1. Your Bank Policy and Rules for
RCGILTNER
Services, Inc.
Your Bank Policy and Rules for
RCGILTNER MinuteLender® Unsecured Loan Underwriting and Risk Management
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2. RCGILTNER Loan Underwriting and Risk Management
Contents
Introduction
Primary Strategy and Business Model
Underwriting
Loan Monitoring
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3. RCGILTNER Loan Underwriting and Risk Management Introduction
RCGILTNER technology provides underwriting and risk management tools completely under your brand, your control, your pricing and your underwriting for loans on your books for unsecured consumer and small business loans according to bank policy you define.
Digital MinuteLender® becomes the primary strategy in- branch and out for delivering unsecured loans, with options for customers under “Second Review” or secured loans.
Undrwriting policy and rules are defined by proven credit scoring and report qualification, deposit-based ability to repay verification, loan sizing, risk-adjusted pricing, and loss expectations.
Loan monitoring leverages ongoing tracking of owner/guarantor credit score, deposit activity, Business account NSF activity and loan balance.
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4. RCGILTNER Loan Underwriting and Risk Management Introduction
Our technology and digital lending strategy does not constitute a “model” according the FRB SR-17, Supervisory Guidance on Model Risk Management (MRM), but is an automated process to implement bank lending policy and rules.
One of the definitions of a model by FRB SR-17 is a quantitative estimate as output.
MinuteLender® technology does not provide quantitative data as output or meet other model criteria. Instead it provides filtering of loan applicants into risk buckets, and allows your FI to set decisioning, loan amounts, pricing and projected risk levels according to your policies and rules.
MinuteLender® technology does not constitute a model subject to MRM regulatory governance, such as often applied to models for credit card programs.
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5. RCGILTNER Loan Underwriting and Risk Management 1. Primary Strategy
Personal loans and small business loans are the fastest growing segments because digital technology allows profitable, efficient and financially-sound delivery. Community FIs struggle to profitably serve these segments.
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6. RCGILTNER Loan Underwriting and Risk Management 1. Primary Strategy
MinuteLender® is the default unsecured loan offer online or in-branch, but not the only method to serve customer loan needs.
Online and in-branch offers match for Reg B compliance.
Self-service allows any in-branch employee to assist.
Objections can countered with simple secured offer on existing loan systems.
Decision-overrides can be accomplished with Second Review outside our platform, other loan types or simple secured offer on existing loans systems.
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7. RCGILTNER Loan Underwriting and Risk Management 1. Primary Strategy
MinuteLender® provides a profitable delivery strategy for consumer loans that are not profitable today by leveraging efficient delivery at higher loss levels…
Sources: 1RCG Analysis, McKinsey, PayNet, CES Consulting
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8. RCGILTNER Loan Underwriting and Risk Management 1. Primary Strategy
…and a similar profitable delivery
strategy for small business loans.
Sources: 1RCG Analysis, McKinsey, PayNet, CES Consulting
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9. RCGILTNER Loan Underwriting and Risk Management 2. Underwriting
We will be recommending underwriting factors under your control for credit scores and report factors, deposit-based ability to repay and risk-adjusting pricing.
Business MinuteLender®
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10. RCGILTNER Loan Underwriting and Risk Management 2. Underwriting
We will be recommending underwriting factors under your control for credit scores and report factors, deposit-based ability to repay and risk-adjusting pricing.
Consumer MinuteLender®
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
Loan qualification is based on credit scoring, begun in the early 1990s, is not “black box” lending. It has well-documented loss ratios for targeted ratios based on 20-year history over fluctuating economic cycles.
Median Credit Score: 711
RCG Data
NY FED Data
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
Personal credit scores of business owners/guarantors are a key factor to assessing and monitoring business credit risks when included with deposit cash flow, transaction activity and NSFs, and repayment performance.
Analysts determined that a personal bureau score of an owner of a small business is highly predictive of the loan repayment prospects of the business. Federal Reserve Bank of St. Louis
“Many large lenders use personal credit scores of owners as part of underwriting to increase speed and efficiency…” Karen Mills, HBS, State of Small Business Lending, 2018.
Checking accounts and transaction data can greatly enhance automated underwriting to not rely just on credit scores. “Banks can have formidable advantages by tapping DDA data of small business customers to interpret cash flow and credit worthiness.” …” Karen Mills, HBS, State of Small Business Lending, 2016.
