© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Ability to Pay and Credit Line Management Successful Card Strategies in an Evolving Regulatory Environment Neil Roberts Product Manager EMEA First Data Corporation Stephen Hoops CEO Hoops Consulting LLC Vance Gudmundsen Regulatory Counsel FICO

© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Panel Neil Roberts Senior Product Specialist, EMEA First Data Corporation Stephen Hoops CEO Hoops Consulting, LLC Vance Gudmundsen Regulatory Counsel FICO Hoops Consulting LLC

© 2014 Fair Isaac Corporation. Confidential. ► Regulatory uncertainty makes it necessary to have flexible solutions Ability to Pay and Credit Line Management Regulators around the world are laser focused on consumer financial protection. In many countries, lenders are now responsible for offering a credit product (with the right terms and price) that is tailored to the financial circumstances of each individual consumer. This requirement is called “suitability” in the EU and “ability-to-pay” in the US. However, these regulations are ambiguous, or they lack prescriptiveness, or different regulators have different compliance expectations. This causes compliance anxiety for lenders, especially those who do business in multiple jurisdictions. How have financial institutions tried to remain flexible and cope with this situation? FICO ® TRIAD ® Customer Manager may be part of the solution. 3

© 2014 Fair Isaac Corporation. Confidential. ► Caveat emptor is a long way from consumer protection law today ► English courts of equity mitigated the narrow writs in English law ► Implied warranties and contracts of adhesion ► UDAP in 1914 (FTC Act) ► UDAAP and the concept of “abusiveness” ► Abusive: under the CFPA, a business practice is abusive if the lender takes unreasonable advantage of ► (i) the consumer’s inability to protect himself in the relationship, or ► (ii) the consumer’s reliance on the lender to act in the consumer’s interest ► EU Consumers Rights Directive (June 2014; cross-border sales) History of Consumer Protection 4

© 2014 Fair Isaac Corporation. Confidential. ► Rising regulatory ambiguity, including subjective, high-penalty mandates to assure consumer ‘fairness,’ are making it impossible for providers to assess and limit legal exposure.” ► Credit line management around the world is becoming increasingly regulated, and countries have varying degrees of regulation ► When regulation is ambiguous, regulatory compliance is open to issuers’ own interpretation ► What is “suitability” (EU Consumer Credit Directive)? ► How does a credit card issuer assess one’s “ability-to-pay” (Credit CARD Act of 2009)? ► Are income estimators permitted? ► “Regulatory Olympics” have extended to state regulators and attorneys general Lack of Prescriptiveness Creates Compliance Anxiety 5

© 2014 Fair Isaac Corporation. Confidential. High default rates Stressed portfolio quality Persistent economic instability Regulatory compliance Heavy pressure on profitability Today’s Environment Presents Many Challenges 6

© 2014 Fair Isaac Corporation. Confidential. Adapt to meet new regulations Prioritize complex customer relationship decisions Quickly change treatments to match the evolving economy Apply and deliver coordinated credit policies across multiple product lines Decide who to keep as customers and how to treat them Improve—don’t degrade customer satisfaction Consistency Scale © 2014 Fair Isaac Corporation. Confidential.7

► Doing business in multiple jurisdictions, with diverse portfolios, requires flexibility ► Lowest common denominator approach restricts access to market ► Decision making is best if it leverages data, analytics, and business expertise ► Predictive modeling is legal insulation from charges of discrimination or predatory lending ► Using industry best practices provides regulatory cover ► If the standard is “reasonableness”, there is safety in numbers How to Manage Credit Line Increase Strategies 8

© 2014 Fair Isaac Corporation. Confidential. ► While this presentation is primarily about maximizing increase strategies, it’s important to consider the impact of decreases, which are generally unregulated ► A balanced approach to increasing your best performing accounts to decreasing your inactive or high risk accounts is required What About Credit Line Decreases? 9

© 2014 Fair Isaac Corporation. Confidential. ► FICO ® TRIAD ® is a strategic scoring and decisioning system ► FICO ® TRIAD ® at First Data EMEA is fully integrated with VisionPLUS™card processing platform ► Leverages data, analytics and business expertise for advanced and automated card decision making (credit limits, authorizations, pre-collections and more) ► Allows card issuers flexibility in managing diverse portfolios What Is FICO ® TRIAD ® Customer Manager? 10

© 2014 Fair Isaac Corporation. Confidential. TRIAD Around the Globe Global ► FICO ® TRIAD ® Customer Manager is the most widely used adaptive control solution with approximately 65% of bank cards processed ► 9 of the top 10 and 14 of the top 15 lenders in the US use FICO ® TRIAD ® ► 30+ countries, hundreds of clients ► Multiple channels including end users and processors ► Portfolio sizes 250K to 30M accounts EMEA ► Over 90% of UK credit cards processed by FICO ® TRIAD ® ► Around 66 users in EMEA ► At FirstData, over 20 million accounts are cored by FICO ® TRIAD ® for 15 clients ► Nearly 1.25 million transactions were processed in real-time 11

© 2014 Fair Isaac Corporation. Confidential. ► UK ► UAE ► Ireland ► Saudi Arabia ► US Client Solutions Around the World 12

© 2014 Fair Isaac Corporation. Confidential. FICO ® TRIAD ® Customer Manager Solution for UK #1 Client Challenge ► UK regulators state issuers must offer ‘at least 30 days notice’ of increase; no regulation around decreases Solution ► Offer limit application delayed by at least 30 days ► New call to FICO ® TRIAD ® based on the offer expiry date ► Account is reassessed at expiry and applied, or removed if account out of order Value ► A portfolio size of approx. 700k compliantly offer and apply around 28k limits per month ► Also employ a limit decrease strategy to balance risk 13

