The economic downturn and slow recovery, combined with continued regulatory overhead and uncertainty, have rendered many lending products potentially obsolete for large portions of a portfolio. This in turn will reduce the amount of capital a credit union is willing to invest in a product line or line of business for new loan growth.

To offset these pressures and generate returns required to drive greater earnings, which will fuel future loan growth, portfolio managers are aggressively expanding their policies and practices to drill more deeply and frequently into their portfolios by identifying those members where relationships can be expanded and conversely identify those which are accelerating debt and stress.

To do that, a growing number of lenders are finding that it pays to look not only at a score or snapshot of a consumer profile, but take into consideration the magnitude and direction of change as well as frequency of review on all obligations and beyond the obligations they manage.

Increasingly, this requires the ability to trend consumer credit data, identify specific member metrics, and track those changes over time. The most successful lenders have incorporated these metrics into their day-to-day processes. They consider trending one of the most important and effective techniques used to vector behavior and segment appropriately.

Lenders today look at internal and external trended data, for both traditional risk uses, such as in underwriting, as well as expanded uses that help identify retention, cross-sell and revenue opportunities. Trended data has the ability to focus on short-term changes (1-3 months), and longer periods (6-24 months), thus providing deeper behavioral transparency. One such solution, for instance, uses a consumer’s trended credit data to estimate an individual’s annual spend on each credit and charge card. It then aggregates those trade lines to provide a full view of an individual’s discretionary spending power.

The spend algorithm strongly correlates with income, deposit balances and net worth, therefore helping lenders differentiate the highest spenders from non-spending populations, allowing them to focus their capital where it counts.

The Importance of Trended Data

By quantifying a direction and magnitude of change, lenders are finding that while two members might have the same credit score and credit card debt today, they fall within two markedly different risk profiles.

For instance, just focusing on card data for the past five months, one member we’ll call Mary might show that her debt has declined to $12,000 from $29,500, reducing the utilization on Mary’s $50,000 credit line to 24% from 59%. At the same time, the other member, let’s call him Peter, has debt that has climbed to $12,000 from $4,100, increasing the utilization of Peter’s $50,000 credit line to 24% from 8%. Who is likely the best credit risk? Is the fact that Peter’s monthly payments have almost tripled in the last five months an early sign of stress?

Using trended data gives lenders the ability to segment portfolios into homogeneous populations, allowing them to

• Build stable risk models
• Identify consumer stress
• Target higher-spending members (or prospects)
• Assign credit lines (and pricing) based on actual spending need
• Retain members that contribute to the bottom line

Portfolio management is a science, but there is no all-encompassing solution or standard approach to maximizing return on an investment. With more than 7,000 NCUAinsured credit unions and an equal number of banks, creating an efficient process to manage risk and return is a continuous challenge. Below is a basic set of capabilities that can be modified to suit a lenders portfolio or budget:

• As a foundation, lenders should periodically analyze all existing members’ credit risk on a monthly or quarterly basis; this data allows for transparency in business planning and provides the ability to take actions if business, economic or consumer conditions change.
• Consumer stress happens quickly. Continually monitor key credit events such as bankruptcy filings, which have nearly 100% expected loss rate. This can help reduce any open exposure.
• Conversely, your best members may be seeking credit elsewhere. Why lose wallet share when simple notifications can be automatically sent to you allowing you to retain your existing members?
• Continually revalidating and calibrating strategies is basic safety and soundness. Risk thresholds and models, such as credit scores, must be adjusted quarterly. In addition, when considering the changing economic landscape and consumer behavior, revenue and usage assumptions change even more frequently.
• Use all member information available when making decisions. “Risk Score”-only decisions didn’t predict the economic downturn. Any risk score should be combined with income, spend and an understanding of all obligations when assigning pricing or credit lines. Bypassing any data reported about a customer, can leave gaps in risk assessment. For example, mortgage lenders should examine those consumers who are very late in their auto payments and those whose cars have been repossessed. They’re probably in such financial straits that they’re doing everything they can to make their home-loan payments.

What You Should Be Following

Follow credit-reporting developments closely. A trade line item on a credit report refers to a past or present credit relationship for vehicle loans, credit cards, mortgages, leases and other loans. A credit report lists separate trade lines for each account or credit card number, whether open or closed. A seasoned trade line is one that’s current with a history of timely payments. Also, public record items such as bankruptcy, court judgments and tax liens are key to completing the full picture of risk.

While there’s no crystal ball we can peer into to adapt to a changing economic and consumer landscape, adding trending capabilities and increasing the frequency of review can help create a more stable and predictable portfolio, generating not only the return needed but confidence that your product line or line of business deserves more capital for growth.

By Trevor Carone, Vice President of Product Marketing, Portfolio and Collection Solutions at Experian.

Originally published in the Credit Union Journal, April 23, 2012 – Download and Print the full article.

