it’s in the business school in 2006
after the class discussion on credit
card lending an undergrad share with me
that just a year before he had
accumulated so much credit card that he
had to declare personal bankruptcy the
2008 financial crisis started a national
conversation about responsibility in
lending who is responsible when a
borrower doesn’t repay a loan the
borrower who took it my undergrad or the
lender who gave did the credit card
companies most people in the United
States would say that it is the
responsibility of the borrower the
financial crisis showed us that mortgage
lenders also had part of her also had
part in this responsibility
however the reasons why my undergrad
declared bankruptcy and many bore with
many borrowers many mortgage borrowers
lost their houses depends on reasons
connected with long term developers in
the banking industry I will talk about
one of them the replacement of loan
officers by credit scoring creditors
Corinne is an American invention of the
19th century it was dreamed up by Lewis
Tappan Lewis Tubman is actually best
known for being an abolitionist he was
actually portrayed in a movie Amistad
but he also founded the first credit
score the lowest happened
mercantile agency which is the precursor
of current day dan and Bradstreet it was
widely imitated initially it was just a
letter full of rumor and hearsay
eventually over the years it became the
FICO scores experience course the
TransUnion is forest course that we are
all familiar with he particularly took
off in the 1970s I have taken mortgages
credit cards home equity loans car loans
I have yet to meet a loan officer and I
imagine that it’s very similar for many
of you I have met many of launch
salespeople and I have filled out plenty
of long questionnaires but decisions
about my repayment capacity have been
taken in some backroom based on a
mysterious algorithm over which I have
little control I learn about the role of
loan officers in responsibility in
London because of my research in
microfinance in Latin America
microfinance is a peculiar type of
London in which the involvement of loan
officers is absolutely fundamental
at least until recently I first heard of
my client out of microfinance in the
early 90s when I was conducting research
in the Northeast of Brazil I was
sustained in shoemaker’s as part of a
research project on programs to evaluate
micro enterprise programs to evaluate
the way the government could support the
development of micro enterprises back
then it was called new micro enterprise
finance he was called micro enterprise
finance because he thought it was about
lending to micro enterprises for example
a shoemaker in Brazil needs leather and
micro enterprise shoemaker didn’t have
the money to buy the leather a micro
enterprise noun could give him the cash
to actually go to them to the leather
merchant and negotiate a better price
that he could get otherwise it was
called new because of that it is because
of the will to distinguish it from prior
micro enterprise lending programs which
were rather irresponsible let me tell
you a story spite of my research project
on shoemakers I attended a meeting of
the month the monthly meeting of an
association of shoemakers in the
Northeast of Brazil and I presented
myself and doing research I’m helping
the government figure out ways of
supporting your micro enterprise what do
you need and predictably they set loans
we need loans so then I followed up and
I said I said you you ever taken a
government loan and I told his lender
man raised his hand yes yes and without
my prompting he shared with me that he
had used this loan to build a nice
addition to his house not to buy leather
and I was like what’s going on so sure a
room over the garage made this man’s
life better but similar to dispenses of
my credit that the credit card expenses
of my undergrad he did not generate any
revenue to pay back that loan lucky for
this shoemaker the micro-enterprise
lender that gave him the money closed
the doors before payment was to you
microfinance completely changed this it
began hiring and training highly-skilled
loan officers the job of a microfinance
loan officer is very hard I learned
about it while walking in the streets of
El Alto in Bolivia with this loan
officers in the morning they do sales
they go to street markets and they talk
with people like this woman selling
cheese your cheeses are wonderful and
absolutely fabulous how do you finance
where do you get your milk I work for
Carlos Saunders do you need a loan not
today
please keep my business card in the
afternoon they do repayment evaluation
they visit this woman’s house or whoever
they have identified as a potential
borrower and they evaluate how much can
they actually repay they learn funny
things for example taxi drivers in the
past in Bolivia when their boar what
they do is they stop for a bite so what
happens when business is down expenses
