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Finance Providers Benefit

As credit scores rebound

Account ManagementWhile the summer Months were a little slow, the market for retail finance providers isn't looking too bad this fall.
     Along with data from the U.S. Department of Commerce that retail sales at furniture and home furnishings stores in July were up 1.1% over June to $8.06 billion, and up 9.9% over July 2011, major providers of retail finance products reported healthy growth in consumer credit portfolios for the second quarter.
     GE said retail volume in its private label credit card business is up 9% for the quarter.
     Alliance Data, another publicly traded provider of private label credit card services, also is bullish on its growth. Consumers continue to bounce back from the recession, said Deb Decker, senior VP and chief client officer at Alliance.
     "The customer's credit scores are absolutely bouncing back," Decker said. "We are seeing growth across all of the score bands in credit lines getting a little stronger."
     As the recession eased, consumers began opening credit accounts but were using them to compartmentalize purchases and keep track of spending, often paying them off month to- month.
     As the economy recovers, retailers are starting to see interest build in longer-term 12-, 24- and 36-month financing plans, Decker said. Customers like the option of spreading out payments, she said.
     Among some of the novel emerging approaches in retail finance, Alliance has online tools that can preapprove customers and give them a mobile virtual card, getting rid of plastic, Decker said.
     Customers get a virtual card on their phones that store sales associates can key in for purchases. She said her company believes the virtual card's use will become widespread.
     Lonnie Davis, president and CEO of F&I Systems, which has a variety of products for retailers offering consumer finance programs, said another trend he's seeing involves retailers developing in-house lease-to-own training and programs for second tier customers, starting with credit scores at 680 or lower.
     Davis said he's also seeing an increased interest from customers at retail in equal monthly payment plans. Instead of a minimum balance each month, the total purchase is broken into equal payments.
     Another popular program is a version of the in-store credit kiosk. LendPro, one of the finance programs F&I Systems offers, helps retailers keep customers in stores and helps them get approval if they are declined for primary financing, Davis said.
     LendPro is a secondary vendor that sources out finance options to multiple lenders through a kiosk, iPad or laptop platform. It allows customers to choose who they want to use to finance purchases, according to David Weyher, owner and president of LendPro.
     One reason stores like the process is because customers don't like to re-engage in filling out another application - which in-store sales reps also tend to avoid because they are time consuming, Weyher said.
     Through LendPro, consumers are offered alterative finance options, revolving credit, installment loans and rent-to-own options, he said. Usually, LendPro can find a lender that will get customers enough credit to make their purchase, he said.
     Weyher said some of the largest retailers don't use a secondary program and the tier is not widely penetrated yet, but secondary vendors are becoming more aggressive as they notice prime finance providers aren't targeting customers with a 650 or lower credit score.
     "What that tells me is they feel OK about the credit quality out there and the ability to repay. Or they'd be staying clear of the market," Weyher said.
     In the face of a tough market for prime approvals, secondary financing can help retailers increase their approval rates, he said.
     "The prime lenders just aren't approving the way they used to," Weyher said. "That's been going on for some time with the whole credit crunch and it really hasn't loosened up yet. They're getting a lot of turn downs."
     Jim Seger, general manager, home furnishings, at GE Capital Retail Finance, said there's still an appetite for consumer credit.
     "The consumer is using financing at the levels that they always have," Seger said. "It's pretty consistent with what we've seen over the last few years."
     Seger said 12-month private label credit card promotions still represent the majority of transactions for in-store financing because consumers at the point of sale understand those programs best. The average purchase using private label finance is two or three times the average cash or general purpose card buy, he said.
     "Consumers are comfortable with it, they understand it, but we are starting to see a little bit more migration to longer-term equal pay promotions starting at 36 months and going up," Seger said.

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