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Time to dust off those compliance plans and ensure you are prepared for the new regulations, specifically surrounding the Military Lending Act (MLA). Last July, the Department of Defense (DOD) published a Final Rule to amend its regulation implementing the Military Lending Act, significantly expanding the scope of the existing protections. The new, beefed-up version encompasses new types of creditors and credit products, including credit cards. While the DOD was responsible for implementing the rule, enforcement will be led by the Consumer Financial Protection Bureau (CFPB). The new rule became effective on October 1, 2015, and compliance is required by October 3, 2016. Compliance, however, with the rules for credit cards is delayed until October 3, 2017. While there is no formal guidance yet on what federal regulators will look for in reviewing MLA compliance, there are some insights on the law and what’s coming. Why was MLA enacted? It was created to provide service members and their dependents with specific protections. As initially implemented in 2007, the law: Limited the APR (including fees) for covered products to 36 percent; Required military-specific disclosures, and; Prohibited creditors from requiring a service member to submit to arbitration in the event of a dispute. It initially applied to three narrowly-defined “consumer credit” products: Closed-end payday loans; Closed-end auto title loans; and Closed-end tax refund anticipation loans. What are the latest regulations being applied to the original MLA implemented in 2007? The new rule expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions, but it does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans. One of the most significant changes is the addition of fees paid “for a credit-related ancillary product sold in connection with the credit transaction.”  Although the MAPR limit is 36 percent, ancillary product fees can add up and — especially for accounts that carry a low balance — can quickly exceed the MAPR limit. The final rule also includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer. Under the new DOD rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member, through a nationwide CRA or the DOD’s own database, known as the DMDC. The rule also permits the consumer report to be obtained from a reseller that obtains such a report from a nationwide consumer reporting agency. MLA status for dependents under the age of 18 must be verified directly with the DMDC. Experian will be permitted to gain access to the DMDC data to provide lenders a seamless transaction. In essence, lenders will be able to pull an Experian profile, and MLA status will be flagged. What is happening between now and October 2016, when lenders must be compliant? Experian, along with the other national credit bureaus, have been meeting with the DOD and the DMDC to discuss providing the three national bureaus access to its MLA database. Key parties, such as the Financial Services Roundtable and the American Bankers Association, are also working to ease implementation of the safe harbor check for banks and lenders. The end goal is to enable lenders the ability to instantly verify whether an applicant is covered by MLA by the Oct. 1, 2016 compliance date. --- If you have inquiries about the new Military Lending Act regulations, feel free to email MLA.Support@experian.com or contact your Experian Account Executive directly. Next Article: A check-in on the latest Military Lending Act news

A recent survey commissioned by VantageScore® Solutions, LLC found that among consumers who are unable to obtain credit, 27% attribute the situation to lack of a credit score. Most consumers support newer methods of calculating credit scores 49% feel that consistent rental, utility and telecommunications payments should count in determining credit scores 50% agree that competition in the credit scoring marketplace is beneficial Lenders can help solve the credit gap by using advanced risk models that can accurately score more consumers. The result is a win-win: More consumers get access to mainstream credit, and lenders gain more customers. >> Infographic: America’s Giant Credit Gap VantageScore® is a registered trademark of VantageScore Solutions, LLC.