are up and so is the waistline in the
evening they visit late hares and they
visit defaulting borrowers is not a very
pleasant it’s not a very pleasant job
you can imagine they don’t like it
whatsoever in Bolivia people will put
their furniture and their TVs as
warranty for repayment can you imagine
going into someone’s house to take out
their furniture to take out the TV and
the kids are crying and the dogs are
barking I remember they’re telling me
that we never see the house when we’re
evaluating the launch but with these
dogs come from seems like they get them
just for this from their neighbors
right after they have to go back to
their office with their memories is
still fresh on exactly this on how
unpleasant it is to collect from someone
who cannot pay their loan and this is
when they file the paperwork and it’s
also when as part of credit committees
they decide on new loans microfinance
work with loan officers rely on loan
officers until mm why Brazil Bolivia and
most of the countries where you have
microfinance widespread they don’t have
the score in the national scoring
systems available in the United States
but what has happened over the years
computing capabilities big data this has
facilitated for financial institutions
to develop their own scoring systems why
is so interesting for them including in
microfinance well it’s very interesting
because it generates what efficiencies
is much more efficient to evaluate
borrowers repayment capacity with the
scoring algorithm than with an army of
loan officers the scoring thereby is
here to stay it’s not gonna go away the
challenge is to convince lenders that
they need to invest on systems that
avoid over in depth in their borrowers
dire avoid having their clients
defaulting on their loans they can
afford it let me show you some numbers
these graphs shows you the average
return on assets of all the US banks and
this is at a time of record profits in
banking this shows you actually a
comparison between the average of the US
banks and the pro credit Bank the pro
credit Bank is the bank that actually
has an army of loan officers decided on
the repayment capability isn’t it
interesting that it almost matches
perfectly this right here we have I have
added the return on assets of
the car backs which actually rely
majorly on the scoring so what do you
notice
well you know this is the profitability
it’s much higher but what else do you
see there’s a high there’s a high
volatility what is that is at the deep
at the deepest of repayment crisis at
the deepest borrowers the happy Fulton
under launch and many who might have
declared bankruptcy this is problematic
miss Annette and it is problematic at
least for two reasons first borrowers
actually like scoring base lending they
like scoring based lending for many
reasons remember my undergrad so why did
my undergrad declare bankruptcy the
reason he declared bankruptcy is because
he had used his credit card for daily
expenses because he lost his job and he
didn’t want to move back with Daddy and
because he didn’t want to move back with
that is I wanted I use my credit card
can you imagine him having that
conversation with one of my loan
officers my loan officer would have
never gave me him alone for that so
borrowers particularly the responsible
ones like scoring the other reason is
that the responsible lending has
actually moved beyond credit cards it’s
not a problem of credit cards credit
cards where the ones are the user in
scoring more broadly but this has
actually moved to other areas of lending
one of the areas of lending that this
has moved to is actually student loans
student loans and car loans these are
actually lenders these are lenders who
don’t care about the repayment
capability of their borrowers so what
can we do is Corrine is here to stay but
with responsibility in lending doesn’t
have to there’s a couple of things that
we can do first on the side of borrowers
we can increase financial literacy
second on the side of lenders we can
actually support financial institutions
that are responsible lenders in
microfinance we can
well through our crowdfunding platforms
such as kiva.org I had plan to end this
talk on a high note talking to you and
telling you about the Consumer Financial
Protection agent Beryl which had just
issued legislation protecting
encouraging and pressuring borrowers to
incorporate to incorporate systems so
they don’t over in depth their borrowers
this legislation went through all the
process it became effective January 16
2018 unfortunately Friday last week the
current administration stripped the CFPB
of his enforcement capabilities thereby
I want to end this talk urging the
current administration to restore to
debt CFPB is enforcement capabilities I
think it will go a long way to restore
the responsibility in lending that we
lost when loan officers became replaced
by creditors Corrine thank you very much
you
