DCA and Business Model

[Stephan56]

Can someone explain to me the DCA "Business Model" and how they make money. I am trying to understand what "drives them" and their thinking.

 

No doubt it is pure greed. Fair enough, but as far as I can figure out, they do not even operate in their own best financial interests.

 

I understand they buy a portfolio of debts at, say, 10p in the £1. Then they try to collect as much money as they can. Many are "can't pays" and those are written off (or sold on) and then they manage to get various percentages from the remaining ones.

 

I would think that, with an increasing community of "legally aware" debtors, the DCAs are being hit with huge numbes of CCA and SAR requests - which take lots of time and cost money to respond to. These just lead, in many cases, to OFT and other complaints against them and, at the end of the day they find out they have statute barred or unenforceable debts anyway.

 

If a debt is unenforceable, say, then rather than both sides "sitting there" (an uncollectable debt on the one side and a negative credit report on the other) isn't it worth something to the debtor to get a clean credit report (get the debt reported as SATISFIED or PAID IN FULL)? If a creditor has an unenforceable debt , it would STILL be worth something to me (as a debtor - £10, £20, who knows) to get a "credit enhancing report".

 

The DCA is going to get nothing on the account. Better, I would have thought, to get "something" - and all they have to do is make the agreed credit report. What stops them from doing this as it is CLEARLY in their econoimic interest to do so- and especially with an unenforceable debt?

 

Maybe DCAs should stop chasing debts and instead offer, for a fee, to make a "positive report" to the Credit reporting agencies. That not only clears the debt but goes toward rehabiliting the debtors reported financial situation, which is a real benefit to the debtor.

 

Anyway, if someone could (i) give me an explanation as to the economic model of DCAs (there must be some clever people running these things - even if the "soldiers" are mostly idiots and (ii) what is the reluctance of DCAs to rade "flattering" credit reports for money. After all, they can report what they like to the credit reporting agencies.

[bigegg]

At one time, say before the present "economic crisis" every single £1 of "owned" debt was worth £7-£8 on average to the DCA [1].

With the advent of CAG and more people simply not having enough money to pay (and thus becoming more "desperate", shall we say, not to pay) the debts are now only worth £2-£3 per £1

 

i would imagine that a "credit report re-writing service" would pay £3-4 per £1 (eg, pay £100 for a £1000 debt, then charge £300 to mark as satisfied)

but wouldn't last long, because the banks wouldn't like it!

The "credit report" does serve a useful purpose (or should!) in that it SHOULD prevent people over-extending their finances with repeated borrowing.

The problems we are seeing now boils down, I think, to certain companies abusing the credit report system, and MANY companies letting greed overshadow what the credit report system was telling them (or should have been telling them).

 

I would guess the DCAs are looking for a return to "the good times" rather than changing their business model to anything more "moralistic) >

 

 

[1] ie, if a portfolio of debts costs the DCA £10,000 they will eventually collect 70k-80k including selling on some of them

[Stephan56]

I have found a paper on DCA Business Models which is partly relevant to this. I have attached it so hope it comes through.

 

I agree that banks and others may object but the DCAs seem to me so "amoral" that if there is extrea money in it for them, then maybe they do not care.

 

For me, the one thing (only thing) of value a DCA can give me is an "enhanced/rehabilitated" credit rating. With many debts that is the ONLY thing they have to offer - and is the one thing they do not offer.

winning-bussiness-mods.pdf

[bigegg]

For me, the one thing (only thing) of value a DCA can give me is an "enhanced/rehabilitated" credit rating. With many debts that is the ONLY thing they have to offer - and is the one thing they do not offer.

 

And is the ONE thing that banks would like to know - who the "problem debtors" [1] are.

 

I think any DCA which tried to offer such a service would very quickly find it's source of new debts - and it's access to the CRAs - severely limited.

ie, no bank would deal with them, and the CRAs would refuse to alter credit reports at their behest.

 

[1] Or caggers as we prefer to be known

[PGH7447]

You are mistaking DCA's with business people with Morals, these people have no morals they dont care about you or you credit rating, they are in it for a quick profit pure and simple

 

example -= they buy 10 debts worth £1000 = £10K each for £100 that to them is £9k profit for doing nothing except sending out threa letters and scare tactics.

