Consumer credit fundamentals

List of Tables and Figures

Preface

Acknowledgements

1. Introduction

1.1. The rise and rise of consumer credit

1.2. Consumer credit defined

1.3. Boon or bane?

1.4. Working with credit

1.5. Chapter summary

1.6. Suggested sources of further information

2. Products and Providers

2.1. The features of credit agreements

2.2. The cost of credit

2.3. Credit products

2.3.1. Mortgages

2.3.2. Personal loans (installment loans)

2.3.3. Retail credit (retail loans)

2.3.4. Hire-purchase

2.3.5. Card accounts

2.3.6. Charge accounts

2.3.7. Revolving loans

2.3.8. Mail order catalogue accounts

2.3.9. Overdrafts

2.3.10. Pawning (pledging)

2.3.11. Payday loans and cheque cashing services

2.4. Productive and consumptive credit

2.5. Prime and sub-prime (mainstream and non-mainstream) lending

2.6. Credit products permitted under Islamic (Shari'ah) law

2.7. Credit providers

2.8. Chapter summary

2.9. Suggested sources of further information

3. The History of Credit

3.1. Ancient origins

3.2. The Greek experience

3.3. The Romans

3.4. The early Church to late middle ages

3.5. The Reformation

3.6. A modern philosophy of credit

3.7. From Victorian necessity to the First World War

3.8. Between the wars

3.9. The modern age

3.10. The impact of technology

3.11. Chapter summary

3.12. Suggested sources of further information

4. Ethics in Lending

4.1. The role of ethics in financial services

4.2. Ethics-a theoretical overview

4.2.1. Utilitarianism

4.2.2. Kant's ethical theory

4.2.3. Higher moral authority

4.2.4. Natural law, virtue and human rights

4.2.5. Ethics in practice

4.3. The charging of interest

4.4. Interest or usury?

4.4.1. Jeremy Bentham's `Defense of Usury'

4.4.2. The principle of reasonable return

4.5. A right to credit?

4.6. The use of personal information in credit granting decisions

4.7. Over-indebtedness and responsible lending

4.8. Chapter summary

4.9. Suggested sources of further information

5. Legislation and Consumer Rights

5.1. The Consumer Credit Acts 1974 and 2006 (UK)

5.1.1. Credit license

5.1.2. Requirements for a legally binding credit agreement

5.1.3. The right to cancel (right of rescission)

5.1.4. Advertising

5.1.5. Credit tokens

5.1.6. Early settlement

5.1.7. Charges for delinquency

5.1.8. Court action to recover debt

5.1.9. Respossession of goods under hire-purchase and conditional sale agreements

5.2. The Enterprise Act 2002 and bankruptcy (UK)

5.2.1. The road to bankruptcy

5.2.2. After a bankruptcy order has been granted

5.2.3. Individual Voluntary Agreements (IVA)

5.3. The Data Protection Act 1998 (UK)

5.3.1. The right of subject access

5.3.2. Data controllers and data processors

5.3.3. The right to prevent direct marketing

5.3.4. Automated decision making

5.4. The Consumer Credit Protection Act 1968 (US)

5.4.1. The Truth in Lending Act 1968

5.4.2. Garnishment restrictions

5.4.3. The Fair Credit Reporting Act 1970

5.4.4. The Equal Credit Opportunity Act 1974

5.4.5. The Fair Debt Collection Practices Act 1977

5.4.6. The Electronic Funds Transfer Act

5.5. The Federal Bankruptcy Code 1978 (US)

5.5.1. Chapter 7 bankruptcy

5.5.2. Chapter 13 bankruptcy

5.6. Chapter summary

5.7. Recommended sources of further information

6. The Economics of Credit and its Marketing

6.1. Sources of income

6.1.1. Arrangement and account management fees

6.1.2. Interest charges

6.1.3. Transaction fees

6.1.4. Late payment fees, penalty charges and early redemption fees

6.1.5. Insurance

6.1.6. Merchant and interchange fees

6.2. The costs of providing credit

6.2.1. Infrastructure and overheads

6.2.2. Cost of funds

6.2.3. Bad debt and write-off (charge-off)

6.2.4. Fraud

6.2.5. Provision (and impairment charges)

6.3. Advertising and promotion

6.3.1. The special case of mail order catalogues

6.3.2. Offers and incentives

6.3.3. Retention and attrition

6.3.4. Cross-selling and up-selling

6.4. Capital requirements

6.4.1. What is capital?

6.4.2. Assets, risk and risk weighted assets

6.4.3. The Capital Ratio

6.4.4. The standardized approach

6.4.5. IRB approaches

6.5. Securitization

6.6. Chapter summary

6.7. Suggested sources of further information

7. Credit Granting Decisions

7.1. The creditworthy customer

7.2. The application for credit

7.3. Judgemental decision making

7.4. Credit scoring

7.4.1. Using the score to make decisions

7.4.2. Choosing the outcome period

7.5. Comparing judgemental lending and credit scoring

7.6. The case against credit scoring

7.7. Enhancing credit scoring systems with judgemental decision rules (policy rules)

7.7.1. Organizational policy

7.7.2. Data sufficiency

7.7.3. Expert knowledge

7.7.4. Legal requirements

7.8. Pricing for risk

7.9. Credit scoring models of profitability

7.10. Behavioural scoring

7.11. The impact of credit scoring

7.12. Chapter summary

7.13. Suggested sources of further information

8. Credit Reference Agencies

8.1. The history of credit reference agencies

8.2. Information held by credit reference agencies

8.3. Public information

8.3.1. Court judgements, bankruptcies and repossessions

8.3.2. The Electoral (Voters) Roll

8.4. Private information

8.4.1. Shared customer account data

8.4.2. Credit searches

8.4.3. Credit Industry Fraud Avoidance Scheme (CIFAS)

8.4.4. Gone Away Information Network (GAIN)

8.4.5. Notice of correction

8.5. Derived information

8.5.1. Geo-demographic and socio-economic data

8.5.2. Credit scores

8.6. Performing a credit search: matching applicant and credit reference data

8.6.1. No trace cases

8.6.2. Previous addresses, linked addresses and joint applications

8.6.3. Third party data

8.7. US credit reference agencies

8.8. Other national situations

8.9. The role of credit reference agencies in credit granting decisions

8.10. Using credit reference data to re-evaluate existing customers

8.11. Infrastructure requirements for credit reference agency operation

8.12. The myth of complexity

8.13. Secondary uses of credit reference data

8.14. The impact of credit reference agencies

8.15. Chapter summary

8.16. Suggested sources of further information

9. Credit Management

9.1. Recruitment

9.1.1. The credit granting decision process

9.1.2. Setting the terms of business

9.1.3. Shadow limits

9.1.4. Application fraud

9.2. Account management

9.2.1. Account cycling and statement production

9.2.2. Transaction authorization and transaction fraud

9.2.3. Customer or account level management?

9.3. Collections

9.3.1. Collections strategies

9.3.2. Designing collections strategies and action paths

9.4. Debt recovery

9.4.1. Write-off, debt sale and legal action

9.5. The business functions responsible for credit management

9.5.1. Marketing

9.5.2. Credit

9.5.3. Operations

9.5.4. IT

9.5.5. Legal, and accounting and finance

9.6. Chapter summary

9.7. Suggested sources of further information

Appendix A. The Calculation of Interest and APR

A.1. Simple and compound interest

A.2. Calculating interest for fixed term amortizing loans and mortgages

A.3. Calculating interest for credit cards

A.4. Calculating APR

A.5. Example interest and APR calculations

Notes

Bibliography

Index