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CONSUMER FINANCEResearch Brief
Sustainable Industry Classificaton System™ (SICS™) #FN0201
Research Briefing Prepared by the
Sustainability Accounting Standards Board®
February 2014
www.sasb.org© 2014 SASB™
T M
™
© 2014 SASB™
SASB’s Industry Research Brief provides evidence for the material sustainability issues in the industry.
The brief opens with a summary of the industry, including relevant legislative and regulatory trends
and sustainability risks and opportunities. Following this, evidence for each material sustainability
issue (in the categories of Environment, Social Capital, Human Capital, Business Model and
Innovation, and Leadership and Governance) is presented. SASB’s Industry Brief can be used
to understand the research and data underlying SASB Sustainability Accounting Standards. For
accounting metrics and disclosure guidance, please see SASB’s Sustainability Accounting Standards.
For information about the legal basis for SASB and SASB’s standards development process, please
see the Conceptual Framework.
SASB identifies the minimum set of sustainability issues likely to be material for companies within
a given industry. However, the final determination of materiality is the onus of the company.
Related Documents
• Financials Sustainability Accounting Standards
• Industry Working Group Participants
• SASB Conceptual Framework
• Example of Integrated Disclosure in Form 10-K
CONTRIBUTORSEric Kane
Andrew Collins
Anton Gorodniuk
Jerome Lavigne-Delville
Himani Phadke
Arturo Rodriguez
Jean Rogers
CONSUMER FINANCEResearch Brief
SASB, Sustainability Accounting Standards Board, the SASB logo, SICS, Sustainable Industry
Classification System, Accounting for a Sustainable Future, and Materiality Map are trademarks
and service marks of the Sustainability Accounting Standards Board.
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1RESEARCH BRIEF | CONSUMER FINANCE © 2014 SASB™
non-financial forms of capital that consumer
finance companies rely on to create long-term
value. Firms that work to improve performance
on these issues will be well-positioned to pro-
tect shareholder value in the future.
The sustainability issues that will drive competi-
tiveness within the consumer finance industry
include:
• Expanding services to underserved markets
and building financial capacity
• Ensuring the privacy and security of con-
sumer data
• Providing transparent information and fair
advice to consumers
• Engaging in responsible lending and
debt prevention
The extent to which these sustainability factors
impact value will become increasingly clear as
the regulatory environment continues to em-
phasize transparency and consumer protection
throughout the financial services sector.
INDUSTRY SUMMARY
The consumer finance industry provides loans
to consumers. Loan services include auto, mi-
crolending, credit and debit, and student loans.
In addition, companies in this industry provide
payment processing services, consumer to con-
sumer money transfers, money orders, prepaid
debit cards, and bill payment services.I
MATERIAL SUSTAINABILITY ISSUES
Social Capital
• Financial Inclusion
• Customer Privacy & Data Security
• Transparent Information & Fair
Advice for Customers
• Responsible Lending & Debt
Prevention
INTRODUCTION
The extension of credit and other consumer
finance services is essential to the functioning
of the U.S. and global economies. Although
traditional value drivers will continue to impact
industry performance, the recent financial crisis
and the subsequent regulatory developments
have articulated how social capital contributes to
market value. These issues can affect traditional
valuation by impacting profits, assets, liabilities,
and cost of capital.
To ensure that shareholders are able to evalu-
ate these factors, consumer finance companies
should report on the material sustainability risks
and opportunities that may affect value in the
near and long term. Enhanced reporting will
provide stakeholders with a more holistic (and
comparable) view of performance that includes
both positive and negative externalities, and the
I A list of five companies representative of this industry and its activities appears in Appendix I.
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Consumer spending drives growth in the con-
sumer finance industry. Industry performance
is determined by consumer spending, rates
of unemployment, per capita GDP, income,
and population growth. Although emerging
markets present a considerable opportunity for
growth in the industry, the U.S. remains the
largest market for lenders. Consumer finance
companies engaged in the credit and debit
segment continue to face challenges associated
with an evolving regulatory environment. New
payment technologies provide significant op-
portunities for growth for both established and
emerging companies in the consumer finance
industry.
LEGISLATIVE & REGULATORY TRENDS IN THE CONSUMER FINANCE INDUSTRY
Although the regulatory environment that gov-
erns the consumer finance industry continues
to evolve, an ongoing trend toward disclosure
and consumer fairness has the potential to
impact shareholder value and sustainability
performance. The following section provides a
brief summary of key legislative efforts that are
likely to impact value in the industry and to fur-
ther amplify the importance of social capital.II
In 2009, the U.S. Congress passed the Credit
Card Accountability Responsibility and Disclo-
sure Act (Credit CARD Act) to establish fair and
transparent practices relating to the extension
of credit. The legislation sought to limit ac-
tions that contributed to the fact that in 2009,
Americans paid $15 billion in penalty fees
annually with 44 percent of families carrying a
balance on their credit cards. The Credit CARD
Act bans unfair interest rate increases and fee
traps. In addition, the legislation provides for
new disclosure requirements, enhanced ac-
countability, and protects students and young
people from certain marketing practices.
