CreditLine Quarter 4, 2015

What's inside:• How credit card debt is changing the economy• Solutions to drive customer engagement• What is an ALLL estimate? And how does my institution utilize it?• The Top 5 predictors of subprime risk

2

As we bring 2015 to a close, we are excited to share some news with you.

RA Business Solutions is in the middle of a rebranding process. This will include everything from a new website to a snazzy new logo. We hope to share that site with you by the end of the year.

Of course we will continue to deliver the top shelf solutions and first class customer service you have come to expect.

We pride ourselves in being more than just a data provider, but to also be a business partner.

As you round out your budgets for next year, we are happy to meet with you to discuss how we

can help you and your team achieve its marketing goals.

Until then, thank you for allowing us to work with you and we look forward to continue doing so into 2016.

Warm Regards,

Matt Boyer

Matt BoyerVice President(757) 455-9326

mboyer@retailalliance.com

Catherine HoldenAccount Manager

(757) 455-9387cholden@retailalliance.com

Heather GregorySales & Marketing Coordinator

(757) 455-9343hgregory@retailalliance.com

Seasons Greetings from Our Team to Yours

American consumers continue to show signs they are recovering from the Great Recession by steadily increasing their credit card debt, according to data from the latest National Consumer Credit Trends report released today by Equifax.

Total credit card debt rose to $634 billion at the end of the second quarter, a 5 percent jump compared to $604 billion a year ago.

The Equifax data also revealed the rate of growth in credit card debt more than doubled year over year in many of the metro areas hit hardest by the housing market crash, and more than tripled in other cities less affected by the crash.

This suggests that consumer confidence in the American economy is growing across the board.

In each of the nation's top 25 metro areas, consumers increased credit card debt by at least 3 percent in 2015 compared to a year earlier.

This is a marked contrast to the second quarter of 2014, when just eight of the top 25 markets saw as much as a 3 percent gain over the previous year.

"Every major market has seen increases in credit card debt, even those cities where the housing market issues are not completely resolved," said Assad Lazarus, interim unit leader of Equifax Personal Information Solutions.

"This shows that American consumers are more confident about their financial futures, and that means the U.S. economy has entered an expansion mode."

The metro areas that saw the sharpest increases in year-over-year credit card

debt were Miami (9.5 percent), Las Vegas (9.4 percent), and Orlando (9.3 percent), while those with the smallest increases were Minneapolis (3 percent), Detroit (3.7 percent), and Seattle (3.8 percent).

Previous Equifax credit trend reports indicated that while consumers were taking on more credit card debt, the increases were much smaller in areas with slow economic recovery, such as Detroit.

Yet the latest data shows that even Detroit consumers saw a credit card debt growth rate of 222 percent from 2014 to 2015. Other cities with huge growth rates include Phoenix (308 percent) and St. Louis (317 percent).

"These trends suggest that American consumers are getting on with their lives," Lazarus added.(Source: Equifax)

Increased Growth in Credit Card Debt Reflects Growing Confidence in EconomyNew Equifax Data Reveals Increased Spending by Consumers in All Major U.S. Cities

Workforce Solutions Shout-Out

Great News!

We are excited to share with you that RA Business Solutions is now the exclusive account manager for Equifax Workforce Solutions in the Virginia and Northeastern North Carolina regions.

These services provide a variety of options for verification of employment, income, identity and assets.

This set of solutions, backed by Equifax’s reliable databases, allows you to instantly access 220 million payroll records, IRS tax transcripts, Social Security Verification, and over 11,000 financial institutions that provide accurate financial asset and bank deposit data on your consumers.

This will allow you to:

• Have a true assessment of customer’s ability to afford

• Eliminate the need to rely on applicant-provided data

• Add efficiency and consistency to internal compliance and regulators

Some of our featured solutions include:

• Instant Employment Verification: Delivers employment data from The Work Number service, updated each pay period: VOE includes start date, tenure, job title etc.