after the class discussion on credit
card lending an undergrad share with me
that just a year before he had
accumulated so much credit card that he
had to declare personal bankruptcy the
2008 financial crisis started a national
conversation about responsibility in
lending who is responsible when a
borrower doesn’t repay a loan the
borrower who took it my undergrad or the
lender who gave did the credit card
companies most people in the United
States would say that it is the
responsibility of the borrower the
financial crisis showed us that mortgage
lenders also had part of her also had
part in this responsibility
however the reasons why my undergrad
declared bankruptcy and many bore with
many borrowers many mortgage borrowers
lost their houses depends on reasons
connected with long term developers in
the banking industry I will talk about
one of them the replacement of loan
officers by credit scoring creditors
Corinne is an American invention of the
19th century it was dreamed up by Lewis
Tappan Lewis Tubman is actually best
known for being an abolitionist he was
actually portrayed in a movie Amistad
but he also founded the first credit
score the lowest happened
mercantile agency which is the precursor
of current day dan and Bradstreet it was
widely imitated initially it was just a
letter full of rumor and hearsay
eventually over the years it became the
FICO scores experience course the
TransUnion is forest course that we are
all familiar with he particularly took
off in the 1970s I have taken mortgages
credit cards home equity loans car loans
I have yet to meet a loan officer and I
imagine that it’s very similar for many
of you I have met many of launch
salespeople and I have filled out plenty
of long questionnaires but decisions
about my repayment capacity have been
taken in some backroom based on a
mysterious algorithm over which I have
little control I learn about the role of
loan officers in responsibility in
London because of my research in
microfinance in Latin America
microfinance is a peculiar type of
London in which the involvement of loan
officers is absolutely fundamental
at least until recently I first heard of
my client out of microfinance in the
early 90s when I was conducting research
in the Northeast of Brazil I was
sustained in shoemaker’s as part of a
research project on programs to evaluate
micro enterprise programs to evaluate
the way the government could support the
development of micro enterprises back
then it was called new micro enterprise
finance he was called micro enterprise
finance because he thought it was about
lending to micro enterprises for example
a shoemaker in Brazil needs leather and
micro enterprise shoemaker didn’t have
the money to buy the leather a micro
enterprise noun could give him the cash
to actually go to them to the leather
merchant and negotiate a better price
that he could get otherwise it was
called new because of that it is because
of the will to distinguish it from prior
micro enterprise lending programs which
were rather irresponsible let me tell
you a story spite of my research project
on shoemakers I attended a meeting of
the month the monthly meeting of an
association of shoemakers in the
Northeast of Brazil and I presented
myself and doing research I’m helping
the government figure out ways of
supporting your micro enterprise what do
you need and predictably they set loans
we need loans so then I followed up and
I said I said you you ever taken a
government loan and I told his lender
man raised his hand yes yes and without
my prompting he shared with me that he
had used this loan to build a nice
addition to his house not to buy leather
and I was like what’s going on so sure a
room over the garage made this man’s
life better but similar to dispenses of
my credit that the credit card expenses
of my undergrad he did not generate any
revenue to pay back that loan lucky for
this shoemaker the micro-enterprise
lender that gave him the money closed
the doors before payment was to you
microfinance completely changed this it
began hiring and training highly-skilled
loan officers the job of a microfinance
loan officer is very hard I learned
about it while walking in the streets of
El Alto in Bolivia with this loan
officers in the morning they do sales
they go to street markets and they talk
with people like this woman selling
cheese your cheeses are wonderful and
absolutely fabulous how do you finance
where do you get your milk I work for
Carlos Saunders do you need a loan not
today
please keep my business card in the
afternoon they do repayment evaluation
they visit this woman’s house or whoever
they have identified as a potential
borrower and they evaluate how much can
they actually repay they learn funny
things for example taxi drivers in the
past in Bolivia when their boar what
they do is they stop for a bite so what
happens when business is down expenses
are up and so is the waistline in the
