Management of Financial

Services
Assignment on Consumer
Finance

Submitted By

Aakriti Bhola
Ayush Awasthi
Indra Mani Tripathi

Contents

1. Consumer Finance- About, type, advantage and disadvantage..3

2. Source of Consumer finance7
3. Types of finance and process..10
4. Credit Screening Method...12
5. Consumer Credit Act, 1974.13
6. Consumer Credit Act. 200620
7. CIBIL ..21
8. Emerging Consumer Survey23

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Consumer Finance
Consumer finance has to do with the lending process that occurs between the consumer and a
lender. In some instances, the lender may be a bank or financial institution. At other times, the
lender may be a business that offers in house credit in exchange for the business of the
consumer. Consumer finance can include just about any type of lending activity that result in
the extension of credit to a consumer. Consumer Finance or Consumer Credit is a debt that a
person incurs when purchasing a good or service. Consumer credit includes purchases obtained
with credit cards, lines of credit and some loans. Consumer credit is also known as consumer
debt. Economists and other financial analysts frequently measure consumer credit, which
serves as an indicator of economic growth. For example, if consumers can easily borrow money
and repay those debts on time, then the economy is stimulated resulting in economic growth.
Consumer credit is the portion of credit consumers use to buy non-investment services
consumed or goods that depreciate quickly. This includes automobiles, education costs,
recreational vehicles (RVs), boat and trailer loans, but it does not include debts obtained to
purchase margin on investment accounts or real estate. For example, a mortgage loan is not
consumer credit. Consumer credit allows consumers to get an advance or loan to spend money
on products or services for family, household or personal uses repaid at a specified future date.
Retailers, department stores, banks and other financial institutions offer consumer credit.
Consumer credit falls into two broad categories:

closed-end (installments)

open-end (revolving)

The Basics of Closed-End Credit

This form of credit is used for a specific purpose, for a specific amount, and for a specific period
of time. Payments are usually of equal amounts. Mortgage loans and automobile loans are
examples of closed-end credit. An agreement, or contract, lists the repayment terms, such as
the number of payments, the payment amount, and how much the credit will cost.
Generally, with closed-end credit, the seller retains some form of control over the ownership
(title) to the goods until all payments have been completed. For example, a car company will
have a "lien" on the car until the car loan is paid in full.
The Basics of Open-End Credit
With open-end or revolving credit, loans are made on a continuous basis as you purchase items,
and you are billed periodically to make at least partial payment. Using a credit card issued by a
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store, a bank card such as VISA or MasterCard, or overdraft protection are examples of openend credit.
There is a maximum amount of credit that you can use, called your line of credit. Unless you
pay off the debt in full each month, you will often have to pay a high-rate of interest or other
kinds of finance charges for the use of credit.

Revolving check credit. This is a type of open-end credit extended by banks. It is a

prearranged loan for a specific amount that you can use by writing a special check.
Repayment is made in installments over a set period, and the finance charges are based
on the amount of credit used during the month and on the outstanding balance.

Charge cards. Charge cards are usually issued by department stores and oil companies
and, ordinarily, can be used only to buy products from the company that issued that
card. They have been largely replaced with credit cards, although many are still in use.
You pay your balance at your own pace, with interest.

Credit cards. Credit cards, also called bank cards, are issued by financial institutions.
Credit cards provide prompt and convenient access to short-term loans. You borrow up
to a set amount (your credit limit) and pay back the loan at your own paceprovided
you pay the minimum due. You will also pay interest on what you owe, and may incur
other charges, such as late payment charges. Whatever amount you repay becomes
immediately available to reuse. VISA, MasterCard, American Express and Discover are
the most widely recognized credit cards.

Travel and Entertainment (T&E) cards. This cards require that you pay in full each
month, but they do not charge interest. American Express (not the credit card version),
Diners Club and Carte Blanche are the most common T&E cards.

Debit cards. These are issued by many banks and work like a check. When you buy
something, the cost is electronically deducted (debited) from your bank account and
deposited into the seller's account. Strictly speaking, they are not "credit" because you
pay immediately (or as quickly as funds can be transferred electronically).