Jim Rohn once said, “Your life does not get better by chance, it gets better by change.”

According to recent market intelligence, retail spend continues to trend up, translating into increased balance growth on new bankcard and retail card originations

Retail spend continues to trend up from a year ago driven by continued demand for autos in addition to growth in clothing store and restaurant sales. Translating into increased balance growth on new bankcard and retail card originations, particularly seen in the super prime and prime consumer risk segments, where balance growth and origination volumes had been down a year ago given relatively cautious sentiment. This is an encouraging sign in consumer confidence given the overall economic trends in unemployment and downward pressure on home prices.

Collection industry under the CFPB microscope. Learn how to protect yourself.

A record 12,788 lawsuits were filed in 2011 against accounts receivable management companies for regulatory violations, with the majority related to the Fair Debt Collection Practices Act. This year began with increased concern from the collection industry as the Consumer Financial Protection Bureau (CFPB) shows heightened interest in debt collectors.

Companies are facing potential litigation and fines

With this increased scrutiny, collection companies are under the microscope even more than before. Companies face potential litigation, fines and negative publicity if they attempt to collect on past-due consumers without proper handling. It’s now critical to identify accounts with a protected status before making collection efforts, in order to minimize legal risk and optimize your resources.

Experian’s FirstSweep^SM can help you optimize your treatment strategy to deal with regulatory risk. Experian^® can identify which consumers may be bankrupt, deceased or active duty military. Additionally, phone type and fraud indicators can be provided.

Act now by contacting your Experian account executive or calling 1 888 471 0066 to learn how FirstSweep can help you reduce regulatory risk.

Federal Deposit Insurance Corp. announces revisions to proposed large bank pricing rule

On March 20, the Federal Deposit Insurance Corp. (FDIC) announced a proposed amendment to the Assessments, Dividends, Assessment Base and Large Bank Pricing Rule that it put forward in February 2011. The revised rule attempts to address lender concerns that they would be unable to comply with the new rule’s provisions, particularly the added requirement of reporting subprime and leveraged consumer loans.

Revisions proposed to the large bank pricing rule

Under the new proposal, subprime consumer loans would be renamed “higher-risk consumer loans and securities” and would be defined as:

• All consumer loans where, as of origination or refinance, the probability of default within two years was greater than 20 percent, excluding those consumer loans considered to be nontraditional mortgage loans; and
• Securitizations that are more than 50 percent collateralized by consumer loans meeting the criteria above, except those that are classified as trading book.

The FDIC will collect comments on the changes for 60 days and has extended the compliance date for the new reporting requirements until Oct. 1, 2012.

To find out how Experian can help you comply with the FDIC’S Large Bank Pricing Rule, contact us today or call 1 888 414 1120.

Improving acquisition numbers in the current market has many benefits

Being able to streamline the process and proactively match the right consumers to the right products will reduce acquisition costs.  Consumers also benefit because it has no impact on their credit score.

Clients tell us the number one reason people abandon online applications is because they are worried they’ll be declined. What if you alleviate this concern by matching consumers to the product that best fits their credit profile at the start of the shopping process, greatly improving their chances of approval when they apply?

Experian gives you this ability with Prequalification, a powerful, consent-based credit-screening tool that provides access to individual credit data so you can proactively match consumers to the right products when they still are considering their options. Prequalification also can help to educate consumers on their credit health.

Here’s how Prequalification has changed the acquisition game for two of our clients who are prospecting online. “Experian’s Prequalification works — providing real benefits to the consumer and the marketer,” according to Ian Cohen, CEO of Credit.com. “For the consumer, Prequalification reduces the risk and fear of rejections. Plus, it helps them better manage their credit. For us, the marketer, Prequalification has facilitated targeted marketing that produces well-matched leads, fewer declines and lower acquisition costs.”

A subprime credit card issuer using Prequalification for online acquisitions said, “Experian’s Prequalification product is the perfect fit for our target market. Prequalification allows consumers, especially those with little or less than perfect credit, to see if they are qualified for one of our cards without risking a negative impact to their credit score.”

Find out how Prequalification can change your online acquisition game today. Contact us at 1 888 649 7990.

The key to unlocking credit is made of plastic

Understanding some fundamental principles about credit cards will help your customers choose the best ones to carry in their purses or wallets.

There are three key issues to consider. First, is the account reported to Experian and the other national credit reporting companies? Second, is the account secured or unsecured? Third, what is the individual’s association with the account?

There are a number of different types of accounts for which a card may be issued. However, the account associated with the card must be reported to Experian in order for it to appear in a credit history and be included in credit score calculations.

Debit cards, prepaid cards and “check” cards are not reported to Experian, so they do not help credit scores.

Secured accounts typically are associated with a savings account, but they may be reported by the lender. If reported, an unsecured account typically will have a less positive impact on credit scores than an secured account, but it is still an effective tool for building credit over time.