Further restrictions on disclosure are pending
as the Consumer Financial Protection Bureau is
developing a standard credit-card contract that
is devoid of small print.1
Although the Credit CARD Act effectively
limits certain revenue generating practices, the
legislation has helped to reduce the amount of
debt that consumer finance companies deem
uncollectible. This debt, which reached a peak
of $821 million in August 2009 was reduced to
$276 million as of May 2012.2
Recent legal settlements will also limit prac-
tices that consumer finance companies have
engaged in to increase revenue. In 2012, an
antitrust suit was settled that will effectively al-
low retailers to charge customers more for pay-
ing with credit cards. An earlier settlement also
limited the amount that companies can charge
retailers when customers use debit cards.3
II Data as of June 30 2013. Based on annual summary of branch office deposits for all FDIC-insured institutions, including U.S. branches of foreign banks.
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SUSTAINABILITY-RELATED RISKS & OPPORTUNITIES
Recent shifts towards consumer protection and
transparency have and will continue to align
the interests of society with those of long-term
investors. Companies will therefore not be
able to maximize financial capital unless social
capital is managed effectively. Firms that are
able to navigate new regulations will be better
positioned to protect shareholder value in the
long term.
The following section provides a brief descrip-
tion of how the consumer finance industry
depends on each form of capital and how
specific sustainability issues will drive perfor-
mance including: evidence and value impact.
Issues are divided into five categories: Environ-
ment, Social Capital, Human Capital, Business
Model and Innovation, and Leadership and
Governance. A table indicating the nature of
the value impact and evidence of interest from
stakeholders appears in Appendix IIA. Appen-
dix IIB expands on the channels of financial
impacts of each sustainability issue, and the
recommended disclosure framework appears in
Appendix III.
ENVIRONMENT
The environmental dimension of sustainability
includes corporate impact on the environ-
ment, either through the use of non-renewable
natural resources as input to the factors of
production (e.g., water, minerals, ecosystems,
and biodiversity) or through environmental
externalities or other harmful releases in the
environment, such as air and water pollution,
waste disposal, and greenhouse gas emissions.
The consumer finance industry’s primary reli-
ance on environmental capital is in the form
of energy consumed to operate offices, data
centers, and branch locations. Although energy
use contributes to negative externalities, this
issue was determined not to be material for
the consumer finance industry. The industry’s
primary opportunity in the area of environmen-
tal capital is to influence consumer behavior
through various products such as affinity cards
that support renewable energy development.
Again, this issue was determined not to be
material. Subsequently, there were no envi-
ronmental issues that were considered to be
material in this industry.
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SOCIAL CAPITAL
Social capital relates to the perceived role of
business in society, or the expectation of busi-
ness’s contribution to society in return for its
license to operate. It addresses the manage-
ment of relationships with key outside stake-
holders, such as customers, local communities,
the public, and the government. It includes is-
sues related to access to products and services,
affordability, responsible business practices in
marketing, and customer privacy.
Consumer finance companies operate in an
increasingly strict regulatory environment. New
policies which are intended to protect con-
sumers serve to enhance the link between the
industry and social capital. Companies in this
industry have the opportunity to create social
value through inclusion and capacity build-
ing, but must also work to ensure that current
customers are receiving transparent informa-
tion, lending is done responsibly, and cus-
tomer privacy is protected. As the correlation
between shareholder performance and social
capital becomes increasingly tangible, investors
must understand how individual companies are
addressing these key issues.
Financial Inclusion
In the U.S., an estimated 11 percent of con-
sumers are unbanked, meaning they do not
have a checking, savings, or money market
account, and their spouse also does not have
such an account. An additional 11 percent
have a checking, savings, or money market ac-
count, but have also used on alternative finan-
cials service in the last 12 months, indicating
they are underbanked.4 These findings, cou-
pled with a recent study by the Federal Reserve
which found that 63 percent of unbanked
consumers and 91 percent of underbanked
consumers have a mobile phone, suggest there
is significant opportunity for consumer finance
companies.5 Specifically, advancements in new
products and payment technology can allow
companies in this industry to expand access to
financial services to underserved populations,
domestically and abroad.
Expansion into new markets and technologies
can provide significant sources of revenue;
however, firms must also ensure that the asso-
ciated regulatory and financial risks are man-
aged. In addition, technological advancements
have lowered barriers to entry and allowed
new companies to enter the consumer finance
industry, thereby increasing competition and
putting pressure on incumbents.
Enhanced disclosure on revenue associated with
products that target the unbanked and un-
derbanked, and success in reaching previously
unserved consumers, will provide shareholders
with an understanding of how companies are
increasing corporate and societal value.
