Debt Collection Puts On A Suit

Debt collectors are going corporate. Although the $15 billion-a-year industry still conjures up images of no-neck goons pounding on people's doors, collection agencies are cleaning up their act and tapping Wall Street for money. In the third quarter alone, private-equity firms, venture capitalists, and others invested a record $1.6 billion in the business, almost as much as in all of last year. Six firms are now publicly traded, and two made secondary share offerings this year. Instead of guessing which deadbeats might pony up, firms are using sophisticated software to spot the best bets before buying bundles of bad debts from banks and credit-card companies.

What has captured Wall Street's attention is the mountain of debt that Americans keep piling up. In the past five years, consumer loans have jumped 25%, to a total of $2.1 trillion. The bankruptcy reform that took effect on Oct. 17 promises more business for collection agencies because the new law makes it much harder for many people to dump their debts by going to court. "It won't be as easy to absolve your debts with one stroke of a judge's pen," says James O'Brien, a financial services analyst at Brean Murray & Co.