• Instant Income Verification: Includes detailed employment information plus current and historical income for base pay, commission, bonuses and overtime.

• IRS Income Verification: Fulfills various tax transcript and employer W-2 requests directly with the Internal Revenue Service(IRS), including 4 year history- most prominently fulfills Form 4506-T requests for personal and business tax transcripts

Look for more information on Equifax Workforce Solutions in the next issue of Credit Line!

4

New Report Shows Data-Driven Marketing Drives Customer Engagement and Market Growth

Data-driven marketing has delivered demonstrable results in terms of customer loyalty, customer engagement and market growth.

Organizations that are “leaders” in data-driven marketing report far higher levels of customer engagement and market growth than their “laggard” counterparts.

In fact, leaders are three times more likely than laggards to say they have achieved competitive advantage in customer engagement/loyalty (74% vs. 24%) and almost three times more likely to have increased revenues (55% vs. 20%).

This is the key finding from the just-released report from Forbes Insights and Turn, the marketing software and analytics platform, “Data Driven and Digitally Savvy: The Rise of the New Marketing Organization.”

The report, based on a global survey of more than 300 executives, finds widespread agreement that data-driven marketing is crucial to success in a hyper-competitive global economy.

Marketers have been employing data in various forms for some time, but a convergence of tools and technologies is now changing the game.

Marketers have unprecedented access to individual transaction-level data and can match that with the customer’s exposure to marketing activities and ads.

While many organizations have some form of data-driven marketing in place, strategies are being implemented in piecemeal fashion, within siloed business units, without fully taking advantage of the resources that are available.

“Effective data-driven marketing draws on resources from across the enterprise, not a single department,” says Bruce Rogers, Chief Insights Officer and head of the CMO Practice for Forbes Media. “And without data, marketing is not based on customer intelligence.”(Source: Forbes.com)

Using data driven marketing to drive revenue and customer engagement is impossible without the most accurate and efficient data possible.

The iXi Data Solution Suite from Equifax is the only data set of its kind with industry leading insights. It is the only source currently available that provides you with a total customer profile by combing a complete wealth portfolio with demographics and geographic location.

This kind of data not only allows you to create a full customer profile, but to then segment your market population according to those profiles while finding your target consumers down to a city block.

Not only does this technology allow you to run smarter more efficient campaigns, it allows you to gain new insights on your existing customers and how to engage them throughout their consumer lifecycle.

Contact your Equifax Sales Agent to learn more about how iXi Solutions can transform your business.

The Allowance for Loan and Lease Losses (ALLL) is commonly the largest estimate on a financial institution’s statement of financial condition.

The incurred loss model is currently used by institutions to estimate the required ALLL necessary to cover anticipated losses.

The incurred loss model utilizes several different components including:

1. Reserves for homogenous loan pools based on historical loss data.

2. Reserves for non-homogenous impaired loans.

3. Reserves for troubled debt restructurings (TDRs) based on discounted cash flow calculations or a fair value assessment of the collateral less the costs to sell the asset.

4. Reserves for qualitative and environmental factors relevant to the particular institution.

The incurred loss model generally delays recognition of credit losses until the loss is considered “probable.”

The model also considers losses that have been incurred and will most likely be reflected as charge-offs during the next operating cycle (typically 12-months after the reporting date).

The Financial Accounting Standards Board (FASB) believes that financial statement users desire transparency with regard to management’s full estimate of all expected credit losses, and the new proposed model would provide users with a consistent balance sheet objective.

CECL is an estimate of the present value of future cash flows not expected to be collected based on quantitative and qualitative information such as:

• past events• historical loss experience• current economic conditions• borrower credit worthiness• forecasts of expected credit losses• current point and forecast direction

of the economic cycle.

FASB expects that an institution's estimate of expected credit losses will be largely formed by historical loss information for financial assets of similar type and credit risk.