The Basics of Consumer Loans

There are two primary types of debt: secured and unsecured. Your loan is secured when you
put up security or collateral to guarantee it. The lender can sell the collateral if you fail to repay.
Car loans and home loans are the most common types of secured loans. An unsecured loan, on
the other hand, is made solely on your promise to repay. While that might sound like a pipe
dream, think about it for a minute: Nearly all purchases on credit cards fall into this category.
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If the lender thinks you are a good risk, nothing but your signature is required. However, the
lender may require a co-signer, who promises to repay if you don't.
Because unsecured loans pose a bigger risk for lenders, they have higher interest rates and
stricter conditions. If you do not repay an unsecured debt, the lender can sue and obtain a legal
judgment against you. Depending upon your state's rules, the lender may then be able to force
you to sell other assets to pay the judgment or, if you are employed by another, to garnish a
portion of your wages.

Advantages of consumer finance

For the Consumer

Consumer finance allows people to purchase goods without having to pay for them
immediately.
Consumer finance enforces a discipline of compulsory saving that forces individuals to
spend their income wisely
Convenience it offers people a convenient way of acquiring durable goods
Enhanced living standard it enables people of limited means to acquire goods to
enhance their general standard of living
Meeting emergencies Consumer finance is useful in meeting emergencies such as
illness, accident and death with unexpected expenses.

For Retailers

Attracts more and new customers

Maximizes revenues consumer finance facilitates the speedy disposal of goods which
would have remained unsold in the absence of a credit facility for consumers. These
credit sales increase revenues and profits.

For the Economy

Accelerates industrial investment, giving rise to growing levels of income and

employment
Promotes entrepreneurship
Promotes economic development in promoting higher levels of investment,
employment and income, consumer finance increases effective demand thus promoting
a higher standard of growth and development

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The potential disadvantages of consumer finance

It is important to also note the potential disadvantages of consumer finance, particularly if
offered recklessly. These are:

Thoughtless buying consumer finance may tempt people to buy goods

indiscriminately, even if they are not needed
Potential insolvency. Credit, by its nature, causes people to swap a portion their future
income for current benefit. If the proportion is too high, or there is an unexpected
reduction in future income, then this can lead to an individuals insolvency.
High price of credit. In Nigeria, the infrastructure challenges lead to a high cost of doing
business. This combines with a high cost of default leading to a high price charged to the
customer in the form of monthly interest.

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The Sources of Consumer Credit

We all have short-term or long-term needs for money or credit. You'll want to familiarize
yourself with your options when your needs for credit arises.
1. Commercial Banks
Commercial banks make loans to borrowers who have the capacity to repay them. Loans are
the sale of the use of money by those who have it (banks) to those who want it (borrowers) and
are willing to pay a price (interest) for it. Banks make several types of loans, including consumer
loans, housing loans and credit card loans.

Consumer loans are for installment purchases, repaid with interest on a monthly basis.
The bulk of consumer loans are for cars, boats, furniture and other expensive durable
goods.

Housing loans may be for residential mortgages, home construction or home

improvements.

Credit card loans may be available in the form of cash advances within prearranged
credit limits.

2. Savings and Loan Associations (S&Ls)

Savings and loan associations used to specialize in long-term mortgage loans on houses and
other real estate. Today, S&Ls offer personal installment loans, home improvement loans,
second mortgages, education loans and loans secured by savings accounts.
S&Ls lend to creditworthy people, and usually, collateral may be required. The loan rates on
S&Ls vary depending on the amount borrowed, the payment period, and the collateral. The
interest charges of S&Ls are generally lower than those of some other types of lenders because
S&Ls lend depositors' money, which is a relatively inexpensive source of funds.
3. Credit Unions (CUs)
Credit Unions are nonprofit cooperatives organized to serve people who have some type of
common bond. The nonprofit status and lower costs of credit unions usually allow them to
provide better terms on loans and savings than commercial institutions. The costs of the credit
union may be lower because sponsoring firms provide staff and office space, and because some
firms agree to deduct loan payments and savings installments from members' paychecks and
apply them to credit union accounts.