Loyalty fraud and the customer experience Criminals continue to amaze me. Not surprise me, but amaze me with their ingenuity. I previously wrote about fraudsters’ primary targets being those where they easily can convert credentials to cash. Since then, a large U.S. retailer’s rewards program was attacked – bilking money from the business and causing consumers confusion and extra work. This attack was a new spin on loyalty fraud. It is yet another example of the impact of not “thinking like a fraudster” when developing a program and process, which a fraudster can exploit. As it embarks on new projects, every organization should consider how it can be exploited by criminals. Too often, the focus is on the customer experience (CX) alone, and many organizations will tolerate fraud losses to improve the CX. In fact, some organization build fraud losses into their budgets and price products accordingly — effectively passing the cost of fraud onto the consumers. Let’s look into how this type of loyalty fraud works. The criminal obtains your login credentials (either through breach, malware, phishing, brute force, etc.) and uses the existing customer profile to purchase goods using the payment method on file for the account. In this type of attack, the motivation isn’t to receive physical goods; instead, it’s to accumulate rewards points — which can then be used or sold. The points (or any other form of digital currency) are instant — on demand, if you will — and much easier to fence. Once the points are credited to the account, the criminal cashes them out either by selling them online to unsuspecting buyers or by walking into a store, purchasing goods and walking right out after paying with the digital currency. A quick check of some underground forums validates the theory that fraudsters are selling retailer points online for a reduced rate — up to 70 percent off. Please don’t be tempted to buy these! The money you spend will no doubt end up doing harm, one way or another. Now, back to the customer experience. Does having lax controls really represent a good customer experience? Is building fraud losses into the cost of your products fair to your customers? The people whose accounts have been hacked most likely are some of your best customers. They now have to deal with returning merchandise they didn’t purchase, making calls to rectify the situation, having their personally identifiable information further compromised and having to pay for the loss. All in all, not a great customer experience. All businesses have a fiduciary responsibility to protect customer data with which they have been entrusted — even if the consumer is a victim of malware, phishing or password reuse. What are you doing to protect your customers? Simple authentication technologies, while nice for the CX, easily can fail if the criminal has access to the login credentials. And fraud is not a single event. There are patterns and surveillance activities that can help to detect fraud at every phase of your loyalty program — from new account opening to account logins and updates to transactions that involve the purchase of goods or the movement of currency. As fraudsters continue to evolve and look for the least-protected targets, loyalty programs have come to the forefront of the battleground. Take the time to understand your vulnerability and how you can be attacked. Then take the necessary steps to protect your most profitable customers — your loyalty program members. If you want to learn more, join us MRC Vegas 16 for our session “Loyalty Fraud; It’s Brand Protection, Not Just Loss Prevention” and hear our industry experts discuss loyalty fraud, why it’s lucrative, and what organizations can do to protect their brand from this grey-area type of fraud.

According to Experian’s latest State of the Automotive Finance Market report, auto loan balances reached an all-time high of $987 billion in Q4 2015 — an increase of 11.5% over Q4 2014.

A recent Experian survey shows a growing concern over identity theft and tax fraud. 42% of consumers are concerned that someone could access their personal data through their tax return, compared with 35% in 2014 and 38% in 2015 28% of consumers have been a victim or know someone who has been a victim of tax fraud Tax season is a busy time of year for identity thieves. While consumers should take steps to protect themselves, businesses also need to employ ID theft protection solutions in order to safeguard consumer information. >> Identify and prevent multiple types of fraud

According to the latest Experian–Oliver Wyman Market Intelligence Report, HELOC originations came in at $43 billion for Q4 2015 — a 22% increase over Q4 2014. HELOC originations for all of 2015 totaled $160 billion — a 21% increase year over year. As HELOC originations continue their growth trend, lenders can stay ahead of the competition by using advanced analytics to target the right customers and increase profitability. >> Revamp your mortgage and HELOC acquisitions strategies