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
Credit scoring for smaller loans provides an automated analysis, including “Amounts Owed,” supplanting detailed debt-to-income and cash flow analysis.
According to Experian, a high utilization rate is a strong sign of credit risk, second only to payment history – this factor is a major component of credit scores.
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
By model definition, customers with better credit scores have debt capacity, a proxy for available debt-to-income.
Scores within our recommended range have unused capacity against a typical maximum DTI ratio for revolving credit.
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
Credit scores document customers who take on debt with responsible behaviors, and higher scores reflect well-managed use of debt.
Consumers who can afford to take on more debt generally have higher incomes and are experienced responsible users of debt.
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16. RCGILTNER Loan Underwriting and Risk Management 2
RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
Other credit report information is used to qualify or dis-qualify loans, as well as bank-data.
Other Credit and Bank Information Captured
30 day and 60 day late payments
Bankruptcies
Fraud alerts
Internal bank charge-offs
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
About two-thirds of the population will have credit scores above our recommended minimum, and about 51% of our client applicant pool.
Source: Our Analysis
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Proven Credit Scoring
Our approval rates generally mirror credit card approval rates by credit score.
RCGILTNER Client Experience
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Deposit-Based Ability to Repay
Analyzing deposit activity for verification of income and ability to repay has five benefits enhancing credit report analysis.
Immediate income/revenue
and cash to repay verification.
NSF analysis for Business cash flow
variance.
Account relationship
Right-of-offset (varies
by state).
Deposit-activity settings can be
adjusted for small loans
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Deposit-Based Ability to Repay
Deposit cash flow can create compliant, fast approvals, while providing alternatives for declines.
Cash flow in all consumer owner accounts analyzed.
Lack of cash flow can drive
capture of other accounts.
Second review, traditional loan, can provide approval with other income verification.
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Deposit-Based Ability to Repay
Documented cash flow, we called “Sustained Monthly Deposits,” defines a loan size ratio of 200% or 400% based on proxies for DTI by credit score.
* Loan Utilization DTI Proxy
Implied estimates set by the FI.
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22. RCGILTNER Loan Underwriting and Risk Management 2
RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Loan Size
Consumer loan size is defined as a maximum of $30,000 by 1) assuring loans are large enough to meet market demand, 2) credit score factors, and 3) loss factors.
Loan size needs to accommodate demand.
Credit granted is limited by credit score and available cash flow.
Source: Trans Union Data
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23. RCGILTNER Loan Underwriting and Risk Management 2
RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Loan Size
Business loan size is defined as a maximum of $75,000 by 1) assuring loans are large enough to meet market demand, 2) credit score factors, and 3) loss factors.
Nearly half of SMB loans are under $100k.
Credit granted is limited by credit score and available cash flow.
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RCGILTNER Loan Underwriting and Risk Management 2. Underwriting – Risk Adjusted Pricing
Our recommended risk adjusted pricing builds on loss ratios, cost of funds, digital spread estimates. We can provide fixed or variable rate pricing.
Risk Adjusted Pricing Example
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25. RCGILTNER Loan Underwriting and Risk Management 3. Loan Monitoring
Loan monitoring leverages ongoing tracking of owner/guarantor credit score, deposit activity, NSF activity and loan balance.
Deposits
Credit Score
Loan Balance
NSFs
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26. RCGILTNER Loan Underwriting and Risk Management 3. Loan Monitoring
We can monitor any loan for you in our set up whether booked in our system or not.
Checking Account Link
Loan Account
Sample Loan
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27. RCGILTNER Loan Underwriting and Risk Management Your Model Discussion
Our recommended standard Business settings are below.
1. Credit Report
2. Checking /Dep.
3. Size of Loan
4. Risk-Based Pricing
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28. RCGILTNER Loan Underwriting and Risk Management Your Model Discussion
Our recommended standard Consumer settings are below.
1. Credit Report
2. Checking /Dep.
3. Size of Loan
4. Risk-Based Pricing
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29. RCGILTNER Loan Underwriting and Risk Management Your Model Discussion
Our digital lending results are better than industry standards, as defined by Trans Union.
Source: Trans Union Data
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