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Credit unions often offer good value in personal loans and savings accounts. CUs usually require
less stringent qualifications and provide faster service on loans than do banks or S&Ls.
4. Consumer Finance Companies (CFCs)
Consumer finance companies specialize in personal installment loans and second mortgages.
Consumers without an established credit history can often borrow from CFCs without collateral.
CFCs are often willing to lend money to consumers who are having difficulty in obtaining credit
somewhere else, but because the risk is higher, so is the interest rate.
The interest rate varies according to the size of the loan balance and the repayment schedule.
CFCs process loan applications quickly, usually on the same day that the application is made,
and design repayment schedules to fit the borrower's income.
5. Sales Finance Companies (SFCs)
If you have bought a car, you have probably encountered the opportunity to finance the
purchase via the manufacturer's financing company. These SFCs let you pay for big-ticket items,
such as an automobile, major appliances, furniture, computers and stereo equipment, over a
longer period of time.
You don't deal directly with the SFC, but you are generally informed by the dealer that your
installment note has been sold to a sales finance company. You then make your monthly
payments to the SFC rather than to the dealer where you bought the merchandise.
6. Life Insurance Companies
Insurance companies will usually allow you to borrow up to 80 percent of the accumulated cash
value of a whole life (or straight life) insurance policy. Loans against some policies do not have
to be repaid, but the loan balance remaining upon your death is subtracted from the amount
your beneficiaries receive.
Repayment of at least the interest portion is important, as compounding interest works against
you. Life insurance companies charge lower interest rates than some other lenders because
they take no risks and pay no collections costs. The loans are secured by the cash value of the
policy.

7. Brokerage firms
Brokerage firms are a source of credit for investors who have securities on deposit in a margin
account. The maximum that can be borrowed depends upon the market value of the securities
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owned and the percentage of this value that the brokerage firm will lend. The borrower may be
required to put up additional collateral if the value of the securities in the account declines.
Money borrowed against securities is not limited to investment needs, but can be used for any
purpose.
8. Pawnbrokers
Pawnbrokers offer short-term, single-payment loans secured by personal property which is left
in the possession of the lender. The pawnbroker can sell the property in the event that the loan
and accumulated interest isnt repaid on the due date. Although providing quick access to cash
for individuals with bad credit and no alternative source of funding, this credit source tends to
be quite expensive because of the extremely high interest rates charged.
9. Loan Sharks
These usurious lenders have no state license to engage in the lending business. They charge
excessive rates for refinancing, repossession or late payments, and they allow only a very short
time for repayment. They're infamous for using collection methods that involve violence or
other criminal conduct.
10. Family and Friends
Your relatives can sometimes be your best source of credit. However, all such transactions
should be treated in a businesslike manner; otherwise, misunderstandings may develop that
can ruin family ties and friendships.

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Special Types of Consumer Loans

There are a number of special types of consumer loans, loans that are different from traditional
consumer loans. These include home equity loans, student loans, and automobile loans. These
loans are discussed below.
Home Equity Loans: Home equity loans are also known as second mortgages. In a second
mortgage, you use the equity in your house (i.e., the difference between what you paid for the
house and what you could sell the house for today) to secure your loan.
The benefits of a home equity loan are that you can usually borrow up to 80 percent of the
equity in your home, and the interest payments may be tax deductible. With this type of loan,
you can also get a lower interest rate because the house is secureit cant be moved. One
disadvantage of this type of loan is that it limits your future financial flexibility because you can
have only one outstanding home equity loan at a time. Moreover, a home equity loan puts your
home at risk; if you default on a home equity loan, you can lose not just your credit score but
your home as well.
Home Equity Lines of Credit (HELOC): Home equity lines of credit are basically second mortgages
that use the equity in your home to secure your loan. These are generally adjustable rate notes
that have an interest-only payment, at least in the first few years of the note. Generally,
interest rates are variable and payments cover only interest in the first few years. These have
lower rates of interest than other consumer loans.
The benefit of these loans is that the interest may be tax deductible, reducing the cost of
borrowing. The problem is that these loans will often keep people from making the hard
financial choices to curb their spending. Why worry about spending when you can get a home
equity loan or HELOC to pay it off? These loans sacrifice future financial flexibility and put your
home at risk if you default.
Student Loans: Student loans have low, federally subsidized interest rates; these loans are
often used to pay for higher education. Examples of student loans that are available to parents
and students include federal-direct loans, plus-direct loans, Stafford loans, and Stafford-plus
loans.
One benefit of student loans is that some have specific advantages, such as subsidized interest
payments and lower interest rates. Also, you can defer payment of federal-direct loans and
Stafford loans until six months after you graduate or discontinue full-time enrollment. The
disadvantages of these loans are that there is a limit to how much you can borrow, and, like all
debts, you must pay these loans back.
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Automobile Loans: An automobile loan is a consumer loan that is secured by the automobile
that the loan is paying for. This type of loan usually has a term of two to six years.
The advantage of an automobile loan is that it usually charges a lower interest rate than an
unsecured loan. The disadvantage is you must make interest payments, and since vehicles
depreciate quickly, you are often left with a vehicle that is worth less than what you owe on the
loan you got to purchase the vehicle.
Payday Loan: Payday loans are short-term loans of one or two weeks; these loans are secured
with a postdated check. The postdated check is held by the payday lender and cashed on the
day specified. These loans charge very high interest ratessome payday loans charge more
than 500 percent on an annual percentage rate basis (APR). I recommend that you avoid using
these loans completely.