The expected credit loss estimate represents the life of a loan and considers prepayment, collateral value, current and expected economic conditions.

CECL will reflect the time value of money either explicitly through the discounted cash

flow model calculating present value of future cash flows discounted at the instrument’s effective interest rate, or implicitly through loss statistics based on a ratio of amortized cost written off due to credit losses to the amortized cost of the asset at the reporting date.

Financial institutions would adopt CECL by posting a cumulative-effect adjustment to their statement of financial condition (undivided earnings) as of the beginning of the first reporting period in which the guidance is effective.

However, it’s important to note that the CECL guidance has not been issued and financial institutions are not permitted to increase their ALLL in anticipation of the CECL model guidance.

Likewise, financial institutions should not underfund their ALLL estimate with the goal of increasing net income and recording the CECL adjustment through undivided earnings if the guidance is ultimately accepted.

The industry expectation is that a final standard will be issued by the end of 2015 with an expected effective date of 2019.

In the meantime, subscribe to our communications at www.claconnect.com to stay current on CECL including implementation guidance.(Source: A.J. Eschle, CPA, Manager, Financial Institutions. andrew.eschle@claconnect.com or 703-825-2109)

Allowance for Loan and Lease Losses

6

Most of the conversation around automotive finance is currently focused on the growth of originations to consumers with subprime credit scores, but there is more remarkable growth in orginations made to consumers who do not have a credit score at all.

As seen in Chart 1, subprime originations (designated by credit scores between 550 and 619) increased 2.16 percent from 2013 to 2014. Growth was even higher in the deep subprime segment (designated by credit scores below 550), with originations increasing 2.9 percent from 2013 to 2014. Yet the group that grew the most were consumers with no score at all, with originations growing 7.89 percent from 2013 to 2014.

Chart 1

These originations are not only growing in number, but also performing quite well. Chart 2 displays subprime auto delinquency rates from 2006 to 2015. In the last five years, both the number of delinquent subprime accounts and the amount of balances owed have decreased overall, with that trend looking to continue in 2015.

Chart 2

So how can subprime originations be growing and performing well, especially among consumers with no credit scores?

The answer is that lenders are starting to leverage non-traditional financial attributes that are often more predictive for the subprime segment as well as consumers without a traditional credit history. In the past, these attributes were used anecdotally and reliant on information that consumers shared willingly with lenders. Moreover, it took time for consumers to hunt for their latest pay stub to prove they currently had a job and stable income. This ultimately

led to delayed or derailed sales opportunities, which are lose-lose situations for all parties involved. Now lenders have access to alternative risk scores and databases of comprehensive financial information.

Many of these emerging databases are more than a simple pooling of data sourced from different companies and public records, with data providers and consumer

reporting agencies going a step further to generate state-of-the-art risk models to analyze information about subprime borrowers. These models are the result of analyzing financial characteristics that have been prioritized by statistical algorithms. Using these databases and algorithms can reveal that different individuals who have the same subprime credit scores may actually have entirely

different financial situations.

A growing number of lenders are looking at these alternative attributes to find subprime borrowers similar to the second individual in the example above – individuals who are rebuilding their credit history after hard times to demonstrate they are more likely to remain current on an auto loan.

These alternative databases can be a goldmine of information, and lenders may be surprised at which financial attributes are the most predictive at assessing the risk of a potential borrower. Some of the most important financial attributes identified by these databases and algorithms include:

• Size of Delinquent Telco and Utility Balances: Individuals having larger telecommunications or utility balances tend to be a greater risk for auto lenders. This is particularly true for Thin File individuals or those with a bankruptcy on file

• Presence of an Involuntary Disconnection: Individuals who have had their utilities, cell phones, cable service or other telco or utility service disconnected due to nonpayment represent greater risk for lenders.

• Number of Address Changes: Individuals who have changed their physical address multiple times represent greater risk for lenders.

