Category Archives: Risk & Compliance

Risk & Compliance Auto Loan Credit Quality: Hazardous Road Conditions Ahead?

Auto Lending Credit Trends
Feb222017

The gist of recent media coverage on the state of US auto lending can be summarized by the title of a recent New York Times article: As Auto Lending Rises, So Do Delinquencies. With this concern in mind, FICO recently conducted a research study to examine the credit quality of US consumers with auto loans, as well as other significant credit trends in auto lending. Our findings tell an interesting tale: Banks have been mildly decreasing their car loan underwriting standards. Overall indebtedness for many consumers has been declining since the Great Recession. The size of car loans has been increasing faster than inflation since the recession. More consumers now have six-year auto loans instead of five-year loans, which were the previous standard. These six-year loans have higher delinquency rates, thus this shift to longer-term loans is likely to result in higher losses for US auto loans over the next... [Read More]

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Risk & Compliance AI Meets AML: How the Analytics Work

Brain with AML highlihgted in neural pathways
Feb152017

The focus on financial crime, and the money laundering that funds terrorist attacks and other criminal activities, has forced the industry to look for smarter approaches. In the previous posts in this mini-series, TJ Horan noted that AI is the newest hope for compliance, and Frank Holzenthal explored the benefits that AI can bring to compliance officers. Now it’s my turn, and I’m going to explore the AI and machine learning technologies my team has integrated into the FICO TONBELLER Anti-Financial Crime Solutions. We have built on top of the FICO TONBELLER solutions using FICO’s battle-proven and patented artificial intelligence and machine-learning algorithms, which are used in FICO Falcon Fraud Manager to protect about two-thirds of the world’s payment card transactions. Industry experts have begun to realize the significance of analytics in combatting anti-money laundering. For instance, Aite Group LLC in its 2015 report Global AML Vendor Evaluation noted that... [Read More]

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Risk & Compliance For Consumers Seeking Credit Scores, VantageScores Are No Substitute for FICO® Scores

Consumers + credit scores
Feb132017

Consumers today are being bombarded by offers to get their “credit scores” for free.  These lead generation websites don’t provide the FICO® Scores used by nearly all lenders – but some “experts” say that doesn’t matter.  In fact, some people claim that the VantageScores distributed to consumers through these websites are perfectly good approximations of the FICO® Scores used by lenders. The argument goes something like this: because multiple versions of the FICO® Score exist and are used by thousands of lenders, no single FICO® Score represents a consumer’s “credit score”.  It doesn’t matter whether a consumer receives a FICO® Score or VantageScore because they all work similarly: if you rank high on one score, you’ll rank high on another score, and all these scores move up and down together. This is simply not true, and new research confirms it. FICO has nine widely used versions of the FICO® Score... [Read More]

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Risk & Compliance AI Meets AML: How Smart Analytics Fight Money Laundering

Brain with AML highlihgted in neural pathways
Feb132017

In the last six months alone, I think I’ve read at least 1,000 Wall Street Journal articles on artificial intelligence (AI) and its technologic cousins: robots, drones and self-driving cars. Between those three things, I’m pretty sure most of the jobs humans have today will change. Some will even disappear. There is so much noise about AI and its ilk that, in my opinion, it’s important for us in the worlds of fraud and compliance to take a step back and focus on how we can implement this incredibly advanced technology in the context of our current technology and regulatory environment. For example, while it’s pretty cool how AI is now being leveraged to play poker and beat professionals in real games, it’s a distraction from the discussion of ways that AI can help right now, today, for real business challenges. One of the places where AI can make a... [Read More]

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Risk & Compliance Financial Health: The Key to the Future of Customer Acquisition