© 2014 Fair Isaac Corporation. Confidential. FICO ® TRIAD ® Customer Manager Solution for UK #2 Client Challenge ► UK regulators introduced affordability and sustainability checks on limit increases; regulation was ambiguous as to what level of checking was required ► Lenders must assess if the new level of credit is likely to cause undue stress Solution ► Bureau data has been added to FirstVision™ ► Data passed to FICO ® TRIAD ® and custom keys are calculated in FICO ® Blaze Advisor ® business rules management system ► Affordability is checked in batch prior to offer limit Value ► Client with approx. 14 million accounts offer compliantly to around 100k customers a month (approx. £76m increased a month) ► Decreases are applied immediately using a combination of account activity and bureau data—approximately 43k decreased per month (approximately £62m reduced exposure) balance risk 14

© 2014 Fair Isaac Corporation. Confidential. FICO ® TRIAD ® Customer Manager Solution for UAE Client Challenge ► UAE card issuer wanted to run CLI campaign; needed to be able to calculate new limits and gain customer consent Solution ► FICO ® TRIAD ® allows for 3 limits—Credit Limit, Cash Limit, Offer Limit ► The Offer Limit allows limit manipulation without affecting the main line ► FICO ® TRIAD ® output will be used to call customers Value ► Estimators show approx 5% of portfolio eligible for increase with very conservative strategy ► Client has a fully compliant approach to offering line management 15

© 2014 Fair Isaac Corporation. Confidential. FICO ® TRIAD ® Customer Manager Solution for Ireland Client Challenge ► Ireland’s regulators imposed a ban on limit increases without being requested by the customer Solution ► FICO ® TRIAD ® Authorizations is used to allow best risk customers to transact over 100% of limit ► Over limit fee application generally triggers a call to customer services ► FICO ® TRIAD ® Authorizations can be used to generate a new limit real time at request of customer Value ► Client is able to compliantly engage in contact and assess suitability for limit increase real time 16

© 2014 Fair Isaac Corporation. Confidential. All Bases Covered! ► Issuers had to seek bureau information which was costly ► Debt burden ratios capped at 33% ► Consent must be given to increase the limit Client Challenge ► Accounts are pre-selected so only the best accounts are targeted ► Accounts are queued to be worked, bureau cheeked, and DBR Solution ► A portfolio size of approx. 700k compliantly offer and apply around 28k limits per month ► Also employ a limit decrease strategy to balance risk Value FICO ® TRIAD ® Customer Manager Solution for Saudi Arabia 17

© 2014 Fair Isaac Corporation. Confidential. FICO ® TRIAD ® Customer Manager Solution for US ► US co-branded card issuer wanted to run CLI campaign; needed to be able to calculate new limits utilizing income inputs that is collected from multiple sources Client Challenge ► FICO ® TRIAD ® allows for data inputs dynamically through BDS (Blaze Decision System) ► This allows the user to calculate income-based variables utilizing multiple sources (i.e. Debt-to-Income, Ability-to-Pay, etc…) ► CLI decisions can now be calculated utilizing the best available income Solution ► Impact: Overall increase of 6% monthly CLI volume (10% swap-in, 4% swap-out) ► Regulatory: Most recent audit by the regulators came with a note within the report-out that the new practice was following exactly the spirit of the regulations Value 18

© 2014 Fair Isaac Corporation. Confidential. FICO Origination Solution for US #1 ► US regulators demand satisfactory calculations of Ability-to-Pay (ATP) models within the acquisition channel; business had the need to dynamically incorporate multiple calculations for ATP within the acquisition decision engine Client Challenge ► FICO ® Capstone ® Decision Manager allowed the business to incorporate detailed calculations for ATP ► The business was able to detail end node solutions for each outcome, including approvals/line assignment, declines & NAI (needs additional information) letters ► FICO ® Capstone ® Decision Manager allowed the users to incorporate detailed income charts from the IRS within the decision criteria Solution ► Impact: Overall increase of 330bps of approval rate (490bps swap-in, 160bps swap-out) ► Regulatory: Regulators were very please with the ability to incorporate IRS.gov tables Value 19

© 2014 Fair Isaac Corporation. Confidential. FICO Origination Solution for US #2 ► Co-branded airline product for the gamer-population; ATP calculations and multi-product declines were not considering accounts previously booked with no statement billed Client Challenge ► FICO ® Capstone ® Decision Manager allowed the business to evaluate origination information on accounts that were booked, but had not statement billed ► The ability to identify these applications prior to processes, will allow the business to forgo a credit bureau pull, as well as any additional costs for Patriot Act & KYC verifications, by allowing FICO ® Capstone ® Decision Manager to issue a letter to the consumer indicating existing product present Solution ► Impact: Identified 22,000 applications annually to suppress application processing ► Regulatory: Regulators were informed post-implementation of the solution and agreed Value 20

© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Thank You! 21 Neil Roberts Stephen Hoops Vance Gudmundsen

© 2014 Fair Isaac Corporation. Confidential. Learn More at FICO World Related Sessions ► Key Steps to Better Credit Line Management at CIBC, Wednesday; 11:30–12:30 pm ► Customer Communications: Clearing the Regulatory Hurdles, Friday; 11:45–12:45 pm Products in Solution Center ► FICO ® Customer Communication Services ► FICO ® TRIAD ® Customer Manager Experts at FICO World ► Vance Gudmundsen ► Janice Horan White Papers Online ► Building Ability to Pay-Compliant Growth Strategies Blogs ► 22

© 2014 Fair Isaac Corporation. Confidential. Please rate this session online! Neil Roberts Stephen Hoops Vance Gudmundsen 23