolios we reviewed decreases by an average of roughly 33% each year for the first five years after charge-off and roughly 29% each year for years 6–10.”173

Footnotes

  • 161 U.S. Gov’t Accountability Office, Credit Cards, GAO-09-748, 29 (Sept. 2009), citing Kaulkin Ginsberg, InsideARM (defining fresh debt as debt that is “91 days to 6 months past due and never placed with a collection agency”).

  • 162 Fed. Trade Comm’n, The Structure and Practices of the Debt Buying Industry iii, Appx. B-1 (2013).

  • 163 U.S. Gov’t Accountability Office, Credit Cards, GAO-09-748, 29 (Sept. 2009), citing Kaulkin Ginsberg, InsideARM (defining fresh debt as debt that is “91 days to 6 months past due and never placed with a collection agency”).

  • 164 This date is an estimate based on the last completed year.

  • 165 Shining a Light on the Consumer Debt Industry: Hearing Before the Subcomm. on Financial Institutions & Consumer Prot., Senate Comm. on Banking, Hous., and Urban Affairs, 113th Cong. (July 17, 2013) (statement of the Office of the Comptroller of the Currency), available online as companion material to this treatise.

  • 166 Consumer Fin. Protection Bur., Consumer Credit Card Market Report 258 (Dec. 2015) (price is overall average price).

  • 167 Consumer Fin. Protection Bur., Market Snapshot: Online Debt Sales (Jan. 2017) (portfolios contained primarily older debts that had already been sold previously).

  • 168 Encore Capital Group, Inc. Annual Report on Form 10-K for 2016 at 37.

  • 169 PRA Group, Inc. Annual Report on Form 10-K for 2016 at 59 ($0.9 billion in total purchase price / $10.5 billion * 100 = 8.6%).

  • 170 Fed. Trade Comm’n, The Structure and Practices of the Debt Buying Industry 23 (2013). See also David E. Reid, The Value of Resale on the Receivables Secondary Market (DBA Int’l, Apr. 2016) (“Nonperforming receivables are at their highest value at the point they first become delinquent to approximately 240 days of default.”).

  • 171 Consumer Fin. Protection Bur., Consumer Credit Card Market Report 258 (Dec. 2015). See also U.S. Gov’t Accountability Office, Credit Cards, GAO-09-748, 29 (Sept. 2009), citing Kaulkin Ginsberg, InsideARM (estimating price ranges for fresh, primary, secondary, tertiary, and quad debt for March 2007 and January 2009).

  • 172 Consumer Fin. Protection Bur., Market Snapshot: Online Debt Sales (Jan. 2017).

  • 173 Id. at 5–6.