Unsecured accounts — traditional credit or charge cards — have the largest effect. They represent the greatest lending risk, so good performance will have the highest impact on credit scores in the shortest time — assuming all other aspects of the person’s credit history are strong.

A final consideration is the person’s association with the account. An authorized user has no responsibility for the debt. While an authorized user account can help credit scores, it will be less meaningful than an account for which the person has full responsibility for debt repayment.

Being a primary or joint account holder on an unsecured credit card account with a positive payment history is a key element to unlocking a person’s credit potential.

To learn more or to get answers about general credit questions visit us on Experian.com credit education page.

VantageScore^® helps consistently measure a consumer’s creditworthiness across all bureau platforms

The majority of lending decisions are based on custom scores developed and owned by individual creditors. Financial institutions view these custom scores as intellectual property, and they are rarely, if ever, disclosed to consumers. There also are various third-party scores that lenders use in the underwriting process that are implemented differently to assess a consumer’s creditworthiness.

VantageScore^® was developed by the three national credit reporting companies (CRCs) to resolve the challenge of having the same information deliver a different assessment of a consumer’s creditworthiness. Because it is the same model at each CRC, VantageScore delivers a consistent measure of the consumer’s creditworthiness across all bureau platforms. Any differences in a consumer’s credit score can be attributed to the differences in the data, not in how the score was implemented at the CRC.

To learn more about VantageScore, click here, contact your local Experian sales representative or call us at 1 888 422 0105.

VantageScore^® is owned by VantageScore Solutions, LLC.

Many clients can benefit from knowing a consumers ability to pay

Income Insight^SM and Income Insight W2^SM, Experian’s income estimation models, were developed primarily to assist credit card lenders in assessing a consumer’s ability to pay to minimize the likelihood of extending credit beyond what the consumer can repay. However, as mentioned in a recent USA Today article, many other types of clients besides credit card lenders have found uses for income estimation models.

Governmental entities and regulated utility companies use the models to identify those consumers who are eligible for financial assistance programs. Tenant screening companies incorporate the models in their processes to verify an applicant’s income. Retail catalog companies can target the right prospects by utilizing income in their prescreen campaigns. Debt collection companies combine the models with a recovery score to determine those consumers most likely to repay their debt. Having this additional insight into a consumer’s ability to pay helps many different types of clients make more informed decisions.

If you would like more information talk to one of our representatives today by calling 1 888 414 1120 or complete this form and a representative will contact you.

Offering new opportunities to the Underbanked Market

The underbanked, or unbanked, market represents nearly 64 million U.S. consumers who have limited or no traditional credit history. What does this mean for consumers and what are the potential opportunities in the financial services market?  Approximately 25 percent of the population could benefit from a wide range of financial products and services.

The dramatic transformation of the financial services industry requires new advances and innovation in credit strategies to respond to the growing number of underbanked customers who need to be served. At the core of these changes are real people who need financial options to manage their lives and who are critical to getting this nation back on track. Quality products and services are the key to your prospective customers’ future, enabling providers to profit while actively contributing toward improving people’s lives.

Tools to solve tough risk and underwriting challenges

Experian’s Extended View^SM score gives you the tools to solve tough risk and underwriting business challenges by offering a complete view of a consumer’s payment behavior while providing new opportunities in the underbanked space to transform consumers’ lives.

Our advanced analytics are powered by credit data, rental data and comprehensive public record attributes and allow you to:

• Give consumers cost-effective credit and financial opportunities
• Remain in regulatory compliance
• Generate new, untapped revenue streams

Let us assist you in helping grow your portfolio and develop opportunity in the underbanked market. Learn how Extended View Score can help you build your portfolio and expand your business contact us or call 1 888 683 4170.

Since President Obama used a recess “appointment” to name former Ohio attorney general Richard Cordray as the first director of the Consumer Financial Protection Bureau (CFPB) in January, the new director and the bureau have hit the ground running.

New Rule for Third-Party Debt Collectors

In February, the CFPB released a proposed rule that defined third-party debt collectors with more than $10 million in annual receipts and consumer reporting agencies with more than $7 million in receipts as “larger market participants.” This is the first of many proposed rules that will define the larger market participants that will be susceptible to the bureau’s nonbank supervision program.

Know Before You Owe: The Mortgage Disclosure Form

Another of the CFPB’s top priorities for 2012 is promoting greater consumer financial understanding. The bureau has continued its Know Before You Owe program, which aims to make financial disclosure forms shorter, simpler and easier for consumers to understand. Later this year, the CFPB is set to finalize a new mortgage disclosure form that combines and simplifies the forms that borrowers currently receive at closing. In addition, the CFPB is developing a financial aid shopping sheet for students to better understand their loan options, as well as a shorter and simpler model credit card agreement.