Some borrowers who are deemed subprime by traditional credit scoring criteria are actually quite creditworthy and are identified as prime or near-prime consumers when using the more inclusive VantageScore® credit score. Based on a VantageScore® Solutions’ study of infrequent users of credit, 15.5 percent were found to have either prime or super-prime risk. In addition, among new entrants to the credit scene — including students who recently graduated, immigrants and recently divorced consumers — 26.5 percent were found to have either prime or super-prime risk profiles. Learn more about VantageScore® Solutions, identified as a Preferred Partner by the National Association of Federal Credit Unions (NAFCU). Source: VantageScore Solutions summer 2012 newsletter, The Score VantageScore® is owned by VantageScore Solutions, LLC.

Last week, a group of us came together for a formal internal forum where we had the opportunity to compare notes with colleagues, hear updates on the challenges clients are facing and brainstorm solutions to client business problems across the discipline areas of analytics, fraud and software.   As usual, fraud prevention and fraud analytics were key areas of discussion but what was also notable was how big a role compliance is playing as a business driver.  First party fraud and identity theft detection are important components, sure, but as the Consumer Financial Protection Bureau (CFPB) gains momentum and more teeth, the demand for compliance accommodation and consistency grows critical as well.  The role of good fraud management is to help accomplish regulatory compliance by providing more than just fraud risk scores, it can help to: Know Your Customer (KYC) or Customer Information Program (CIP) details such as the match results and level of matching across name, address, SSN, date of birth, phone, and Driver’s License. Understand the results of checks for high risk identity conditions such as deceased SSN, SSN more frequently used by another, address mismatches, and more. Perform a check against the Office of Foreign Asset Control’s SDN list and the details of any matches. And while some fraud solutions out there make use of these types of comparisons when generating a score or decision, they may not pass these along to their customers.  And just think how valuable these details can be for both consistent compliance decisions and creating an audit trail for any possible audits.  

The Fed’s Comprehensive Capital Analysis and Review (CCAR) and Capital Plan Review (CapPR) stress scenarios depict a severe recession that, although unlikely, the largest U.S. banks must now account for in their capital planning process.  The bank holding companies’ ability to maintain adequate capital reserves, while managing the risk levels of growing portfolios are key to staying within the stress test parameters and meeting liquidity requirements. While each banks’ portfolios will perform differently, as a whole, the delinquency performance of major products such as Auto, Bankcard and Mortgage continues to perform well.   Here is a comparison between the latest quarter results and two years ago from the Experian – Oliver Wyman Market Intelligence Reports.   Although not a clear indication of how well a bank will perform against the hypothetical scenario of the stress tests, measures such as Probability of Default, Loss Given Default and Exposure at Default to indicate a bank’s risk may be dramatically improved from just a few years ago given recent delinquency trends in core portfolios. Recently we released a white paper that provides an introduction to Basel III regulation and discusses some of its impact on banks and the banking system.  We also present a real business case showing how organizations turn these regulatory challenges into buisness opportunities by optimizing their credit strategies.   Download the paper – Creating value in challenging times: An innovative approach to Basel III compliance.