Process of Consumer Finance

1.
2.
3.
4.
5.
6.

Consumer meet with dealer- Purchase decision- Filling of form- Submitting documents
Transfer of document from dealer to finance company
Checking of details by Operation Department
Transfer from Operation to Finance Department
Finance given to customer
Finally Collection Department collects the installments paid by customer(In case of default
on finance collection department take legal action against customer)

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Credit Screening Methods

As part of the evaluation of credit worthiness of a consumer, and for ascertaining the
acceptability criteria of consumers, some methods are used. Some the commonly used
methods are:

Dunham Greenberg Formula

Under this method points are allotted to various aspects of the consumers loan
proposal, the total points being 100. It is composed of the following:
Parameter
Score( Points)
Applicant employment record
20
Applicants income
25
Applicant finance
10
Type of security offered
20
Past Payment records
25
Total
100
An applicant is said to enjoy a good credit standing provided the score is 70 points or
above.

Specific fixed formula

According to this method, a score of above 3.5 would indicate an excellent borrower
and a score of over 2.5 indicates an marginal borrower. The scheme for scoring is as
follows:
Parameter
Credit Score
Age
0.1-0.5
Sex
0.4
Stability of residence
0.042-0.42
Occupation
0.16-0.55
Industry
0.21
Stability of employment
0.059-0.59
Assets
0.20-0.45

Machinery Risk Formula

This method is prominently used in government offices for loans to employees.
According to this method, the loan amount sanctioned is determined as follows:
Down payment +(0.124*Monthly Income) +(0.65*length of service in months)

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Consumer Credit Act 1974

The Consumer Credit Act 1974 (The Act) is the principle piece of legislation which regulates
consumer credit and consumer hire agreements. These agreements include personal loans,
hire-purchase agreements, credit cards and store cards.
The Act provides rules for the following:

It regulates the form, content and enforcement of agreements and provides for rights
and obligations for both consumers and traders.

It requires that traders who make use of credit facilities obtain a consumer credit licence
from the Office of Fair Trading.
It applies rules to credit advertising.

It provides for truth in lending by showing the total cost of credit in the form of the
Annual Percentage Rate (APR).
Sets out procedures to be used in the event of default, termination or early settlement
of an agreement.

Gives courts power to grant relief to consumers who have entered extortionate credit
transactions.
Controls door-to-door canvassing.

Provisions of the Act:

