Ebook Managing Risks in Consumer Credit Industry
Consumer credit is one of the major markets in the US economy. Consumer credit is broadly understood to mean any of the many forms of commerce under which an individual obtains money or goods or services to repay the money or to pay for the goods or services, along with a fee or interest at some specific future date or dates. The US consumer credit market has shown that economic stability based on sound fundamentals will bring economic prosperity, high employment rate, low interest rates, and increased demand for credit by consumers. Over the past decade, the US consumer credit market has grown significantly. By the end of 2003, the US consumer credit market has reached US$2,000 trillion doubling that of 1993. For most, credit cards and other secured and unsecured lending have provided people with greater control and flexibility when managing their finances while collectively benefiting the economy.
The sound fundamentals of the US consumer credit market associate with a fair, safe, and competitive market environment that supports the consumers, communities, lenders, and economy of the United States. Such environment is possible should the regulations and laws protect the rights of consumers and lenders, the market invest on state-of-the-art science and technology, the governing agent stand up for fair and open market practice, and consumers and lenders have the mutual trust. The evolution of the US consumer credit market reflects the development of such sound fundamentals. From 1971’s first consumer credit protection law – Equal Credit Reporting Act, to the current personal bankruptcy law revision, a series of regulations and laws have been implemented just to ensure a fair and safe market environment for the consumer credit market. On the other hand, lenders have dramatically improved their ability to compete in a fair lending environment. Among all the improvements, managing risks with sophisticated tools is one of the most important improvements that enable the lenders to open the market to all the consumers at a controllable risk level.
Managing risks in the consumer credit market is one of the critical dimensions to ensure the industry grows within a healthy environment. Effective regulations and laws will provide a safeguard for the industry from systemic risk, whereas sophisticated credit risk policy, strategies, and tools will provide institutions and consumers with risk protections. In this paper, managing risks in consumer credit industry is the primary focus.
In Part 2, there will be discussions on two major forms of credit risk: underwriting risk and portfolio risk. Both theoretical descriptions and the most commonly used practice in managing credit risk in the US will be revealed. In addition, systemic risk and the regulatory environment in the US consumer credit market are also going to be discussed.
To illustrate different scenarios discussed in Part 2, three case studies in credit card industry will be demonstrated in Part 3 so that the reasons behind both successful and failed stories in managing different types of risks around the world can be understood.In Part 4, brief review on current situation in Chinese consumer credit market and comparisons between the US and China will finally lead to several recommendations to the policy makers in the Chinese consumer credit industry.
Contents
List of Tables
List of Figures
Part 1. Introduction
Part 2. Managing Underwriting Risk, Portfolio Risk and Systemic Risk
2.1 A Brief Review of the US Consumer Credit Market
2.2 Risk Assessment and Credit Scores
2.3 Managing Underwriting Risk
2.4 Managing Portfolio Risk and Using Automation System
2.5 Decomposing the Dollar Loss Rate within an Organization
2.6 Managing Systemic Risk and the Role of Consumer Credit Regulations & Laws
2.7 Summary
Part 3. Case Studies on Credit Card
3.1 Citibank in India: Launching Credit Card in an Emerging Market
3.2 LG Card of Korea: a Lesson for China’s Consumer Credit Market
3.3 NextCard of USA: An Innovator’s Cost
3.4 Summary
Part 4. Chinese Consumer Credit Industry
4.1 A Brief Review of the Chinese Consumer Credit Market
4.2 Credit Risk Management
4.3 Cross-examination on Regulations and Laws
4.4 Recommendations
4.5 Summary
Part 5. Conclusions
Appendices
Appendix A. Tables
Appendix B. Figures
Appendix C. Best Practice of Risk Management in a Credit Card Operation
Appendix D. References and List of Internet Links
Acknowledgement
Biography of the Author
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