 

of the 10 debts 5 know their rights and fight the debt this still leave 5 they can chase that equates to £5k profit

 

of the 5 who fight they will re-sell these on at £50 a throw thereby still making some money,

 

the next DCA starts the process again

 

Take you attachment

 

There is a Champions League emerging in UK DP: Cabot,- These chase statute barred debts amongst others 1st Credit, under investigation for their "Business Practices" Lowell and Link are all highly

credible, - Who by these are two of the worst

If I saw a dca on fire in the street I would not even p*ss on them

[bigegg]

If I saw a dca on fire in the street I would not even p*ss on them

 

I would.

If I'd drunk enough petrol

[Stephan56]

From the latest posts, it certainly seems to me there is a "cartel" or something similar between banks and CRAs. If DCA is seen as too "debtor friendly" it risks (i) not getting business from banks and (ii) CRAs not accepting its credit reports/updates.

 

While I have no doubt this is the case, it certainly seems to me that there must be something illegal about it or against public policy?

 

If a DCA who was creditor friendly offered 11p per £1 (as against, say, 10p from another DCA) woudl the bank take the lower amount (and hurt the bank, and its shareholders) just to "punish" the DCA from being too "debtor friendly"?

 

On what legal basis could CRA fail to update its files with information from a DCA or other firm WHO HAD A CREDIT LICENSE. Can they just refuse to accept information? On what basis?

 

It seems the whole system is baed more on intimidation than on sound economic principles - and leaves no winners (except maybe som DCAs). Methinks the whole structure of the industry needs some looking at - Parliamentary Committee etc?

[bigegg]

From the latest posts, it certainly seems to me there is a "cartel" or something similar between banks and CRAs. If DCA is seen as too "debtor friendly" it risks (i) not getting business from banks and (ii) CRAs not accepting its credit reports/updates.

 

While I have no doubt this is the case, it certainly seems to me that there must be something illegal about it or against public policy?

 

"public policy" would be to ensure people who can't afford loans, or attempt to obtain loans with no intention of repaying, DON'T get them

Anything which attempts to circumvent this would almost certainly be against "public policy" - at least that's the way it would be claimed.

 

"legal"

Could it be seen as fraud to mark a loan as "satisfied" for monetary gain, so that the debtor can obtain further credit - which may not be repaid?

 

If a DCA who was creditor friendly offered 11p per £1 (as against, say, 10p from another DCA) woudl the bank take the lower amount (and hurt the bank, and its shareholders) just to "punish" the DCA from being too "debtor friendly"?

 

Banks deal with who they wish - I'm sure that they could come up with some "good" excuse for not dealing with highest bidder - "ensuring maximum return on bad debts" would mean dealing with DCA which has a 30% recovery rate (a "nasty" DCA), rather than one which recovers 25% (your "nice" DCA)

 

On what legal basis could CRA fail to update its files with information from a DCA or other firm WHO HAD A CREDIT LICENSE. Can they just refuse to accept information? On what basis?

because they are private companies, owned in part by banks and other DCAs and as such can choose their own customers.

CRAs are NOT government departments, there is no statutory requirement for them to operate, nor are there any statutes regarding who may access them (beyond data protection act)

It seems the whole system is baed more on intimidation than on sound economic principles - and leaves no winners (except maybe som DCAs). Methinks the whole structure of the industry needs some looking at - Parliamentary Committee etc?

 

we wish

[ScarletPimpernel]

In my view, the only way that DCAs and debt purchasers are able to maintain their profitability is by failing to act compliantly. It is interesting that the companies mentioned in the article as 'credible' are all well known here for non-compliance - 1st Credit are so bad that even the OFT eventually noticed.

 

The DCAs' current business model revolves around low paid, low grade staff making high volumes of outbound calls, and low compliance - because compliance would be costly to achieve and maintain - and, of course, they wouldn't get away with half the dodgy tactics they employ.

 

If the OFT imposed stricter regulation, and the Bulk Centre at Northampton introduced even a low level of checking to ensure the CPR was complied with, the debt industry's profits would dive in a most satisfactory way.

 

It's also worth remembering that many DCAs are owned by foreign investors.

 

In summary, an unsavoury, parasitic industry that relies upon intimidation and poor regulation to make money that goes offshore.

[sosumi]

My gut feeling is that it would be blackmail.

CRAs are recording data that DCAs are paying them to record. It's frequently illegal as the CRAs don't bother with requesting proof from the DCAs. They'll just say the DCA said it was correct...

CRAs are like spivs and DCAs very rarely have any legal right to access our credit files... So what would they actually be doing?

CRAs - don't get me started!

Best business model - outlaw the DCAs and super-regulate the CRAs.