Part I: Director General of Fair Trading
Section 1 of the Act gives the Director General of Fair Trading the duties of administering the
licensing system set up by the Act, supervising the working and enforcement of the Act and any
regulations made by it and, if appropriate, enforce the Act and regulations himself. The DGFT is
also tasked with advising the government about social and commercial developments within
the United Kingdom, and any actions taken to enforce the Act and its orders and regulations.
Section 4 of the act requires him to disseminate any appropriate information and advice about
consumer credit to the people of the United Kingdom. This allows him to educate the public
about consumer credit, and was intended to be conducted through organizations such as the
Citizens Advice Bureau. The Director's duties under this Act overlap slightly with those given by
the Fair Trading Act, but are still an expansion over his original role.
The Director General is tasked with issuing licenses, and under Section 35 of the Act, the
Director is required to maintain a register containing all appropriate information related to
licenses and applications for licenses.
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The Enterprise Act 2002 formally substituted the Office of Fair Trading for the Director General
of Fair Trading for the purposes of this Act.
Part II: Credit agreements, hire agreements and linked transactions
Part II contains definitions for many types of agreements covered by the Act. There are three
main types of agreement; regulated consumer credit agreements, regulated consumer hire
agreements and partially regulated agreements.
Regulated agreements
A regulated consumer credit agreement is defined as an agreement between two parties, one
of whom (the debtor) is an individual, and the other of whom (the creditor) is "any other
person", in which the creditor provides the debtor with credit not exceeding 5,000 (this figure
was subsequently increased to 25,000 and under the Consumer Credit Act 2006 there is no
upper limit).
An exception to this definition is so-called "exempt agreements", which are agreements made
where the creditor is a land improvement company, a charity, a friendly society, a trade union,
an insurance company or "a body corporate named or specifically referred to in any public
general Act".
A regulated consumer hire agreement is defined as an agreement between two bodies, one of
whom (the hirer) is an individual, and the other of whom, (the owner) is a person, by which
goods are loaned to the hirer for use without an option to purchase. The agreement must be
"capable of subsisting" for longer than three months, not require the hirer to make payments of
more than 5,000 total and not be an "exempt agreement". "Goods" are defined as chattels
personal, with "capable of subsisting" simply meaning that the agreement does not restrict the
time limit of use to less than three months. The agreement does not have to exceed three
months, but the option to do so must be given by one party.
Partially regulated agreements
Partially regulated agreements are those consumer hire or consumer credit agreements which
are not an exempt agreement but are exempt from certain provisions of the Act. What these
provisions are depends on the type of agreement; small agreements, non-commercial
agreements and contracts with a foreign element.
Small agreements are defined in Section 17 of the act as regulated consumer credit agreements
where the credit does not exceed 30 and regulated consumer hire agreements which do not
require the hirer to pay more than 30 in fees. This does not include hire-purchase or
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conditional sale agreements, which do not qualify regardless of the size of credit, secure
transactions and transactions where the parties have attempted to break up a transaction into
multiple smaller ones worth under 30 to avoid regulation. Small agreements are exempt from
almost all of Part V of the act, although they remain controlled by Part IV.
The Act is primarily aimed at commercial and professional traders, and as a result excludes noncommercial agreements. Non-commercial agreements are defined by the Act as agreements
where neither the creditor nor debtors are providing the transaction for business purposes in
any way. Non-commercial agreements are exempt from Part V of the Act.
Contracts with a foreign element would not normally be mentioned in Acts of Parliament,
which are deliberately constructed to avoid giving the law extraterritorial effect. In this case,
however, the Act contains provisions for contracts with a foreign element, which due to the
nature of commerce are common (a credit card issued in the United Kingdom, for example,
which is used on holiday in France). As a result, Section 16(5) specifically excludes contracts
"having a connection with a country outside the United Kingdom" from the Act.
Part III: Licensing of credit and hire businesses
There are two types of license given - group licenses and standard licenses.
Group licenses are issued by the Director General of Fair Trading to cover a group of people in
those activities described in the license. Group licenses can be issued following an application,
or simply voluntarily by the Director. Holders of a group license do not have to apply
individually and are not vetted individually, and holding a group license does not prevent
members from also applying for a standard license.
Standard licenses are licenses issued by the Director General to an individual. It can only be
provided following an application, not at the Director General's discretion like a group license,
and covers certain activities in a fixed period. Initially there was no obligation to issue licenses,
but an amendment to the bill in Parliament means that the Director General is required to issue
a license on the application of any person, providing that person is a fit person to engage in
such activities and the name he applies to be licensed under is not misleading or undesirable.
The license allows an individual or a partnership to trade under those names listed on the
license, and is divided into seven categories:
Category A: Consumer credit business
Category B: Consumer hire business
Category C: Credit brokerage

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Category D: Debt-adjusting and counseling