These attributes are only the tip of the iceberg – there is a wealth of alternative data that can provide lenders with the insight they need to formulate a more comprehensive evaluation of consumers in the subprime market. With automotive sales remaining strong, lenders can use these resources to quickly and efficiently assess applicants, communicate with their partners and help close more deals.(Source: Equifax. A version of this article ran in the July-August edition of Non-Prime Times)

The Top Five Predictors of Subprime Risk

During an Equifax webinar discussing the Consumer Financial Protection Bureau’s (CFPB) proposed rules in short-term lending; the majority of the participants indicated that they currently require income information as part of the loan origination process (poll 1), yet two thirds of the participants indicated that they were relying on borrower-furnished income and employment information.

While most lenders see the importance of verifying income and employment information, many fail to leverage 3rd party verified data. Overstating income affects performance and about four out of five applicants overstating income

make less than $50k. Differences in stated vs verified income negatively affect loan performance by an average of – 5 percentage point for overall applicants.*

The webinar attendees had the

opportunity to hear from guest speaker Keith Barnett, a Partner at the law firm of Sutherland Asbill & Brennan LLP, and learn more about the “ability-to-repay” requirements that the CFPB is contemplating imposing on short-term and certain longer-term loan products. The attendees also learned that lower-income consumers, those most likely to face ability-to-repay issues, were much more likely to overstate

their incomes on their loan applications. The CFPB’s emphasis on establishing consumers’ ability to repay makes 3rd-party income and employment verifications more crucial than ever. You can learn more about the research on stated income and loan performance, as well as gain additional insight into the CFPB’s proposed regulations by accessing the complete webinar recording and presentation slides online or contacting an Equifax representative today at info@theworknumber.com.

CFPB Proposed "Ability-to-Repay" Rules in Short-term Lending—The Need for Income and Employment Verification

Our valued clients,

It is with great appreciation that we announce that one of our team members, Steve Hamilton, will be leaving us. Steve has been a dedicated and valued member of our team for the past four years and we are sad to see him go, but so incredibly proud of the opportunities he has ahead of him. We wish him well in his future endeavors. His last day will be October 9, 2015, and we are currently in the process of vigilantly looking for a qualified replacement. In the meantime, we would like to assure all of our clients who had the pleasure of working with Steve as their account manager that there will be no interruption to their level of service. In addition, should you have any questions or customer support issues, please direct them to either Matt Boyer or Heather Gregory (contact information can be found on page 2) for assistance. We will be updating you in the near future when a replacement has been found, and are looking forward to adding a new member to our team. Best regards, RA Business Solutions Team

838 Granby StreetNorfolk, VA 23510 757-455-9343 ph 757-466-9363 fax888-757-5265 toll freewww.retailalliance.com

PRESORTED STANDARD

US POSTAGEPAID

Norfolk, VAPermit No. 01603

EquifaxEquifax is a global leader in consumer and commercial information solutions, providing businesses of all sizes and consumers with information they can trust. Equifax organizes and assimilates data on more than 600 million consumers, 81 million businesses, and 220 million employee files.

Retail Alliance Business SolutionsThe history of Retail Alliance starts in 1903 when we operated as an independent credit bureau. In 2002 we merged with Equifax to become a contracted exclusive agent. We are now the primary Equifax account manager for the Virginia and Northeastern North Carolina regions.

Retail Alliance Business Solutions CreditLine Q4 2015

FREE Training Seminars “How to Read a Credit Report”2015 Schedule

Richmond 10:00AM—11:30AM• October 14

Location: Retail Merchants Association5101 Monument Ave, Richmond, VA 23230

Hampton Roads 9:00AM—10:30AM• November 18

Location: Retail Alliance838 Granby St, Norfolk, VA 23510

Seating is limited to 20 attendees. To accommodate large groups, we can bring the seminar to your workplace at your convenience.

Interested in scheduling credit

training for your office? Contact us!