The federal government's efforts to find answers to the nation's faltering economy have created more questions for collection agencies and debt buyers. Industry experts say details are not readily available and the industry will have to wait to see how the government's latest plan will pan out.
"I think the affects of this plan are not going to be known maybe for years and certainly for months," says Gary Wood, president of Madera Partners LLC and former president of Collins Financial Services Inc. "It is impossible to try to guess whether this policy will be successful in a very short period of time."
U.S. Treasury Secretary Timothy Geithner in February said the battle for economic recovery will be fought on two fronts.
"We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families," he said. President Barack Obama signed the $787 billion economic stimulus bill a week after Geithner introduced the Financial Stability Plan on Feb. 10.
"At this point, we don't have a lot of details about how the 'bad bank' program will really unfold. There has been talk about giving creditors the opportunity to buy back their own bad debt, so to speak," says Rozanne M. Andersen, executive vice president and general counsel for ACA International, an association of credit and collection professionals.
"The entire industry is simply perplexed in terms of how [the government] would begin to privatize the purchase and collection of that bad debt when at the same time the [Obama] administration is stating that, for example, it believes the collection of IRS tax debt should not be privatized," Andersen says.
"To some extent, the administration is talking out of both sides of its month," she tells Collections & Credit Risk. "On the one hand they are saying, 'Let's privatize the collection of the bad bank debt but, for heaven's sake, we couldn't possibly allow those very same collectors to collect federal tax debt.' At the end of the day, what really is the difference?"
A fear of the unknown and general trepidation – by the collection and debt-buying industries and the U.S. population as a whole – is at the heart of the problem, according to Wood. Regardless of the billions of dollars being pumped into the economy, the biggest threat to any stimulus plan is psychological.
"Now there is plenty of liquidity being made available but you have this psychological problem that so far [Obama] hasn't been able to jawbone us out of – and that is that banks are afraid to lend and people are afraid to borrow," Wood says. CCR