Category E: Debt-collecting
Category F: Credit reference agencies
Part IV: Seeking business
It covers three main areas: advertising, canvassing and quotations and the display of
information. No regulations have yet been made on quotations or the display of information.
The advertising provisions apply to any advertisement published for the business carried out by
the advertiser which indicates he is willing to provide credit or provide goods to be hired.
"advertisement" is taken to mean any form of advertisement, including a publication, television
or radio broadcast, the display of signs, labels or goods, the distribution of samples, circulars,
catalogues or price lists or the exhibition of picture, models or films, or in "any other way".
Under Part IV, the Secretary of State can make regulations limiting the form and content of
advertisements covered by the Act. The regulations can also specifically include certain terms
or facts, and failing to follow them constitutes an offence. The intent of these regulations is to
ensure that no advertisement contains misleading information, that advertisements provide
the reader with a "reasonable picture" of the terms and conditions and that the reader is aware
that the availability and terms of credit may be affected by factors such as the age and
employment of the applicant.
Canvassing: The Crowther Committee recommended that doorstep canvassing for loans should
be completely prohibited. The original provisions in the bill were indeed extremely stringent,
and caused potential problems for other businesses, but were significantly amended and now
only affect the canvassing they were intended to prevent. Canvassing is defined as a situation in
which an individual (the canvasser) solicits the entry of another individual (the consumer) into
an agreement based on his oral representations during a visit by the canvasser to "any place"
for the purpose of making such representations. Exceptions to "any place" are places where
business is carried out, either permanently or temporarily, by the creditor, owner, supplier,
canvasser, employer of the canvasser or the consumer.
Part V: Entry into credit or hire agreements
Part V of the Act deals with four elements of entering into a credit or hire agreement; precontract disclosure, the formalities of entry into a regulated agreement, cancellation of a
regulated agreement and its consequences and withdrawal from a prospective regulated
agreement and its consequences.

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Formalities
There are certain formalities for entry into a regulated agreement, mostly based on the
documentation that must be provided. Under Section 60, the Secretary of State is required to
make certain regulations covering the format that contracts must take. These regulations must
ensure that the debtor is made aware of the rights and/or duties conferred on him by the
agreement, the amount and rate of the total charge for credit, the protection and remedies
available to him and "any other matters which, in the opinion of the secretary of state, it is
desirable for him to know about in connection with the agreement". The Act allows the Director
General of Fair Trading to waive certain requirements if it appears, on the application of a
consumer credit business, that to enforce them would be impracticable.
Section 61 lays out the formalities required for a regulated agreement. The terms must be
found in a signed and legible document, a copy of the unsigned agreement must be supplied to
the debtor or hirer, a copy of the signed document must be supplied to the debtor or hirer and
a notice advising the debtor or hirer of his rights of cancellation must be included with the
signed and unsigned copies. The "signed and legible document" is described in Section 61 as a
document which contains all the prescribed terms, other than implied terms, and is, when
presented to the debtor or hirer for signature, in such a state that all its terms are legible. Such
a document must be in the form "prescribed by regulations".
Withdrawals
Part V contains several provisions relating to the cancellation of a regulated agreement and the
withdrawal from a prospective regulated agreement. The withdrawal from a prospective
agreement is found primarily at common law; a party may withdraw from a prospective
agreement at any point before it becomes a contract without obligations. He can withdraw the
prospective agreement by notice to the other party, with the Act allowing the creditor to use
credit brokers as agents for this purpose.
The right to cancel a confirmed agreement was introduced by the Hire-Purchase Act 1964,
mainly to frustrate doorstep salesmen who would take advantage of an unsuspecting person
and force them to sign up to an agreement, normally with misrepresentations. In the Consumer
Credit Act, the right of cancellation is covered in Section 67, which allows the debtor or hirer
the right to cancel an agreement if there were false oral representations made to the debtor by
somebody acting for the creditor.
Part VI: Matters arising during currency of credit or hire agreements
Part VII: Default and termination