Understanding the behaviors of best-in-class credit risk managers For financial institutions to achieve superior performance, having the appropriate set of credit risk managers is a prerequisite. The ability to gain insight from data and customer behavior and to use that insight for strategic advantage is a critical ingredient for success. At the same time, the risk-management community is under increasing pressure to understand and explain underlying trends in credit portfolios — and to monitor, interpret and explain these trends with ever-greater accuracy. A common problem financial institutions face when confronting staff resource needs is the difficulty in recruiting and retaining experienced risk-management professionals. The risk-management community is notoriously small, and hiring expertise from within this community is extremely difficult. Skilled risk managers truly are a finite resource, but their skill set is in huge demand. Hiring the right talent is crucial to job satisfaction, leading to higher engagement levels and reduced attrition costs. On top of that, employee engagement is vital to an organization’s success. It drives employee productivity and fosters a culture of innovation, which leads to higher profitability for the entire organization. Building, attracting and retaining risk-management resources requires a commitment to engaging in staff personal development. A great way to support employee engagement is to invest in their personal and professional development, including opportunities for training and team building. If an organization can show that it is committed to developing its people and providing opportunities for career growth, employee engagement levels will rise, with all the benefits this entails. Typically, financial institutions bridge the resource skill gap by either hiring skilled statistical and analytical experts or developing in-house resources. Both of these approaches, however, require significant on-the-job training to teach employees how to link raw statistical techniques and procedures to influencing the profit and loss statement of the business line which they support. The challenge is often broadening the understanding of these skill set “silos” and their contribution to the overall portfolio. By opening that view, the organization generates additional value from these resources as lines of communication are improved and insights and opportunities found within the data are shared more effectively across the organizational team. Experian’s Global Consulting Practice provides a solution to this problem. Our two-day Risk and Portfolio Management Essentials training workshop offers the opportunity to understand the behaviors of best-in-class risk managers. What are the tools and enablers required for the role? How do they prepare for the process of managing credit risk? What areas must risk managers consider managers across the Customer Life Cycle? What differentiates the good from the great? To complement the training modules, Experian® offers an interactive, team-based approach that engages course participants in the build options of a defined portfolio. Participants leverage the best-in-class techniques presented in the sessions in a series of competitive, team-based exercises. This set of cross-organizational exercises drives home the best-in-class techniques and further builds understanding that resonates across the organization long after the course is concluded. For our current offerings, locations and to register click here.  

What is blockchain? Blockchain is beginning to get a lot of attention, so I thought it might be time to figure out what it is and what it means. Basically, a blockchain is a permissionless, distributed database that maintains a growing list of records (transactions) in a linear, chronological (and time-stamped) ledger. At a high level, this is how it works. Each computer connected to the network gets a copy of the entire blockchain and performs the task of validating and relaying transactions for the whole chain. The batches of valid transactions added to the record are called “blocks.” A block is the “current” part of a blockchain that records some or all of the recent transactions and once completed goes into the blockchain as a permanent database. Each time a block gets completed, a new block is created, with every block containing a hash of the previous block. There are countless numbers of blocks in the blockchain. To use a conventional banking analogy, the blocks would be a full history of every banking transaction for every person, and the blockchain would be a complete banking history. The entire blockchain is sent to everyone who has access, and every user validates the information in the block. It’s like if Tom, Bob and Harry were standing on the street corner and saw a cyclist hit by a car. Individually, all three men will be asked if the cyclist was struck by the car, and all three will respond “yes.” The cyclist being hit by the car becomes part of the blockchain, and that fact cannot be altered. Blockchain generally is used in the context of bitcoin, where similar uses of the structure are called altchains. Why should I care or, at the very least, pay attention to this movement? Because the idea of it is inching toward the tipping point of mainstream. I recently read an article that identified some blockchain trends that could shape the industry in coming months. The ones I found most interesting were: Blockchain apps will be released Interest in use cases outside payments will pick up Consortia will prove to be important Venture capital money will flow to blockchain start-ups While it’s true that much of the hype around blockchain is coming from people with a vested interest, it is beginning to generate more generalized market buzz as its proponents emphasize how it can reduce risk, improve efficiency and ultimately provide better customer service. Let’s face it, the ability to maintain secure, fast and accurate calculations could revolutionize the banking and investment industries, as well as ecommerce. In fact, 11 major banks recently completed a private blockchain test, exchanging multiple tokens among offices in North America, Europe and Asia over five days. (You can read The Wall Street Journal article here.) As more transactions and data are stored in blockchain or altchain, greater possibilities open up. It’s these possibilities that have several tech companies, like IBM, as well as financial institutions creating what has become known as an open ledger initiative to use the blockchain model in the development of new technologies that will enable a wider array of services. There is no doubt that the concept is intriguing — so much so that even the SEC has approved a plan to issue stock via blockchain. (You can read the Wired article here.) The potential is enough to make many folks giddy. The idea that risk could become a thing of the past because of the blockchain’s immutable historical record — wow. It’s good to be aware and keep an eye on the open ledger initiative, but let’s not forget history, which has taught us that (in the wise words of Craig Newmark), “Crooks are early adopters.” Since blockchain’s original and primary usage has been with bitcoin, I don’t think it is unfair to say that there will be some perceptions to overcome — like the association of bitcoin to activities on the Dark Web such as money laundering, drug-related transactions and funding illegal activities. Until we start to see the application across mainstream use cases, we won’t know how secure blockchain is or how open business and consumers will be to embracing it. In the meantime, remind me again, how long has it taken to get to a point of practical application and more widespread use of biometrics? To learn more, click here to read the original article.  

