Experian-Scorex, the decision analytics business of Experian, will be presenting at the Credit Management Compliance Conference on the 19 & 20 April 2007, at the Indaba Hotel, Fourways, Johannesburg.

The conference, hosted by Trade Conferences International (TCI), is a follow-up of its successful Credit Law conference of 2005 which attracted close on 200 delegates. The conference aims to give representatives an understanding of the main role players and to equip them with the knowledge of how to successfully implement compliance measures relating to the act.

Included in its panel of speakers is Experian-Scorex's Head of Scoring, Dr Patricia Hattingh. She will discuss the the impact of the act on credit risk modelling. The presentation will address:

•  the implications of the NCA data changes on generic and customised scorecards

•  Section 73 Amnesty - estimated losses

•  modeling post Section 73 Amnesty

•  application variables in scorecards post NCA

Other speakers include:

Reana Steyn (Legal Advisor, National Credit Regulator)

Shimone Fontes (Manager: Compliance - Consumer Protection, Standard Bank)

Nicky Lala-Mohan (General Manager, Banking Association of South Africa).

	Experian's workshops have received a tremendous response from the industry since their launch in 2004. These workshops focus on latest trends, issues and techniques and provide strategic guidance to improve decisioning in your organisation.

The workshops aim to keep Credit Risk professionals in the banking, finance, and telecommunications industries up to date with the latest topics, trends and techniques in the credit industry.

Experian's workshops:

• Focus on the latest trends, issues and techniques

• Provide strategic guidance to improve decisioning within your organisation

• Small class size and expert instruction ensure that you receive maximum value

• Attendee evaluations, allow us to incorporate your feedback into our evolving format

This year's workshops include a series of scoring workshops including: "Introduction to Scoring", "Advanced Scoring: Scorecard monitoring for Business Managers" and "Advanced Scoring: Scorecard monitoring for Analysts".

To view the 2007 workshop calendar, click here

	‘The future is like the past' is a fundamental concept on which scoring models are based. An integral part of attempting to predict the future is to have a thorough understanding of what the past looks like.

A typical scorecard development process would include the extraction of bureau data as close as possible to the date of original application for each applicant within the development sample. The reason for this being that when developing a scorecard model one should strive to recreate the bureau profile of all applicants within the development sample to ensure the best understanding of the applicants' risk profiles at that point in time.

There are 2 ways to go about obtaining retrospective bureau information:

Which source is best?

In-house application data may appear more cost and time effective; however one has to keep in mind that:

By choosing to obtain retrospective information from the credit bureau(s), all of the above concerns would be addressed and one would be assured that the most accurate understanding of the application base would have been obtained at time of application. The example below illustrates the importance of ensuring accurate retrospective bureau data extraction.

Example

Suppose the table below indicates the points allocation for a scorecard variable used by Company ABC:

Based on this, an applicant that has never had an adverse (represented by the ‘Never' group) represents a lower risk to Company ABC than an applicant who has had an adverse previously (represented by the ‘0' group), but not in the last 1 year.

Company ABC now wants to redevelop its scorecard in 2007. Applicant X has been selected as part of the development sample. By looking at applicant X's bureau data stored on the in-house application database as at the application date, 1 March 2003, the following becomes apparent:

Scenario 1

As of 1 September 2006, the enforcement of the National Credit Act has required that the credit bureaus could not keep Adverse information on consumers for more than 24 months. This means that if Company ABC was to obtain retrospective bureau information on Applicant X via the offline batch retrospective process the bureau information would look as follows:

Scenario 2

If Company ABC was to build a scorecard based on the first scenario, the scorecard would have taken into account the Adverse more than 2 years ago. If Company ABC however chose to base their scorecard development on retrospective data returned from the bureau (scenario 2) the Adverse would not have been taken into account.

The impact of Scenario 1 is substantial as the previous scorecard allocated 14 points more to an applicant who never had an Adverse record compared to an applicant that had an Adverse record some time ago. If Company ABC therefore was to develop a scorecard based on Scenario 1, all future applicants with an adverse more than 24 months ago would be scored higher than predicted during the scorecard development phase. It is important to realise that the risk profile of these applicants would not have changed and therefore Company ABC could run the risk of increasing their bad debt percentage substantially.

By basing the scorecard development process on scenario 2, Company ABC would have been able to assess the behaviour of Applicant X in relation to the bureau data supplied much more accurately. This in turn would have lead to more accurate predictions at development stage in terms of bad debt percentages and a much more stable scorecard.

Scorecards are developed based on past information with the aim to predict future behaviour. It is of utmost importance to ensure that the retrospective bureau data obtained:

These factors need to be kept in mind as a scorecard will only ever be as strong as the data used to develop it.