evening they visit late hares and they
visit defaulting borrowers is not a very
pleasant it’s not a very pleasant job
you can imagine they don’t like it
whatsoever in Bolivia people will put
their furniture and their TVs as
warranty for repayment can you imagine
going into someone’s house to take out
their furniture to take out the TV and
the kids are crying and the dogs are
barking I remember they’re telling me
that we never see the house when we’re
evaluating the launch but with these
dogs come from seems like they get them
just for this from their neighbors
right after they have to go back to
their office with their memories is
still fresh on exactly this on how
unpleasant it is to collect from someone
who cannot pay their loan and this is
when they file the paperwork and it’s
also when as part of credit committees
they decide on new loans microfinance
work with loan officers rely on loan
officers until mm why Brazil Bolivia and
most of the countries where you have
microfinance widespread they don’t have
the score in the national scoring
systems available in the United States
but what has happened over the years
computing capabilities big data this has
facilitated for financial institutions
to develop their own scoring systems why
is so interesting for them including in
microfinance well it’s very interesting
because it generates what efficiencies
is much more efficient to evaluate
borrowers repayment capacity with the
scoring algorithm than with an army of
loan officers the scoring thereby is
here to stay it’s not gonna go away the
challenge is to convince lenders that
they need to invest on systems that
avoid over in depth in their borrowers
dire avoid having their clients
defaulting on their loans they can
afford it let me show you some numbers
these graphs shows you the average
return on assets of all the US banks and
this is at a time of record profits in
banking this shows you actually a
comparison between the average of the US
banks and the pro credit Bank the pro
credit Bank is the bank that actually
has an army of loan officers decided on
the repayment capability isn’t it
interesting that it almost matches
perfectly this right here we have I have
added the return on assets of
the car backs which actually rely
majorly on the scoring so what do you
notice
well you know this is the profitability
it’s much higher but what else do you
see there’s a high there’s a high
volatility what is that is at the deep
at the deepest of repayment crisis at
the deepest borrowers the happy Fulton
under launch and many who might have
declared bankruptcy this is problematic
miss Annette and it is problematic at
least for two reasons first borrowers
actually like scoring base lending they
like scoring based lending for many
reasons remember my undergrad so why did
my undergrad declare bankruptcy the
reason he declared bankruptcy is because
he had used his credit card for daily
expenses because he lost his job and he
didn’t want to move back with Daddy and
because he didn’t want to move back with
that is I wanted I use my credit card
can you imagine him having that
conversation with one of my loan
officers my loan officer would have
never gave me him alone for that so
borrowers particularly the responsible
ones like scoring the other reason is
that the responsible lending has
actually moved beyond credit cards it’s
not a problem of credit cards credit
cards where the ones are the user in
scoring more broadly but this has
actually moved to other areas of lending
one of the areas of lending that this
has moved to is actually student loans
student loans and car loans these are
actually lenders these are lenders who
don’t care about the repayment
capability of their borrowers so what
can we do is Corrine is here to stay but
with responsibility in lending doesn’t
have to there’s a couple of things that
we can do first on the side of borrowers
we can increase financial literacy
second on the side of lenders we can
actually support financial institutions
that are responsible lenders in
microfinance we can
well through our crowdfunding platforms
such as kiva.org I had plan to end this
talk on a high note talking to you and
telling you about the Consumer Financial
Protection agent Beryl which had just
issued legislation protecting
encouraging and pressuring borrowers to
incorporate to incorporate systems so
they don’t over in depth their borrowers
this legislation went through all the
process it became effective January 16
2018 unfortunately Friday last week the
current administration stripped the CFPB
of his enforcement capabilities thereby
I want to end this talk urging the
current administration to restore to
debt CFPB is enforcement capabilities I
think it will go a long way to restore
the responsibility in lending that we
lost when loan officers became replaced
by creditors Corrine thank you very much
you
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