According to a recent Experian Marketing Services study, 36% of companies interact with customers in five or more channels.

With the rapid growth in the number of online marketplace lenders , and projections the field will continue to grow in 2016, winning the race to greater revenue and profitability is key to survival. In 2014, online marketplace lenders issued loans totaling around $12 billion in the United States. In a recent report, Morgan Stanley said it expects the U.S. number to grow to $122 billion by 2020, and the global number will surpass $280 billion in the same time period. Investors fear growth in acquisition costs will erode profitability as more online marketplace lenders enter the market. And as portfolios grow, there will be a need for greater sophistication as it pertains to managing accounts. Online marketplace lenders use a variety of different models to generate revenue including charging interest, loan origination and other service fees. However, regardless of the model, there are typically three key levers all should monitor in order to increase their odds for a profitable and sustainable future. 1. Cost per Account (CPA) CPA is more than a simple calculation spreading marketing cost across new account volume. Rather, it is a methodical evaluation of individual drivers such as channel lead cost, success rates, identity verification and cost of marketing collateral. When measured and evaluated at the granular lever, it is possible to make the most informed strategic decisions possible. Marketplace lenders will have to go much deeper than simply evaluating lead costs, clicks, completed and accepted applications, and funding/activation including whether customers take the loan proceeds or use a revolving product. Don’t forget ID verification and the costs associated with risk mitigation and determining if the low-risk customers are deciding to apply elsewhere. In addition, take into account marketing costs including collateral and channel strategies including any broadcast media, direct mail, web and social media expenses. Evaluate results across various product types – and don’t forget to take into account web content and layout, which can impact all metrics. 2. First Pay Default (FPD) FPD is not a long-term loan performance measure, but it is a strong indicator of lead source and vintage quality. It will most closely correlate to long-term loan performance in short-term loans and non-prime asset classes. It is also a strong indicator of fraud. The high value of online loans, combined with the difficulty of verifying online applicants, is making online lenders a prime target for fraud, so it is essential to closely monitor FPD. Online lenders’ largest single cost category is losses from unpaid loans with fraud serving as a primary driver of that number. It is important to evaluate FPD using many of the same segments as CPA. Online lenders must ask themselves the tough questions. Is a low-cost lead source worthwhile? Did operational enhancements really improve the customer experience and credit quality? 3. Servicing Online account servicing is generally the least costly means of servicing customers, an obvious advantage for online marketplace lenders. However, a variety of factors must be considered when determining the servicing channels to use. These include avoidance of customer backlash and regulatory scrutiny, servicing channel effectiveness in providing feedback regarding product design and administration, servicing policies and marketing collateral. Already, we know the legal and regulatory landscape will evolve as policy makers assess the role of marketplace lending in the financial system, while a recent federal appeals court ruling increases the risk that courts could deem some loans void or unenforceable, or lower the interest rates on them. An effective customer complaint escalation policy and process must also be created and allow for situations when the customer is not “right.” Voice of the customer (VOC) surveys are an effective method of learning from the customer and making all levels of staff know the customer better, leading to more effective marketing and account servicing. Lastly, online lenders can’t ignore social media. They should be prepared for customers, especially millennials, to use it as a means to loudly complain when dissatisfied. But also remember that the same media can be an excellent medium for two-way engagement and result in creating raving fans. A Final Consideration As online marketplace lenders continue to come of age, they are likely to find themselves facing increased competition from incumbent consumer lenders, so optimizing for profitability will be essential. Assessing these three key areas regularly will help in that quest and establish their business for a sustainable future. For more information, visit www.experian.com/marketplacelending.

