U.S. Legal Collections Market Growing

The legal collections market in the U.S. grew at an annual rate of 16 percent between 2004 and 2006, and the market is poised to continue at least double-digit annual growth over the next few years, according to new research from Kaulkin Ginsberg Company.

In the latest edition of its biennial ARM industry report, The Kaulkin Report – 7th Edition, Kaulkin Ginsberg reports that U.S. collection law firms saw total revenues of $1.17 billion in 2006, up from about $800 million in 2004. The report says that growth prospects for the legal collections segment will continue to grow at a similar pace over the next five years.

The influx of accounts from debt purchasers is a big reason. “Above any other single factor, debt buyers’ willingness to place later-stage accounts with collection law firms has propelled market growth,” according to the report from the Bethesda, Md.-based debt industry consultant.

Bruce Block, co-managing partner of collection law firm Javitch, Block & Rathbone, echoes that sentiment. “The reason legal is such a huge growth area for the ARM industry is very simple: it’s all about purchased debt,” said Block in the report. “The fact that purchase prices of portfolios are at historical highs mandates that legal become a major component of how debt buyers handle their accounts.”

Although debt purchasing has driven growth in the legal collections market, caution must be applied by law firms servicing debt from purchased accounts. Certain asset classes popular with debt buyers are not necessarily beneficial to collection law firms, says Alan Weinberg of Weltman, Weinberg & Reis. “Now debt buyers are looking for new asset classes and they are a different kind of animal. Some of those accounts are low balance, high volume accounts,” he says in the report.

Weinberg also told insideARM.com that law firms need to be careful when getting accounts from debt buyers. “You must now have proper media when buying debt to effectively sue,” he said. Media refers to information on file with the original creditor that validates the account, such as the original signed credit agreement.

Collection law firms also benefited as they expanded into pre-legal collections, or “traditional” collections. Law firms are ramping up more traditional collections operations by hiring more collectors and streamlining dunning letter processes. “If you save that file from going to lawsuit, you’re saving a whole bunch of processes within the legal office to get it collected,” Ira Leibsker of Blatt, Hasenmiller, Leibsker & Moore says in the report.

For more information on The Kaulkin Report, 7th Edition, please contact Michael Klozotsky at (301) 907-0840 ext. 123, or by email.