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Part VIII: Security

"Security" is defined by the Act to mean any form of mortgage, bond, indemnity, guarantee or
other right provided by the debtor as "security" to the consumer credit or hire-purchase
agreement being conducted with the creditor. This covers both "real" securities such as
mortgages and personal securities such as bonds. The only requirement is that the security
must be given at the request of the debtor. Any security must be expressed in writing, and in
some cases are parts of the original hire agreement.
Part IX: Judicial control
Part IX gives the courts wide powers to re-open credit deals deemed extortionate and gives
them control over regulated agreements. Section 189 establishes that "courts" means the
county courts; all problems are to be brought to the county courts, although certain situations
relating to extortionate credit agreements can be sent to the High Court.
Part X: Ancillary credit businesses
An ancillary credit business is defined in Section 145 of the Act as any business that works in
credit brokerage, debt adjusting, debt collecting, debt counseling or as a credit reference
agency.
Credit brokers are people involved in negotiating deals between potential debtors looking for
credit and creditors, normally in exchange for a commission. Under the Act, "credit broker"
includes not only mortgage brokers and loan brokers but also car dealers, shops that introduce
customers to financial houses for hire-purchase agreements and solicitors who negotiate
advances for non-corporate clients. An exception to this is if introductions and negotiations are
not made in the individual's capacity as an employee of a business.
Debt adjusting is when a company or individual negotiates with the creditor or owner in an
agreement on behalf of the debtor to change the terms for the discharge of the debt, takes
over the debt in exchange for payment by the debtor or engages in "any similar activity
concerned with the liquidation of a debt".
Debt counseling is the giving of advice to debtors or hirers about the liquidation of debts under
consumer credit or consumer hire agreements.
Exceptions for these definitions are provided under Section 146 if the credit broker, debt
adjuster, debt counselor or debt collector is the creditor or owner under the credit agreement,
the supplier under the agreement, a credit broker who has acquired the business of the
supplier or somebody expressly excluded from certain definitions, such as a solicitor.
Credit reference agencies are covered separately from other ancillary credit businesses, and are
defined in Section 148 as individuals or companies which carry on a business "comprising the
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furnishing of persons with information relevant to the financial standard of individuals, being
information collected by the agency for that purpose".
Licensing and other matters
Part III of the Act applies directly to ancillary credit businesses, who must obtain a license. As
with standard credit agreements, agreements made by an unlicensed ancillary trader are only
enforceable against the other party if the Director General of Fair Trading issues an order which
applies to the agreement. Under Section 149, creditors have an onus to make sure that the
credit brokers they obtain business from are duly licensed. Again, if the broker is unlicensed,
the agreement between the debtor and creditor is only enforceable when the Director General
makes an order saying so. These provisions came into effect on 1 July 1978.
Part IV of the Act also applies to ancillary credit businesses in relation to advertising, canvassing
and quotations, as well as ways in which business can be sought. The Act also limited the
brokerage fees that credit brokers can charge. Under Section 155, if the brokerage work does
not lead to the client entering into an agreement with a creditor within 6 months of the work,
the entire fee (minus the sum of 1) is refundable to the client. The Director General at the
time indicated that those businesses which flouted Section 155 would be refused a license.
These provisions came into force on 1 April 1977.
Part XI: Enforcement of Act
Part XII: Supplement

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Consumer Credit Act 2006

The Consumer Credit Act 2006 is an Act of the Parliament of the United Kingdom intended to
increase consumer protection while borrowing money. The main provisions of the Act are to
extend the scope of the Consumer Credit Act 1974, to create an Ombudsman scheme, and to
increase the powers of the Office of Fair Trading in relation to consumer credit. In addition, it
permits borrowers to challenge unfair debtor-creditor relationships in court.
Ombudsman scheme
The 2006 Act gives consumers the option of using the Financial Ombudsman Service if they
are unhappy with their lender's dispute resolution service, whether the lender consents or
not. Complaints may also be raised against other types of credit related companies, such as
debt-collection agencies.
Office of Fair Trading
The 2006 Act empowers the Office of Fair Trading (OFT) to investigate applicants for
consumer credit licenses, to impose conditions on licenses, and to impose civil penalties of
up to 50,000 on companies which fail to comply with its conditions, appeals from which lie
to the First-tier Tribunal and 5,000 for individuals (formerly the Consumer Credit Appeals
Tribunal) and thence, with leave, to the Upper Tribunal.

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CREDIT INFORMATION BUREAU (INDIA) LIMITED (CIBIL)

TransUnion CIBIL Limited) is a Credit Information Company (CIC) founded in August 2000. Post
Inception, it has come to play a critical role in Indias financial system. Whether it is to help loan
providers manage their business or help consumers secure credit faster and at better terms,
the use of CIBILs products have led to a massive change in the way the credit life cycle is
managed by both loan providers and consumers.
CIBIL was incorporated in Aug 2000 on the basis of recommendations made by the Siddiqui
Committee (1999).

Figure: Working of CIBIL (Source: https://www.cibil.com/about-us)

CIBIL collects and maintains records of an individuals payments pertaining to loans and credit
cards. These records are submitted to CIBIL by banks and other lenders, on a monthly basis.
This information is then used to create Credit Information Reports (CIR) and credit scores which
are provided to lenders in order to help evaluate and approve loan applications.
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What is CIBILs role in the Loan Approval Process?

