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By: Kari Michel The Federal Reserve’s decision to permit card issuers to use income estimation models to meet the Accountability, Responsibility, and Disclosure (CARD) Act requirements to assess a borrower’s ability to repay a loan makes good sense. But are income estimation models useful for anything other than supporting compliance with this new regulation? Yes; in fact these types of models offer many advantages and uses for the financial industry. They provide a range of benefits including better fraud mitigation, stronger risk management, and responsible provision of credit. Using income estimation models to understand your customers’ complete financial picture is valuable in all phases of the customer lifecycle, including: • Loan Origination – use as a best practice for determining income capacity • Prospecting – target customers within a specific income range • Acquisitions – set line assignments for approved customers • Account Management – assess repayment ability before approving line increases • Collections – optimize valuation and recovery efforts One of the key benefits of income estimation models is they validate consumer income in real time and can be easily integrated into current processes to reduce expensive manual verification procedures and increase your ROI. But not all scoring models are created equal. When considering an income estimation model, it’s important to consider the source of the income data upon which the model was developed. The best models rely on verified income data and cover all income sources, including wages, rent, alimony, and Social Security. To lean more about how income estimation models can help with risk management strategies, please join the following webinar: Ability to pay:  Going beyond the Credit CARD on June 8, 2010. http://www.bulldogsolutions.net/ExperianConsumerInfo/EXC1001/frmRegistration.aspx?bdls=24143    

Well, here we are about two weeks from the Federal Trade Commission’s June 1, 2010 Red Flags Rule enforcement date.  While this date has been a bit of a moving target for the past year or so, I believe this one will stick.  It appears that the new reality is one in which individual trade associations and advocacy groups will, one by one, seek relief from enforcement and related penalties post-June 1.  Here’s why I say that: The American Bar Association has already file suit against the FTC, and in October, 2009, The U.S. District Court for the District of Columbia ruled that the Red Flags Rule is not applicable to attorneys engaged in the practice of law.  While an appeal of this case is still pending, in mid-March, the U.S. District Court for the District of Columbia issued another order declaring that the FTC should postpone enforcement of the Red Flags Rule “with respect to members of the American Institute of Certified Public Accountants” engaged in practice for 90 days after the U.S. Court of Appeals for the District of Columbia renders an opinion in the American Bar Association’s case against the FTC.” Slippery slope here.  Is this what we can expect for the foreseeable future? A rather ambiguous guideline that leaves openings for specific categories of “covered entities” to seek exemption?  The seemingly innocuous element to the definition of “creditor” that includes “businesses or organizations that regularly defer payment for goods or services or provide goods or services and bill customers later” is causing havoc among peripheral industries like healthcare and other professional services. Those of you in banking are locked in for sure, but it ought to be an interesting year as the outliers fight to make sense of it all while they figure out what their identity theft prevention programs should or shouldn’t be.  

By: Kari Michel Credit quality deteriorated across the credit spectrum during the recession that began in December, 2007. As the recession winds down, lenders must start strategically assessing credit risk and target creditworthy consumer segments for lending opportunities, while avoiding those segments where consumer credit quality could continue to slip. Studies and analyses by VantageScore® Solutions, LLC demonstrate that there are more than 60 million creditworthy borrowers in the United States – 7 million of whom cannot be identified using standard scoring models. Leveraging methods using the VantageScore® credit score in conjunction with consumer credit behaviors can effectively identify profitable opportunities and segments that require increased risk mitigation thus optimizing decisions. VantageScore Solutions examined how consumers credit scores changed over a 12 month period.  The study focused on three areas of consumer behavior: Stable:  consumers that stay within the same credit tier for one year Improving:  consumers that move to a higher credit tier in any quarter and remain at a high credit tier for the remainder of the timeframe Deteriorating: consumers that move to a lower credit tier in any quarter and remain at a lower credit tier for the remainder of the timeframe Through a segmentation approach, using the three credit behaviors above and credit quality tiers, emerges a clearer picture into profitable segments for acquisitions and existing account management strategies. Download the white paper, “Finding creditworthy consumers in a changing economic climate”, for more information on finding creditworthy consumers from VantageScore Solutions. Lenders can use a similar segmentation analysis on their own population to identify pockets of opportunity to move beyond recession-based management strategies and intelligently re-enter into the world of originations and maximize portfolio profitability.