Feb092017

For all the differences between traditional banks and new online lenders, there is one business challenge that unites both groups: acquiring new customers. Despite the advancements made by online lenders in many traditional financial services processes (such as account opening), the methods most online lenders use to advertise to and acquire new customers come straight out of the bank marketing playbook – third-party brokers, television ads, and even direct mail solicitations. While online lenders experiment with offline marketing tactics, banks are aggressively ramping up their online marketing efforts, with total digital ad spend by U.S. financial institutions predicted to top $10 billion in 2019 (up from $5.3 billion in 2013). This shift is being motivated by continuing declines in branch activity and the increasingly-evident risks of branch-based sales strategies. The result is that both groups are converging on a set of established acquisition techniques that are compatible with a post-branch... [Read More]

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Risk & Compliance How Norvik Banka Fights Money Laundering in Latvia

Norvik Banka exterior photo
Feb092017

Bank regulators in Latvia have increased scrutiny on banks suspected of allowing money laundering, resulting in record fines and more bank audits. One of FICO’s customers, Norvik Banka, is taking an early lead in this fight, using the FICO® TONBELLER® Compliance Solutions to fight money laundering and financial crime. “We had been using an in-house system to comply with Latvian regulations around money laundering, and based on the latest AML audit we ran a tender with global AML IT providers, of which FICO TONBELLER provided the best fit for our organization,” says Oliver Bramwell, Chairman of the Board at Norvik Banka, which has the country’s widest network of branches and finance and accounting groups. “The FICO TONBELLER system will allow us to improve transaction control significantly, enhance transaction transparency and decrease the bank’s operational risks.” Mr Bramwell was interviewed for an article that appeared last week in Retail Banker International.... [Read More]

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Risk & Compliance FICO Research: Are Millennials Really Abandoning Credit?

Feb082017

Nothing fascinates us more in the world of demographics than what the Millennial generation think, do and how they act.  One thing for sure is that, as they vie with the Baby Boomers to be the largest demographic group here in the USA, what they do is important. And we don’t need to be statisticians to know that the Baby Boomer generation isn’t going to be getting any bigger. The question for many in financial service boils down to this: Are Millennials really abandoning us? The topic came to mind for me recently as I was asked to be part of a panel discussion on credit and the economy at an ABS East conference. Since much of what gets said about Millennials seems to be more opinion than fact, I decided to look at a few stats and see if we could cast any light on what might be happening.... [Read More]

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Risk & Compliance Truth Squad: Is FICO Score 700 the Same as VantageScore 700?

Truth Squad logo
Feb062017

Securitization plays a key role in driving increased liquidity in the mortgage market, ensuring that banks can fund more loans, at lower cost. This in turn gives consumers greater access to affordable mortgages. FICO Scores, of course, play an important role in the risk management and transparency that powers the secondary market. Now VantageScore is claiming that its score can be used instead in GSE underwriting (and by extension, securitization), as a one-to-one replacement for the FICO Score. Could a clean swap-out work? It’s time to set the record straight. Claim: A seamless mapping exists between FICO Score and VantageScore, one that will hold up over time. Truth: The FICO Score and VantageScore, while sharing the same score range, do not share the same odds-to-score relationship, meaning the risk at a given score is different. The relationship between the two scores is not constant and any analysis that attempted to... [Read More]

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Risk & Compliance FICO @ AFSA: Auto Lenders Losing $2-3B to Fraud

Jan312017

One of my favorite movie scenes is from Blade Runner. A policeman is interrogating his detainee, asking a series of questions to determine whether the person is a real human-being or a synthetic. Funnily enough, this scene parallels the problems discussed at a FICO roundtable on ‘How to Fight Auto Loan Fraud’ held this week at the AFSA Vehicle Finance Conference & Expo. While none of the 25 attendees resembled Harrison Ford, they agreed they were getting busier looking for synthetics, just a different kind of synthetic. In this case, we were talking about synthetic identities, a type of fraud in which a criminal combines real and fake information to create a new fake identity that is used to open fraudulent accounts and make fraudulent purchases. The use of synthetic IDs in the auto loan industry has been a growing problem in the last 18 months. Attendees at the roundtable... [Read More]

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