Finance Companies Adjust to Rising Risk

It is worth noting that finance companies appear to have anticipated the danger of the rising debt levels. In his article in the most recent RMA Journal, Brian J. Charles documents a shift over the past three years "in product mix toward lower-risk secured and real estate loans with less emphasis on higher-risk unsecured lending." Finance companies in the consumer sector reported that delinquencies of 60 days or more rose as a percentage of receivables from 4.0 percent in 1997 to 4.5 percent in 1998, but remained unchanged in 1999. Net charge-offs fell over the three-year period from 3.6 percent of receivables to 2.7, a striking indication of the improved quality of their portfolios. The finance companies recovered 14.9 percent of their gross charge-offs in 1999, down from 16.9 percent the previous year.