Nearly one in ten adults (eight per cent), admit to making fraudulent insurance claims, according to a recent consumer survey by Experian, the global information solutions company. The UK insurance industry pays out around £54 million a day in general insurance claims. However, more than one fifth of the population (21 per cent) believes that everyone exaggerates when making an insurance claim.

The survey aimed to uncover consumer attitudes towards insurance fraud and has found that the majority of the population (91 per cent) firmly believes that insurance fraud is a serious offence, but only a relatively small proportion (14 per cent) would definitely report someone who had actually committed insurance fraud.

David Murby, Managing Director of Experian's Insurance Services division, said: “The survey revealed that people are well aware of what constitutes insurance fraud and consider it a fairly serious crime, which is not victimless, but they see it as a crime against an organisation rather than an individual and, as a result, appear less likely to report it.

“In fact, there appears to be a deeply entrenched impression that insurance fraud is commonplace in the UK, but the desire to do anything about it is not strong. Despite two fifths of the population claiming to know someone who has committed insurance fraud, the public is not inclined to report fraudulent activities.

“Therefore, it becomes even more important for insurers to be the ones taking steps to protect themselves and their customers from fraudulent activities.

“In addition, it would appear that the insurance industry collectively needs to raise the awareness amongst consumers of the impact of these crimes and work together to change the attitude people have about insurance fraud.”

The survey also revealed that incidents of fraudulent insurance claims are not limited to certain socio demographics. The likelihood of an offence being committed can be found across all social groups, whether they fall under ‘Symbols of Success' or ‘Municipal Dependency.'

Overall, there is a perception amongst the public that the cost of insurance is high and the benefits are rarely seen. Consumers feel that they want to get value for money from their insurers so many, when making a claim, are likely to exaggerate it in the belief that the chances of getting caught are minimal.

David Murby continued: “Fraud continues to be a major challenge facing the insurance industry, costing an estimated £1.5 billion a year. There is little doubt that insurance fraud is seen as serious and people are generally aware that it is not a crime without consequences. However, only a small proportion of the population (15 per cent) feels that efforts by the insurance industry to combat fraud are sufficient, whilst over half the population (51 per cent) stated that they did not know whether the industry does anything or not.

“Fraud is a relatively new specialist area in insurance companies, with fraud itself previously being viewed primarily as exaggerated claims. However, insurance fraud is evolving, and there has been a significant upsurge in organised fraudulent activity with complex fraud rings, new types fraud, such as ‘slam-ons' and staged accidents, contributing to higher premiums and greater pressures on the insurer-customer relationship.

“Insurers need to learn from one another as well as other industries that have adopted advanced processes to help them combat fraud. They need to ensure that they have in place effective processes that highlight inconsistencies and confirm facts. Experian's anti-fraud solutions, for example, help insurers identify false, exaggerated, multiple and staged claims, non-disclosure, and false or stolen identities. Insurers need to be able to detect and avoid fraudulent activity at every stage of the insurance lifecycle.

“In addition to this, the onus is on the insurance industry to communicate with their customers and make them more aware of the effects of such a crime and what checks are in place that may deter the more opportunistic fraudster.”

Mboweni gives banks break on credit code title

Business Day article 16 March 07

The two-week-old code of conduct that committed SA's big banks to market credit more responsibly has won them a reprieve from Reserve Bank action for now, with governor Tito Mboweni saying yesterday that he would wait and see whether the code worked before acting on his threat to raise banks' reserve requirements.

But Mboweni warned that consumers should not assume that there would be no further interest rate hikes, and must borrow less and save more. Though the monetary policy committee had not raised rates at its past meeting, “we don't know when that pause might change”, he said.

Mboweni warned in December that he was looking at raising banks' cash reserve requirements in a bid to slow the “credit madness” that had continued despite four interest rate hikes since June.

And President Thabo Mbeki raised the idea after his state of the nation address last month, suggesting it as an alternative to the “blunt instrument” of interest rates to slow the pace of credit extension.

Banks are required to hold 2,5% of their deposits in non-interest-earning accounts at the Reserve Bank. Raising the reserve requirement would add to their costs, squeezing lending margins.

Mboweni has been particularly concerned about aggressive marketing of credit cards, and yesterday repeated the story of a colleague who was offered two credit cards by a bank salesperson, who suggested he use one card to pay off the other.

“I have complained very strongly to the banks about this and they have promised that this kind of behaviour on their part will stop and have adopted a code of conduct,” he said at a conference hosted by the National Consumer Forum to mark Consumer Rights Day.

