Consumer Finance & Retail Banking

Resources for Improving Consumer Finance Operations

  • What is Consumer Finance?

    Individuals seek loans to afford expensive purchases that exceed their accumulated savings. Auto loans and student loans are common examples of the kinds of loans that banks typically issue to individuals. The interest rates on the loans vary according to several criteria, including the credit-worthiness of the loan applicant. The interest that the banks receive on the loans generates profit, but also allows the banks to pay interest to their depositors.
  • The History of Consumer Finance

    Large-scale consumer borrowing is a relatively recent phenomenon. Since antiquity, however, individuals have contracted debts for a variety of reasons. The criticism of interest-bearing loans is similarly old, and has been denounced as usury. In his Commentaries on the Laws of England, published between 1765 and 1769, William Blackstone commented that "When money is lent on a contract to receive not only the principal sum again, but also an increase by way of compensation for the use, the increase is called interest by those who think it lawful, and usury by those who do not."

    In 1311, Pope Clement V established an absolute ban on usury throughout Christian Europe. By the last quarter of the fourteenth century, however, English law recognized penal bonds that enforced a penalty twice the rate of the loan in case of even partial late repayment of the debt. Regardless of any prohibitions, interest-bearing loans existed, but were relatively uncommon through the nineteenth century and were limited mainly to mortgages. In the beginning of the twentieth century, and the emergence of more expensive household appliances and automobiles, consumer credit expanded rapidly. The late twentieth century saw massive expansion of consumer credit and household debt that only began to decline in the early twenty-first century as a result of the financial crisis of 2008.
  • Modern Trends in Consumer Finance

    As a result of the 2008 financial crisis and the ensuing recession, the US Congress passed the Dodd-Frank Act that, among other innovations, established the Consumer Financial Protection Bureau in 2011 for the purposes of further regulating consumer finance. The regulation that the bureau might produce, and the effects of that regulation on the industry, remain uncertain.

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