week 4-2008-revised

8/7/2019 Week 4-2008-revised

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Consumer LendingConsumer Lending--Week 4Week 4

Legislation & ComplianceLegislation & Compliance

±± Bank ActBank Act

±± Trust and Loan Companies ActTrust and Loan Companies Act±± Canadian Human Rights ActCanadian Human Rights Act

±± Consumer Protection Act (Provincial)Consumer Protection Act (Provincial)

±± Bankruptcy and Insolvency ActBankruptcy and Insolvency Act

±± FCACFCAC-- Financial and Consumer Agency of Financial and Consumer Agency of CanadaCanadaFCACFCAC

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Consumer LendingConsumer Lending

Know your rightsKnow your rights

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Consumer LendingConsumer LendingPrivacyPrivacy-- PIPEAPIPEA±± Your Privacy RightsYour Privacy Rights

±± The disclosure of personal information is limited to:The disclosure of personal information is limited to:

Customer has consentedCustomer has consented

Lender required to do so by subpoena or searchLender required to do so by subpoena or searchwarrantwarrant

The lender has a public duty to do soThe lender has a public duty to do so ±± preventpreventfraud or crime (money laundering, terrorismfraud or crime (money laundering, terrorism

financing)financing)The lender is responding to litigationThe lender is responding to litigation

±± The customer has the right to access information thatThe customer has the right to access information thata bank may have on thema bank may have on them

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Lending in Changing Economic ClimatesLending in Changing Economic Climates

How banks reduce their risk in economicHow banks reduce their risk in economicdownturns or high interest rate periodsdownturns or high interest rate periods

±± Recommend longer terms for loansRecommend longer terms for loans

±± TDSRTDSR ±± assume a higher interest rateassume a higher interest rate

±± Higher Higher--risk lending such as bridge financing will berisk lending such as bridge financing will bediscourageddiscouraged

±± Loan to value ratios will be loweredLoan to value ratios will be lowered

±± Become more cautious with refinancingBecome more cautious with refinancing

±± Act more quickly on arrearsAct more quickly on arrears

±± Increase the credit risk portion of the interest rateIncrease the credit risk portion of the interest rate

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Delinquency/Debt CollectionDelinquency/Debt Collection

±± Delinquency may result from an accident or Delinquency may result from an accident or illness; loss of job or temporary layillness; loss of job or temporary lay--off; poor off; poor management of personal finances; or amanagement of personal finances; or anegative attitude towards the companynegative attitude towards the company

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±± Early Warning Signs:Early Warning Signs:

Borrower requires constant reminders of their Borrower requires constant reminders of their paymentpayment

Payments are always later than on due datePayments are always later than on due date

Borrower does not make payments as promisedBorrower does not make payments as promised

Borrower requests extensions or asks to makeBorrower requests extensions or asks to makepartial paymentspartial payments

Lender receives numerous credit inquiries onLender receives numerous credit inquiries onborrower borrower

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±± CollectionCollection

A collection situation may be considered to be anyA collection situation may be considered to be anyloan arrangement where the risk to financialloan arrangement where the risk to financialinstitutions, or the term of the loan, has reached aninstitutions, or the term of the loan, has reached anunacceptable level and a planned approach tounacceptable level and a planned approach tocorrection is required to reduce the exposurecorrection is required to reduce the exposure

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±± CollectionCollectionObjectives:Objectives:

Avoidance of lossAvoidance of loss

Control expenses e.g. personal time devoted toControl expenses e.g. personal time devoted tocollection; lost opportunities to develop newcollection; lost opportunities to develop newbusiness because time and effort have beenbusiness because time and effort have been

diverted to the collection process and the writediverted to the collection process and the write--off off of principalof principal

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±± CollectionCollection

Four Steps to Effective CollectionFour Steps to Effective Collection±± Recognition of the problemRecognition of the problem

±± InvestigationInvestigation

±± Reaching a satisfactory arrangementReaching a satisfactory arrangement

±± FollowFollow--upup

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CollectionCollection

Method of CollectionMethod of CollectionCorrespondenceCorrespondence

Telephone callTelephone call

Field callField call

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±± DelinquencyDelinquency

Reasons for delinquencyReasons for delinquency±± Inability to repayInability to repay

±± Unwilling to repayUnwilling to repay

Excessive DebtExcessive Debt

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±± Insolvency and BankruptcyInsolvency and Bankruptcy

InsolventInsolvent ±± individuals are considered insolvent if individuals are considered insolvent if they are not yet declared bankrupt, but are unablethey are not yet declared bankrupt, but are unableto meet obligations to creditors and have debtsto meet obligations to creditors and have debtsdue and accruing that exceed the value of their due and accruing that exceed the value of their assets.assets.