For marketers, the start of a new year is an opportunity to look ahead.

Attract and retain high-value demand deposit accounts The excitement of the new year has ended, and now the big question remains: What will 2016 hold for our market and the economy? So far, we’ve seen this election year bring a volatile financial market: The Federal Reserve increased short-term interest rates by 25 basis in December, and there is uncertainty if and when future increases will come China’s gross domestic product is forecasted at 6.5 percent, the lowest in a quarter century The Dow Jones industrial average is down 10 percent to start the year, signaling a lot of uncertainty for banks and consumers It’s hard to find answers in a shifting financial landscape with a long list of mixed signals. The average consumer is looking on and wondering if we face another Great Recession or if the current economy is spiking a fever just before it is completely cured. The reality, for those of us in the banking industry, is that the modest economic recovery is likely to continue as part of a new normal pattern. In 2016, banks that remain competitive in a more digital world will be those that have frictionless products and processes to attract and retain high-value, highly sought-after consumer deposits and loans. Banks should expect the competition for deposits to intensify, and they will need to ensure that new deposit customers are on boarded effectively and cross-sold loan products quickly to reduce first-year attrition. Cross-selling at the point of origination for the demand deposit account (DDA) customers is the best way to ensure that new customers keep the institution as their primary bank. Financial institutions can exceed consumer expectations and ensure a competitive business model by leveraging modernized technology capabilities fully in combination with making relevant decisions to deliver consumer-friendly experiences. First-year DDA attrition rates will demonstrate how the consumer’s expectations were met and if the new bank got the account-opening process right or wrong. Experian® suggests three capabilities clients should consider: A deposits technology platform that offers frictionless change to data, origination strategies and instant cross-sell to loan products that yield sticky customers Strategies that comply with current and evolving regulatory demands, such as those being sought by the Consumer Financial Protection Bureau (CFPB) Business planning to identify execution gaps and a road map to ensure that gaps are addressed, confirming continued competitive ability to attract high-value deposit and loan customers DDA-account opening effectiveness can be achieved by using a consumer’s life stage, affordability considerations, unique risk profile and financial needs to on board optimally and grow those high-value consumers effectively and efficiently. Financial institutions that are nimble and fast adopters of these critical capabilities will reduce operating expenses for their organizations, grow sustainable revenue from new prospects and customers, and delight those new customers along the way. This is a win-win for banks and consumers. Join me next week as we discuss best practices across the entire demand deposit account life cycle.

As millennials continue to experience challenges in obtaining credit, Experian’s latest research finds that this population is very receptive to nonbank lenders for the ease, speed and accessibility they provide.

It may seem like April is far away, but tax season in fact launches next Tuesday, January 19. And whether you’re a business or an individual, you’ll want to know if you’re eligible for any tax benefits. Thanks to a recent announcement from the Internal Revenue Service (IRS), identity theft protection will now be considered a non-taxable benefit – a nod to the rising importance of the service for all consumers in today’s security landscape. The IRS will treat identity theft protection as a non-taxable, non-reportable benefit—for any employee or company, regardless of whether they’ve experienced a data breach, or whether the identity theft protection is provided by an employer to employees or by a business to its customers. Previously, only employees or customers who were in the aftermath of a data breach could treat identity theft monitoring as a non-taxable event. But after that announcement just four months ago, several businesses suggested a data breach was not a remote risk, but rather, “inevitable.” What does this mean for companies? They can now deduct any cost of offering identity theft protection to their employees or customers. The IRS defines identity theft protection services as: Credit report and monitoring services Identity theft insurance policies Identity restoration services Other similar services It’s important to note that these don’t need to be reported on either W-2 or 1099-MISC forms. However, this new policy won’t apply to cash given to employees or customers in place of identity protection services. Perhaps the change in defining what qualifies was spurred by the IRS’s need to provide identity theft protection last summer, as its online database of past-filed returns and other documents was hacked. That breach affected over 300,000 individuals. Whatever the reason, the announcement means this is a perfect time to sign up for identity theft monitoring services. You can do so through an employer or directly with a retailer. Particularly for individuals, the ability to receive tax benefits while knowing your personally identifiable information is safe and secure is a great feeling. For existing subscribers, upgrading to premium services may now be a more viable option. Does your company offer identity theft protection and monitoring as an employee benefit? If not, would this announcement change their minds? Visit our website for more information on identity protection products you can offer your customers. Learn more

