With the economy tanking, banks hording cash and more consumers getting deeper into hock, collectors of defaulted credit cards such as Encore Capital Group are finding opportunities for growth.

“We’re … in the perfect storm of a higher supply (of charged-off credit cards), lower demand and pricing going down,” said Paul Grinberg, chief financial officer.

San Diego-based Encore has been growing in recent years, buying up more charged-off consumer receivables, or credit card debts that the banks can’t collect.

For the nine months ended Sept. 30, Encore purchased $5 billion in charged-off credit cards at an average 3.4 cents on the dollar, investing about $166 million.

For the like period last year, the company spent $134 million to buy $5.1 billion in bad credit card debt.

The sellers are the usual suspects, the biggest card issuers in the world, including JPMorgan Chase Bank, Capital One, Bank of America, Citibank and Washington Mutual. These banks issue lots of cards, and each has its share of delinquent accounts.

Past Due Accounts

The banks attempt to collect on past due cards, but after a certain point, they remove the accounts from their books. Then they’ll sell it for pennies on the dollar to companies such as Encore.

Then it’s up to Encore to collect as much as they can from the same well the banks already tried. Gross collections for the third quarter were $98 million, up 14 percent from the prior year’s third quarter.

The upheaval in the financial services industry has benefited buyers like Encore, because banks are saddled with higher amounts of defaulted debt, and charging off more of it.

In the second quarter, banks charged off 5.47 percent of their bad credit card loans, or about $50 billion. For the third quarter, Bank of America charged off 6.14 percent, or about $1.24 billion, an increase from the prior year when BofA charged off 4.61 percent.

As credit markets tightened, banks started hording cash and looked at ways of generating capital, Grinberg said.

Because so many banks were selling debt, prices came down. Also helping matters for debt buyers was a reduced number of buyers. “A bunch of smaller players left and some larger players left as well,” he said.