Steve Johnson - Financial Institutions and Management Advisory - Lessons that can be learnt from...
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F.I.M.A. “Benefit from Our Experience” Financial Institutions & Management Advisory Pty Ltd Normanby House, Suite 108, 430 Little Collins Street, Melbourne, VIC, 3000 Telephone: +61 3 9614 5000, Facsimile: +61 3 9614 0734, Email: [email protected] Credit Reporting - Lessons from UK and US markets May 2014
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Steve Johnson delivered the presentation at 2014 Privacy Reform in Credit Reporting Forum. From reviewing the journey toward day one compliance readiness to longer term transitional issues, the inaugural Privacy Reform in Credit Reporting Forum assessed all the critical factors industry professionals will want to know regarding the impact of privacy reform on credit reporting. For more information about the event, please visit: http://www.informa.com.au/privacycredit14
Transcript of Steve Johnson - Financial Institutions and Management Advisory - Lessons that can be learnt from...
F.I.M.A. “Benefit from Our Experience”
Financial Institutions & Management Advisory Pty Ltd
Normanby House, Suite 108, 430 Little Collins Street, Melbourne, VIC, 3000
Telephone: +61 3 9614 5000, Facsimile: +61 3 9614 0734, Email: [email protected]
Credit Reporting
- Lessons from UK and US markets
May 2014
F.I.M.A.
Comprehensive Credit Reporting
Credit Assessment and Decision
2
Credit Enquiries
Court
Judgements
Credit Defaults
Lender internal
information
Application Form
Pre CCR
F.I.M.A.
Comprehensive Credit Reporting
Credit Assessment and Decision
3
Post CCR
Credit Enquiries
Court
Judgements
Credit Defaults
Lender internal
information
Application Form Credit Limit of
Account
Type of Credit
Date Account
Closed
Repayment
History
Date Account
Opened
F.I.M.A.
Comprehensive Credit Reporting
Credit Assessment and Decision
4
M24
M23
M22
M21
M20
M19
M18
M17
M16
M15
M14
M13
M12
M11
M10
M9
M8
M7
M6
M5
M4
M3
M2
M1
Limit
Bank A Mortgage llllllllllllllllllllllll 400,000$
Bank B Credit Card llllllllllllllllllllllll 25,000$
Lender C Loan llllllllllllllll 40,000$
Lender D Credit Card llllllllllll 25,000$
465,000$
Credit Enquiries
Court
Judgements
Credit Defaults
Lender internal
information
Application FormCredit Limit of
Account
Type of Credit
Date Account
Closed
Repayment
History
Date Account
Opened
F.I.M.A.
Impact on types of consumers
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Lazy Payers
Late payments will adversely impact their
credit score, may impact their ability to get
credit and their price.
F.I.M.A.
Impact on types of consumers
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Lazy Payers Over-indebted
Multiple debts will now be known to all
lenders – access to credit will dry up
leading them to bankruptcy or loan sharks.
Late payments will adversely impact their
credit score, may impact their ability to get
credit and their price.
F.I.M.A.
Impact on types of consumers
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Lazy Payers Over-indebted
Borderline
Multiple debts will now be known to all
lenders – access to credit will dry up
leading them to bankruptcy or loan sharks.
Will now be shown as a good risk – may
show only a small surplus but proven to
always pay on time.
Late payments will adversely impact their
credit score, may impact their ability to get
credit and their price.
F.I.M.A.
Impact on types of consumers
8
Lazy Payers Over-indebted
Borderline Unexpected Event
Multiple debts will now be known to all
lenders – access to credit will dry up
leading them to bankruptcy or loan sharks.
Now has the opportunity to redeem their
credit record if an unexpected event has
adversely impacted their credit report.
Will now be shown as a good risk – may
show only a small surplus but proven to
always pay on time.
Late payments will adversely impact their
credit score, may impact their ability to get
credit and their price.
F.I.M.A.
FICO Score
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Characteristic Rationale Weighting
Payment history late payments hurt, on time is good 35%
Credit utilisation ratio of balances to total credit, low utilisation
generally low risk
30%
Length of history older accounts show experience – lower risk 15%
Types of credit Mortgage, Credit Card, Car Finance 10%
Credit Enquiries Enquiries stay on report for 2 years. More
inquiries can hurt score, less can improve.
10%
F.I.M.A.
S&P/Case-Shiller Home Price Index
Phoenix - AZ Los Angeles
San Diego San Francisco
Denver Washington
Miami Tampa - FL
Atlanta - GA Chicago
Boston Detroit - MI
Minneapolis - MN Charlotte - NC
Las Vegas New York
Cleveland - OH Portland - OR
Dallas - TX Seattle - WA
Composite
USA pre GFC
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Good FICO + House =
No Income, No Job, No Assets ≠
F.I.M.A.
IndyMac Bank
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“no sub-prime”
Sen. Charles Schumer
F.I.M.A.
UK experience
Unsecured Loan Portfolio in early 2000’s
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Loss Volume
New acquisition strategy implemented based on negative reporting
Large number of other lenders had migrated to positive reporting
F.I.M.A.
Reliance on credit scores
Australia is different - timing
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Reliance on credit scores
Crisis
Crisis
Reliance on credit scores
US
UK
AUS
1990 1995 2000 2005 2010 2015
Enhanced Consumer Protection Regulations
Positive
Reporting
CFPB
Established
FCA
Established
ASIC
existing
F.I.M.A.
Australia is different - scope
Australia US UK
Payment History ACL only
Credit Limit
(maximum exposure)
Credit Balance
(utilisation)
Type of Credit
Date Open/Close
(Age of loan)
Direct marketing
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F.I.M.A.
Potential consequences in Australia
Lenders access to previously undisclosed credit history of borrowers…
How many over-indebted borrowers are vulnerable to changes likely to be imposed by positive reporting?
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Source: Veda Pilot Study
