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Asset Acquisitions Could Benefit Players in the Debt Collections Industry: Asta Funding, Inc. (ASFI), Portfolio Recovery Associates, Inc. (PRAA)

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Asta Funding, Inc. (NASDAQ:ASFI) is a receivable asset management and liquidation company.  It purchases and collects performing and non-performing consumer receivables that were charged off or considered non-prime receivables.   In addition, Asta invests in funding personal injury claims and is increasingly looking outside its core focus for more attractive returns.

Asta Funding has a significant cash position of $106 million, or $8.19/share, to fund additional investment with.  Debt at the end of CY12 was $58.8 million, or $4.54/share.  The stock trades at $9.47.  Its returns are below those of competitors, which is discussed later.  Asta Funding, Inc. (NASDAQ:ASFI) Funding’s ROA is 4.18%, ROE is 5.88% and ROI is 4.23%.

Regulatory agency will lead to industry consolidation

The newly created Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission are charged with creating rules and regulations for the consumer debt collection industry.  As part of Dodd-Frank, the agency was granted regulatory oversight of the industry.  Previously, collection agencies have not had any agency to answer to.  A recent article from Bloomberg highlights how certain debt collectors are using social media like Facebook to contact debtors, which is an obvious overstep.

Portfolio Recovery Associates, Inc.The increased regulatory burdens from the CFPB will likely lead to consolidation in the now fragmented industry.  Management teams in the industry indicated this should create opportunities for acquisitions and asset purchases by larger, more efficient firms like Asta Funding.  Some large sellers of receivables have already started to only deal with larger collection agencies that they believe are better positioned to deal with the new regulations.  Low-debt levels and excess cash should allow Asta Funding to participate in these opportunities.

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