Management of Consumer Credit Book

List of Figures     xii
List of Tables     xiii
Preface     xiv
Acknowledgements     xvi
Consumer Credit Management: An Introduction     1
Who should read this book?     1
Structure and content     1
The nature of consumer credit agreements     2
Credit granting institutions     8
The five phase credit model     10
The role of credit management     12
Chapter summary     13
Organizational Matters     15
The business functions required for credit management     15
Strategy functions     16
Operational functions     18
Corporate functions     20
Structural orientation     21
Legislative principles     24
Transparency and disclosure     24
Use of personal data     25
Discrimination     25
Collections and debt recovery action     25
Asset seizure and bankruptcy (personal insolvency)     25
Cancellation rights (right of rescission)     26
Linked transactions     26
Maximum interest rate     26
Ethical aspects of credit management     27
Lessons from history     28
Credit - not just another consumer product     28
Whose responsibility is debt?     29
Chapter summary     31
Marketing     32
Product design     32
Primary features     33
Secondary features     37
Brand features     38
Product strategy     38
Market intelligence     41
Competitor intelligence     44
Data analysis     44
Decision analysis     45
The cost of providing credit     47
Determining the offer     48
Promotional strategy     49
Communication channels     49
Direct marketing     50
Campaign costs, response cost and cost per conversion     51
Campaign management and the prospects database     52
Inbound communications     54
Resource issues     55
Chapter summary     55
Predicting Consumer Behaviour     57
Scoring     58
Segmentation     63
Which is best: scoring or segmentation?     66
Other dimensions of customer behaviour     66
Risk pre-screening (credit scoring) models of repayment default     67
Using response and risk pre-screening models in combination     69
Multi-dimensional models of behaviour     71
Customer lifetime value     72
Chapter summary     72
Customer Acquisition     74
Application processing systems     75
The data management unit     77
The decision engine     78
The evolution of decision engines     80
The customer acquisition process     81
Obtaining application details     81
Preliminary assessment of creditworthiness     85
Obtaining a credit report     86
Final assessment of creditworthiness     88
Setting the terms of business (product features)     91
Account opening and access to funds     92
Variations on the standard process     92
Pre-approval     93
Multi-product processing     94
Multi-applicant processing     94
Strategies for setting terms of business     95
Shadow limits     97
Affordability     98
Optimizing the terms of business - champion/challenger     99
Beyond champion/challenger      101
Chapter summary     101
Customer Management     103
Operational management     104
The account management system     104
Account cycling and statement production     105
Card networks     107
The customer interface     109
Relationship management     110
Account level management     111
Product level management     112
Customer level management     113
Retention and attrition     114
Chapter summary     117
Collections (Early Stage Delinquency)     118
Preliminary assessment of delinquency     119
Mainstream collections processing     121
Over-limit accounts     125
The use of credit reports in collections     125
Managing customer contact and payment negotiation     126
Designing, assessing and optimizing collections strategies     127
Event driven collections strategies     129
Chapter summary     130
Debt Recovery (Late Stage Delinquency)     131
The debt recovery department     131
Power dialer based debt recovery systems     133
Goneaways and address tracing      134
Legal action     134
Debt collection agencies and debt sale     135
Write-off     136
Chapter summary     136
Fraud     138
Acquisition fraud     139
First party fraud     139
Identity theft     140
Falsified identity     141
Card interception     141
Conversion fraud     141
Dealing with suspect fraud     141
Customer management fraud     142
Compromised security     142
Account takeover     143
Detecting and dealing with suspected fraud     143
Chapter summary     144
Provision, Capital Requirements and Basel II     146
Provision     146
Roll rate models of provision     148
Advanced models of provision     150
International accounting standard (IAS39)     151
Capital requirements and Basel II     152
What is capital?     154
Assets, risk and risk weighted assets     154
The capital ratio     155
Credit risk     155
The standardized approach     155
The foundation IRB approach     156
The advanced IRB approach     158
Chapter summary     158
Predictive Models of Consumer Behaviour     160
Problem formulation     160
Data sets and sampling     160
Data pre-processing     161
Exclusions, data cleaning and new variable creation     161
Formatting of the independent variables     162
Variable selection     164
Methods of model construction     165
Discriminant analysis     165
Linear regression     166
Logistic regression     166
Survival analysis     167
Neural networks     168
Classification and Regression Trees (CART)     169
Alternative methods     171
Assessing model performance     171
K-S statistic and GINI statistic     172
Comparison of alternative modelling techniques     174
Reject inference     175
Reject acceptance     175
Augmentation     175
Iterative reclassification     176
Data substitution     176
Assessment of reject inference     177
Continuous models of customer behaviour     177
Implementation and monitoring      179
US and UK Legislation     181
Recommended Reading     186
Notes     188
Bibliography     196
Index     202