Tag Archives: Financial Services

Risk & Compliance NBC News Probes Two Changes That Could Boost Credit Scores

NBC News Credit Scores Video - retro reporter image
Mar202017

NBC Nightly News recently aired coverage where they examined two changes that could boost credit scores for millions of US consumers. The news agency examined last year’s announcement of FICO® Score XD, aimed at the millions of US consumers who otherwise cannot receive a FICO® Score due to insufficient or stale data in traditional credit bureau files. NBC News discussed how the new score leverages alternative data, such as utilities payments and wireless and cable bill payment history, to determine credit scores. And starting July 1, the three major credit reporting agencies are dropping certain negative information from credit reports, including tax liens and civil judgments. NBC Nightly News shares FICO estimates that 12 million consumers will see their FICO® Scores increase – although, roughly 11 million of these consumers will see only a slight score increase of less than 20 points. View the NBC Nightly News video: Changes to Credit... [Read More]

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Risk & Compliance Auto Loan Credit Quality: Hazardous Road Conditions Ahead? Part 2

Auto Lending Credit Trends #2
Feb282017

In my last blog post, I shared a new FICO research study on credit trends in auto lending. One key finding highlighted that the size of auto loans has been increasing faster than inflation since the recession. So how are consumers affording these larger loans? It’s simple: consumers are ending up with longer terms for their car loans: While five-year loans were the most popular length of terms in 2009, there has been a swing towards opening six-year loans since then. Seven-year loan terms—while still rare at ~5% of all new loans—seem to be increasing in popularity as well. This trend towards more six-year loans occurred across all FICO® Scores. This shift may signal an increase in credit risk for the industry because six-year loans have historically had higher delinquency rates. However, confirming this requires some care in our analysis. The lingering effects of the recession, average age of the... [Read More]

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Risk & Compliance The Skinny on Trump’s Regulatory Reset

regulatory reset
Feb232017

In my 2017 regulatory predictions post last month, I concluded by saying that the new year would be very different for the financial services industry than 2016. This certainly didn’t take long to come to fruition. In the first two weeks of the new administration, President Trump took several steps aimed at slowing down as well as scaling back current and future regulations. Despite these aggressive actions, there remains a number of challenges related to the reach and impact of these directives. Regulatory Reform through Memorandum and Executive Orders Out of the gate, the Trump administration made good on its promise to curtail the pace of federal regulations. Assistant to the President and Chief of Staff Reince Priebus issued a memo on Inauguration Day that, in part, calls for the heads of executive departments and agencies to initiate a regulatory freeze until someone designated by the President has a chance... [Read More]

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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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Fraud & Security Stamping Out Financial Crime in Kathmandu

Feb132017

It’s not often that we enter a greenfield market that is just on the cusp of significant growth, but earlier this month FICO announced its entry in the Nepalese financial market. Nepal is looking to grow its economy and the government recently called for enhanced risk management compliance capabilities to help combat cases of financial crime in the country. “There is clear evidence that economic and financial crimes are some of the fastest growing offences globally,” said Dr. Chiranjivi Nepal, governor, Nepal Rastra Bank. “In Nepal, we can ill afford for these activities to drain our economy or to destroy business and banking confidence. It is therefore imperative that we match the technologies of sophisticated organized criminal groups, with advanced analytics to help banks closely monitor the vast volume of financial transactions they handle on a day-to-day basis.” With the perspective of regulatory compliance turning increasingly global, the Nepalese banks... [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 Medical Collections Rates Highest for Consumers Aged 24-46

Medical-Collections-by-Age
Jan112017

Since medical costs often increase as we age, one might expect that the rate at which medical bills are unpaid and then sent to collections companies would also increase with age – at least until age 65 when US citizens qualify for Medicare. New FICO research shows that not this not the case. Looking at credit bureau data as of July 2016, medical collections reporting – both paid and unpaid collections greater than $99 – breaks down by age as follows: While the peak of this curve occurs at age 27, the rate of consumers with medical collections is uniformly high for ages 24 to 46. Over a quarter of consumers in that age range have at least one such collection showing on their bureau report. After age 46, we see the rate slowly drop, and as expected, it drops substantially after age 65. Part of the issue stems from... [Read More]

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Risk & Compliance 2017 Banking Regulatory Predictions—Brace for a Sea Change

2017-Banking-Regulatory-Predictions
Jan092017

Last fall, I suspect that most regulatory compliance professionals in the U.S. consumer lending market anticipated 2017 would be more of the same. This meant a continued focus on implementation of recently adopted rules, while bracing for a wave of new regulations from the federal banking agencies. Everything changed on November 8. The unexpected election of Donald Trump resulted, in many cases, in a 180-degree course correction. The Trump administration, bolstered by the reelection of a Republican majority in both houses of Congress, has fostered a new environment that is expected to promote de-regulation. While I won’t ever be mistaken for Nostradamus, amidst this regulatory sea change, I feel (relatively) confident in sharing with you my top regulatory compliance predictions for 2017. A little-known law will have big impact on regulation. Haven’t heard of the Congressional Review Act (CRA)? You are not alone. This obscure statutory provision was adopted in... [Read More]

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Risk & Compliance Can the Internet Revolutionize the Finance Industry in China?

Dec232016

This was the question FICO’s Dr. Andrew Jennings was challenged to answer as a guest speaker on a PBOC sponsored panel at The Third World Internet Conference in China. While one would assume the answer is ‘yes’, the world of FinTechs, P2P lending and online financial services have suffered quite a few stops and starts in China. Investment bubbles driven by consumers seeking higher returns, embryonic regulation and a patchwork of lackluster risk management practices persist in a nation undergoing a massive program of urbanization. Jennings spoke about the dual problems of reckless lending and the challenge of improving financial inclusion in China. He proposed that both can be solved with clever, analytically driven credit assessments that use new sources of data. “When we look at the data in China, there is not a single data source that can provide us with a predictable credit score for everyone. So the... [Read More]

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Risk & Compliance 2017 Predictions: 4 Trends that Will Shake Up Banking Next Year

Dec202016

If you follow the financial press, blogs and newsletters, you may have noticed a sea change in the topics du jour over the last 12 months. As we close out 2016, receding into the background are the never-ending stories of Big Data technology, as well as the hype of how P2P lending is taking over. Instead, the focus is on blockchain, open banking, AI, fintech beyond P2P lenders, cybersecurity, digitisation and customer experience. This shift is exciting because, as these topics all collide, it will shake up the very face of banking as we know it … although probably not quite as quickly as the technology talking heads would have us believe. I have one more to add to that list: financial inclusion must be central to the story of 2017 because it will be the beneficiary of many mainstream industry innovations. Here are some thoughts on just four of... [Read More]

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