CIBILs products, especially the CIBIL Score and the CIR are very important in the loan approval
process. The credit score helps loan providers quickly determine, who they would like to
evaluate further to provide credit. The CIBIL Score ranges from 300 to 900. CIBIL data indicates
that loan providers prefer credit scores which are greater than 750.
Once the loan provider has decided which set of loan applicants to evaluate, it analyzes the CIR
in order to determine the applicant's eligibility. Eligibility basically means the applicant's ability
to take additional debt and repay additional outflows given their current commitments.
Post completion of these first 2 steps the loan provider will request for the applicant's income
proof and other relevant documents in order to finally sanction the loan.

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EMERGING CONSUMER SURVEY, 2015

Credit Suisse Research Institute conducted a research on consumers in emerging markets. The
results generally and for India are given below:

Indias consumer finance market is expected to grow at a compounded rate of 18 percent and
become a USD 1.2 trillion opportunity by 2020. While the experience of the last consumer loan
cycle (2004-07) was bitter, it is believed that a number of structural changes in the market
could allow for a steady, profitable growth in the next few years. In addition, the expected fall
in rates should spur growth in rate-sensitive segments such as mortgages and auto loans. While
the market still remains underpenetrated (70 percent + of households have no liabilities of any
sort), the organized players (banks + NBFCs) have developed diverse products targeted at all
segments of the income pyramid, across multiple secured/unsecured loan types. Credit Suisse
sees players with established track records across cycles and leadership positions as being best
positioned to capture the expected growth in consumer lending.
Consumer optimism has seen a sharp turnaround in 2014, after a few years of adverse macro
conditions (e.g. high inflation, slowing growth) led to a steady decline. The formation of a
strong government at the center (the first single party majority in 30 years) has triggered a
major revival in consumer sentiment. India ranks first on our scorecard a big improvement
over the year before when it was ranked fourth. More people believe this is a good time for
making big ticket purchases as average household income increased by around 10% in 2014
after being relatively steady the two previous years. There has also been an increase in breadth
as a greater percentage of respondents have seen their incomes increase. There was a sharp
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increase in the proportion of respondents who expect both salary to increase and the state of
their personal finances to improve in 2015. Fewer people are expecting inflation to increase a
sign that high entrenched inflation expectations have finally started moderating. Another
pattern that emerged in previous years was the sharp divergence between rural and urban
India, with rural India booming and urban India deteriorating.

In 2014, while the rural areas continued to do well, there was considerable improvement in
urban India too. This revival in consumer sentiment has primarily been driven by urban India as
parameters such as the expectations of increasing incomes, moderating inflation expectations,
improvement of personal finances, etc., resulted in a sizable jump for urban respondents.
Urban household income also increased at around 12% in 2014 after remaining stagnant for
two years. There was also a reversal in the trend of declining consumption and downtrading in
discretionary items a sign that discretionary growth is set to see a sustained acceleration.
On items such as apparels, leather goods, perfumes, watches, etc.; more people bought these
in 2014 and more expressed their willingness to buy them in the future. Moreover, for many of
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these items, consumers wishing to buy unbranded products remained low, indicating that the
Indian consumer has come of age and become more brand conscious. More people are buying
smart phones and fewer people are buying entry level cars. As we highlighted in our previous
survey; the long-term structural growth potential of India remains intact as it has one of the
lowest penetration rates across categories in the nine emerging markets surveyed. With the
exception of selected countries like Indonesia, most other emerging markets are well ahead of
India in terms of market maturity.

India is one of the countries with the lowest consumption of items such as beer, spirits, meat,
cigarettes and the lowest ownership of cars as well as the lowest access to internet. While we
have seen an improvement in penetration levels in some of these categories in 2014; there is
still a long way to go.

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Results of the Survey

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References

1. Alessie, Rob, Stefan Hochguertel, and Guglielmo Weber. 2005. Consumer Credit:
Evidence from Italian Micro Data. Journal of the European Economic Association 3, no.
1: 144178. Attanasio, Orazio P. 1995.
2. Stiglitz, J. E., and Weiss, A. 1981. Credit Rationing in Markets with Imperfect
Information. American Economic Review 71 ( June): 393410. Stone, Lawrence. 1965.

3. Bansal, L. K. (1997). Merchant banking and financial services (1st ed., Vol. 1,
Ser. 1). Chandigarh, Chandigarh: Unistar books.

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