“If all these efforts don't work we'll ensure we make life a bit more expensive for the banks by increasing their cash reserve requirements. But we are going to give them some time to see whether this works or not.”

The Banking Association unveiled the voluntary code of conduct two weeks ago. Banking Association MD Cas Coovadia said at the time that the code was a response to public discontent over the aggressive way in which banks were marketing credit, though banks had also taken note of comments from the Bank and government. The code sets standards for the way banks market unsecured credit, including credit cards and personal loans.

But Mboweni said yesterday that consumers could not just blame the banks for extending credit.

“We as consumers should take responsibility and act as adults,” he said. Household debt, which is at a record high of 73% of income, was “on the dangerous side”, he said. He warned that even though the inflation outlook had improved at the time of the past monetary policy committee meeting, giving the committee the confidence to hold interest rates stable, the committee was willing to adjust its stance if the outlook deteriorated.

“Just because we did not increase interest rates at the last (monetary policy committee) meeting, there might be those who think that's the end of it and start piling up debt again,” he said.

Although inflation is still within the target range at 5,3%, the rand has weakened and oil and food prices have risen since the committee's past meeting.

Banks and other credit providers will be forced to be responsible about the way they market credit once the new National Credit Act's reckless-lending rules come into force on June 1.

National credit regulator Gabriel Davel, who also addressed the consumer day conference, said the regulator would be monitoring and reporting to Parliament regularly on trends in overindebtedness and in the cost of credit.

Independent Democrats MP Patricia de Lille said the act would help to curb the credit frenzy.

Mboweni said though he personally was still keen on the idea of a fixed rate for mortgage lending, the idea had not found favour with his colleagues at the Bank.

Late last year, Mboweni floated the idea of a separate fixed mortgage rate, not linked to the prime overdraft rate, to make it easier for home owners who were new to the market to cope with interest rate volatility. SA is unusual in that almost all home loans have variable, not fixed, interest rates.

Mboweni said yesterday that colleagues argued that this meant the South African economy was lucky because the “transmission mechanism” of monetary policy was immediate, with interest rate moves delivering their message to the economy through mortgage rates “that afternoon”.

Business Day article 20 March 07

Just because the credit boom is not a problem that necessarily demands an increase in interest rates doesn't mean it isn't a problem at all. A report for the new National Credit Regulator, released at the weekend, takes a good look at the growth and composition of credit extended to households in SA and finds some signals to reassure those worried about the “credit madness” in the economy.

Banks account for about 85% of consumer credit, and home loans and other asset-backed loans, such as vehicle finance, make up nearly 75% of the banks' total R680bn of lending to households.

That kind of secured lending tends to be less risky for banks and their clients. Much of it has been driven by increases in house prices and in disposable incomes, as well as by lower interest rates. As the report notes, the household that could pay a bond of R500000 in the late 1990s, when interest rates hit 25% and the consumer credit market ran into trouble, can now afford a bond of R900000 because the monthly payment is the same.

More risky unsecured lending, particularly credit cards, has grown a lot faster than mortgage lending, for reasons that the report suggests are partly structural. Joint ventures and alliances between banks and other players such as retailers and cellphone companies have driven some of the trend and banks have delivered on their financial sector charter promises to broaden access to credit in part by going downmarket with their credit card offerings. At least some low-income earners can now use credit card debt, which is less costly than microloans or hire purchase finance. But it is more risky. Microloans have to be repaid at some point, but credit card facilities revolve and when households hit financial trouble, the first thing they tend to do is max out their credit cards. Signs are that there has been a race for market share. And it takes up to 18 months for it to become clear whether new customers are really good customers. So we could be facing overindebtedness trouble in the next year or two.

Credit card debt is still no more than 5% or so of banks' consumer books so this is not necessarily a problem for the system. But households may be holding a variety of different forms of debt and no one knows really just how indebted they are. Overindebtedness could cause problems for some lenders. And it certainly is a social problem, one that can send a low-income household into a spiral of poverty.

Officials at the national credit regulator say banks are being more scientific than ever about how they score customers and extend credit and most of it is responsibly granted. But the market needs watching for signs of stress — when people start using one form of debt to pay another or meeting only some of their repayments each month. School fees and electricity bills are often the first to go.

Financial education for consumers is one way to try to lessen “credit madness”. But ensuring lenders act responsibly is as, or more, important. The new credit legislation has come at a good time, as it will force all lenders to ensure they are not adding more debt to already overburdened households. It will force them, too, to disclose, in simple and transparent terms, what a new loan will really cost the borrower. The credit regulator has also promised to do regular research on debt and overindebtedness.

If significant signs of stress start to emerge, we will at least know about it.

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