BankruptBankrupt ±± individuals are declared bankrupt (legalindividuals are declared bankrupt (legalterm) if they are insolvent and voluntarily declareterm) if they are insolvent and voluntarily declarethemselves bankrupt, or if creditors are successfulthemselves bankrupt, or if creditors are successfulin forcing them into bankruptcyin forcing them into bankruptcy

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InsolvencyInsolvency

Contact your creditorsContact your creditors

Credit counsellingCredit counselling

Debt consolidation loanDebt consolidation loanConsumer proposalConsumer proposal

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Credit CounsellingCredit Counselling

Services provided by non profitServices provided by non profitassociationsassociations

Can establish a debtCan establish a debt--prorating programprorating programCredit counsellingCredit counselling

Shopping patterns indicative of potentialShopping patterns indicative of potential

problemsproblemsShopping quizShopping quiz

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Credit CounsellingCredit Counselling

Before making consumer proposal or Before making consumer proposal or declaring bankruptcy, Bankruptcy anddeclaring bankruptcy, Bankruptcy andInsolvency Act requires that counselling byInsolvency Act requires that counselling byprovided to consumer provided to consumer

Assessment and CounsellingAssessment and Counselling

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Consumer ProposalConsumer Proposal

Debts ( excluding home mortgage) lessDebts ( excluding home mortgage) lessthan $75,000than $75,000

Personal Proposal VideoPersonal Proposal VideoConsumer ProposalConsumer Proposal

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BankruptcyBankruptcy

Legal process where consumer isLegal process where consumer isdischarged of most of his debtsdischarged of most of his debts

Types of dischargeTypes of dischargeBankruptcyBankruptcy

Bankruptcy videoBankruptcy video

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ReRe--establishing Creditestablishing Credit

ReRe--building credit videobuilding credit video

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±± Insolvency and BankruptcyInsolvency and Bankruptcy

Disadvantages for borrowersDisadvantages for borrowers±± Future earnings or assets must be turned over to theFuture earnings or assets must be turned over to the

supervision of a bankruptcy trusteesupervision of a bankruptcy trustee

±± Certain employers may restrict entry into a positionCertain employers may restrict entry into a position

±± No credit can be obtained by a bankrupt individual untilNo credit can be obtained by a bankrupt individual untilthey are discharged from bankruptcythey are discharged from bankruptcy

±± Bankruptcy remains on an individual¶s credit record for aBankruptcy remains on an individual¶s credit record for aperiod of six to seven years after a discharge fromperiod of six to seven years after a discharge frombankruptcybankruptcy

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Portfolio ManagementPortfolio Management


±± Maintaining the credit portfolioMaintaining the credit portfolio

±± Building the credit portfolioBuilding the credit portfolio±± UpUp--sellingselling

±± CrossCross--sellingselling

±± Tied sellingTied selling

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±± Maintaining the credit portfolio (4 steps)Maintaining the credit portfolio (4 steps)

All loan documentation is complete and orderlyAll loan documentation is complete and orderly

Credit delinquency is maintained as low asCredit delinquency is maintained as low aspossiblepossible

New customers are welcomed with a letter andNew customers are welcomed with a letter andmaintained on a regular mail or telephonemaintained on a regular mail or telephone

solicitation programsolicitation programCredit is periodically reviewed for upCredit is periodically reviewed for up--selling or selling or crosscross--selling opportunitiesselling opportunities

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±± Building the credit portfolioBuilding the credit portfolio

Review all current credit for possible upReview all current credit for possible up--sellingsellingopportunitiesopportunities

Call existing customers, thank them for their Call existing customers, thank them for their business and reassure them of continuing supportbusiness and reassure them of continuing support

Review other customers, i.e. savings or mortgageReview other customers, i.e. savings or mortgage

customers for crosscustomers for cross--selling opportunitiesselling opportunitiesEnsure quick turnaround for all applicationsEnsure quick turnaround for all applications

Review paid out customers for solicitationReview paid out customers for solicitation

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±± UpUp--sellingselling ±± is the ability to increase theis the ability to increase theamount of the original loan request by sellingamount of the original loan request by sellinga sound proposal to the applicant thata sound proposal to the applicant thatincludes additional funds. Some areas for upincludes additional funds. Some areas for up--selling consideration would be a maturingselling consideration would be a maturingmortgage, no evidence of RRSP¶s, competitor mortgage, no evidence of RRSP¶s, competitor loans, credit card debt or an old vehicleloans, credit card debt or an old vehicle

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±± CrossCross--sellingselling ±± is the ability to sell ais the ability to sell acompany¶s financial services along with thecompany¶s financial services along with theloan. With crossloan. With cross--selling, the lender is alsoselling, the lender is alsomeeting more needs of the customer meeting more needs of the customer

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±± Tied sellingTied selling ±± occurs when a customer mustoccurs when a customer mustpurchase another product or service in order purchase another product or service in order to get a specific desired product or serviceto get a specific desired product or service

Competition ActCompetition Act

Bank ActBank Act

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ExerciseExercise

HomeworkHomework ±± prepare for Test 1prepare for Test 1

Multiple choiceMultiple choice--approximately 60approximately 60

questionsquestionsTo prepare for Test review all content andTo prepare for Test review all content andlinks on Blackboard for weekslinks on Blackboard for weeks 1 through to1 through to44

week 4-2008-revised

Documents