FINANCE COMPANIES

1
FINANCE COMPANIES
2
Historical Divisions

• Consumer Finance Companies
• Sales Finance Companies
• Commercial Finance Companies

3
Assets

• Source Federal Reserve Statistical Release,
  Finance Companies

11
31
58
4
Personal Loans
5
Business Loans
6
Ownership Structure

• Captives
• Wholly-owned subsidiary
• Independent

7
Claims
8
Consumer Services

• Automobile Financing
• fairly competitive rates
• commercial banks now in this market
• Closed-end Retail Installment Contracts
• consumer purchases goods, using installment
  contract
• may be on a credit card or a signed note
• appliances, electronics, cars

9
Consumer Services, cont

• Leasing Agreements--boats, cars, RVs,
  manufactured homes
• Credit Cards
• when issued by FC, not subject to bank regs
• Thrift Institutions
• MMMFs

10
Consumer Services, cont

• Mortgages
• Direct mortgage lending
• Mortgage initiation, packaging, sale
• Mortgage buying, packaging, resale
• First, second, refinanced, home equity loans
• Bill-Consolidation Loans
• Other Cash Loans

11
Business Services

• Leasing--provision of equipment and facilities to
  manufacturers, wholesales, distributors
• Retail Financing--transactions between
  distributor and customer
• Wholesale Financing--transactions between
  manufacturer and distributor
• Generalized Business Source of Funds

12
Business Services, cont

• Real Estate Activities
• commercial mortgages
• financing for acquisition, development,
  refinancing, and renovation
• secured by income-producing property
• acquisition and development of housing
  developments
• Private-Label Credit Card Management

13
Business Services, cont

• A/R Factoring
• A/R purchased from firm at a discount
• reduces businesss processing costs
• provides short-term loan
• Inventory Lending
• floor-planning
• warehouse financing (public/terminal vs
  private/field)

14
Regulation

• Federally
• if is a bank holding company
• if is owned by a bank holding company
• State, otherwise
• subject to a loan ceilings
• subject to ceiling interest rates and max. term
• subject to branching regulations

15
Risk Analysis

• Liquidity Risk--not too high
• Interest Rate Risk--
• liability and asset accounts all short- or
  intermediate term therefore not too rate
  sensitive
• when need to adjust, can do so within a short
  time
• Default Risk--higher than for banks