ASSIGMENT CHAP 5: CONSUMER LENDING

Question 1: What is consumer lending? What are its various types?

- Consumer credit generally refers to loans that individuals or households require to meet personal
need such as travel or purchase of furniture, household appliances, motor vehicles, boats and
homes.
- Purpose: houses, holidays, motor vehicles, etc.
- Term: short-term (<1 year); medium-term (1-3 years); long-term (> 3 years).
- Terms of repayment: installment loans with regular P & I repayments, and non-installment loans
for emergency purposes repaid in one lump sum.
- Security: secured and unsecured loans.
-
Question 2: What factors have led to a repid growth of consumer credit in Australia?
Due to the rise in personal income and household expenditure, the demand for consumer credit is
rapidly growing in Australia.

Question 3: What are credit scoring models?

In credit scroring models, several variables (such as age, income, equity in a house and
so on) are allocated points, which are added together to calculate the applicant’s credit score
or ranking. If the score exceeds the pre-determined cut-off scored, then the application is
automatically approved.

Question 4: What are the important provisions of the Uniform Consumer Credit Code?
The important provisions of the UCCC is the limitation of interest rates changed to consumers by
lenders. However, the actual ceilings on rates vary according to the type of loan. The Code also
encourages lower interest rates by limiting barriers to entry in the consumer credit field. The Codes do
this on the theory that more competition will result in lower consumer rates.

Question 5: Changing demographics in Australia are expected to have substantial effects on a

bank’s consumer credit programs. Outline the changes taking place in demographics in
Australia and how these may have an impact on consumer credit programs?
The important in changing demographics that lead to the changing in consumer credit programs,
here are the list factors which depend on the Financial Systems Inquiry Final Report:
Willingness to adopt technology:
Consumers are becoming more technology savvy and electronic banking product shave seen a
surge in demand. The convenience and low cost that electronic banking offers makes it very 
attractive for consumers. 
Ageing of the population:
 As per the report of Australian Bureau of Statistics approximately 17.5 per cent of the Australian
population will be ‘old’, that is, above 65 years of age compared to 11.9 percent in 1995 and 8.3 
percent in 1970. As a result, governments have started superannuation schemes to reduce the 
dependence of retirees on the age pension.  Hence retirement products will have greater demand.
There could be demand for credit to meet medical expenses, travel, and leisure etc. 
Changes in work patterns:
There is a trend towards early retirement and the percentage of people in full time employment
after the age of 55 declined from 33 per cent to 22 per cent between 1966 to 1996. Similarly, many
people are in part-time employment and may like to use their free time to undertake certain activities.
It is possible that these people may like to start some small business requiring bank credit. 
Increasing value awareness: 
Consumers will seek those financial products that offer best value for money.  They are
becoming more price sensitive to transaction fees as well as interest rates. Credit products will have
to be competitive to take care of this value awareness among consumers

Question 6:
Majella Burke: Asisstant in a local travel 7
agency
Tony: skilled worker 8
Length of time in the job about 1 year 2
(Majella)
Length of time in the job about 1 year 2
(Tony)
Length of time at current address less than 1 1
year
Own house 6
Telephone 2
Car 2
BT Fund Management 3
Insurance 4
Credit rating 5
Total credit score 42

Question 7:
Scoring criteria Point Trent James Angela Ron Rachel
Length of employment            
More than 3 years 10          
1-3 years 6 6 6 6    
Less than 1 year 2       2 2
Applicant's length of time of
current address            
More than 3 years 10     10    
1-3 years 5 5 5      
Less than 1 year 3       3 3
Applicant's current residence            
Home owner 10   10 10    
renting a unit/home 6 6        
Living with friends/relatives 3       3 3
Credit advantage report            
Excellent 10 10   10   10
Average 5   5      
Below average 3       3  
Deposit account with bank            
Yes 5 5 5     5
No 2     2 2  
Active credit cards            
One card 5     5    
Two cards 3 3        
More than 2 cards 2          
TOTAL   35 31 43 13 23
Approve Approve Aprove Rejecte Rejecte
Decision   d d d d d