The new year has started, the champagne bottles recycled. Bye-bye holidays, hello tax season. In fact, many individuals who are expecting tax refunds are filing early to capture those refunds as soon as possible. After all, a refund equates to so many possibilities – paying down debt, starting a much-needed home improvement project or perhaps trading up for a new vehicle. So what does that mean for lenders?  As consumers pocket tax refunds, the likelihood of their ability to make payments increases. By the end of February 2014, more than 48 million tax refunds had been issued according to the IRS – an increase of 5.6 percent compared to the same time the previous year. As of Feb. 28, the average refund in 2014 was $3,034, up 3 percent compared to the average refund amount for the same time in 2013. To capitalize on this time period, introducing collection triggers can assist lenders with how to manage and collect within their portfolios. Aggressively paying down a bankcard, doubling down on a mortgage payment or wiping out a HELOC signal to the lender a change in positive behavior, but without a trigger attached, it can be hard to pinpoint which customers are shifting from their status quo payments. Experian actually offers around 100 collection triggers, but lenders do not need all to seek out the predictive insights they require. A “top 20” list has been created, featuring the highest percentages in lift rates, and population hit rates. Experian has done extensive analysis to determine the top-performing collection triggers. Among the top 15 to 20 triggers, the trigger hit rate ranged from 2 to 8 percent on an average client’s total portfolio, taking into consideration liquidation rates, average percent of payment lifts, lift in liquidation rates over the baseline liquidation, percent of overall portfolio that triggered, percent of overall portfolio that triggered only on the top-selected triggers, and percent of volume by trigger on the total customers that had a trigger hit. With that said, it is essential to implement the right strategy that includes a good mixture of the top-performing triggers. The key is diversifying and balancing trigger selection and setting triggers up during opportune times. Tax season is one of those times. Some of the top-ranked triggers include: Closed-Zero Balance Triggers: This is when a consumer’s account is reported as closed after being delinquent for a certain number of days. Specifically, the closed-zero balance trigger after being delinquent for 120 days has the highest percent of payment lift over an average payment that you would receive from a customer (at a 710 percent lift rate). These triggers are good indicators the consumer is showing positive improvement, thus having a higher likelihood for collections. Paid Triggers: This is when a consumer’s account is reported as paid after being delinquent, in collections, etc. Five of the top 20 triggers are paid triggers. These triggers have good coverage and a good balance between high lift rates (100 percent to 500 percent) and percent of the triggered population. These triggers are also good indicators the consumer is showing positive improvement, thus having a higher likelihood for collections. Inquiry Triggers: This is when a consumer is applying for an auto loan, mortgage loan, etc. The lift rates for these triggers are lowest within the Top 20, but on the other hand, these triggers have the highest hit rates (up to a 33 percent hit rate). These triggers are good indicators consumers are seeking to open additional lines of credit. Home Equity Loan Triggers: These triggers indicate the credit available on a consumer’s home equity loan. They are specifically enticing to collectors due to the fact that home equity lines of credit are usually larger than your average credit on your bank card. The larger the line of credit, the more you are able to potentially collect. To learn more about collection triggers, visit https://www.experian.com/consumer-information/debt-collection.html