Evidence
In Latin America, where an estimated 35
percent of the population has access to finan-
cial services, Mastercard has partnered with
Telefonica to launch a mobile banking plat-
form. The company reports that this initiative
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will provide access for 87 million people across
the region.6
Citi and its Mexican subsidiary, Banamex,
partnered with America Movil to introduce
mobile wallets, which enable customers to
make and receive payments on their mo-
bile phones. The product targets 50 million
unbanked and underbanked individuals in
Mexico, and could provide financial services
to 250 million America Movil customers in
the region.7
Much of the growth in both the U.S. and
emerging markets will be driven in part by
the development of new technologies, such
as those being introduced by Mastercard and
Citi. Worldwide, the mobile payment market
is expected to exhibit annual growth of 42
percent to reach $617 billion with 448 million
users by 2016.8 In addition, new products and
technologies such as prepaid debit and near-
field communication will also contribute to
growth for the industry. Purchases on prepaid
debit cards in the U.S. are expected to increase
by 5.3 percent annually to $139.4 billion in
2017.9 Juniper Research estimates that the
value of near-field communication technology,
which allows enabled devices to exchange data
(including payment information) wirelessly, will
reach $110 billion by 2017.10
The potential for revenue growth associated
with serving new markets is further illustrated
by a KPMG study that suggests that Asia’s
share of global payment transaction volume on
purchasing cards is expected to be double that
of the U.S. by 2015.11
Value Impact
Consumer finance companies that have access
to a broader market will be better positioned
to create shareholder value. Firms that are able
to successfully expand access through new
products and technologies will likely generate
additional service fees and data processing
revenue. Further, these companies will capture
new markets and enhance pricing power. This
will also result in lower cost of capital.
Companies also have the potential to generate
positive social impact in the long term through
financial inclusion, which can serve to improve
reputation and the value of intangible assets.
Customer Privacy & Data Security
Ensuring the privacy and security of personal
financial data is an essential responsibility of
the consumer finance industry. As the frequen-
cy and magnitude of information security risks
continues to increase with the proliferation
of new technologies, the increased use of the
Internet for financial transactions, and the so-
phistication of those who pose threats, compa-
nies will be required to devote more resources
to mitigation and regulatory compliance.
In the absence of federal legislation relating to
cybersecurity, various regulatory agencies con-
tinue to examine this issue and propose new
rules and standards. In addition to the potential
for increased costs of compliance associated
with new rule making, consumer finance
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companies are currently forced to comply with
a patchwork of state laws.
Enhanced disclosure of the number of security
breaches, the extent of fraudulent charges, and
efforts to manage these risks will allow share-
holders to understand how consumer finance
companies are protecting long-term value.
Evidence
In 2014, Target revised the number of custom-
ers whose personal information had been sto-
len in the previous year to between 70 million
and 110 million. As a result, consumer finance
companies were forced to alert their customers
of potential fraud, and provide new cards and
account numbers.12
In March 2012, a security breach at Global Pay-
ments exposed private customer information
for an undisclosed number of Mastercard and
Visa cardholders. Global Payments’ stock fell
nine percent after it was determined to be the
target of the attack.13
In 2009, Heartland Payment Systems an-
nounced that a security breach in the prior year
compromised the security of an estimated 130
million credit and debit cards.14 The company
was subsequently removed temporarily from
Visa’s list of PCI DSS Validated Service Provid-
ers. Financial statements indicate that Heart-
land Payment Systems accrued $139.4 million
in breach related expenses.15
The magnitude of this issue is demonstrated by
recent estimates, which suggest that identity
thefts increased by 13 percent between 2010
and 2011, affecting 12 million Americans.16
Further, in 2010, global fraud losses for credit
and debit card companies amounted to $7.6
billion with 47 percent of false charges occur-
ring in the U.S. 17
These incidents and the increasing frequency of
intrusions, indicates a significant risk for con-
sumer finance companies engaged in both pay-
ment processing, and those providing capital.
Mastercard reports that “a failure or breach of
our security systems or infrastructure as a result
of cyber-attacks could disrupt our business,
result in the disclosure or misuse of confidential
or proprietary information, damage our reputa-
tion, increase our costs and cause losses.” The
company adds that “Increased fraud levels
involving our cards, or misconduct or negli-
gence by third parties processing or otherwise
servicing our cards, could lead to regulatory in-
tervention, such as enhanced security require-
ments, as well as damage to our reputation,
which could reduce the use and acceptance
of our cards or increase our compliance costs,
and thereby have a material adverse impact on
our business.”18
American Express indicates that if its “in-
formation technology systems experience a
significant disruption or breach or if actual or
perceived fraud levels or other illegal activities
involving our Cards were to rise due to the ac-
tions of third parties, employee error, malfea-
sance or otherwise, it could lead to regulatory
intervention (such as mandatory card reissu-
ance), increased litigation and remediation
costs, greater concerns of customers and/or
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7RESEARCH BRIEF | CONSUMER FINANCE © 2014 SASB™
business partners relating to the privacy and se-
curity of their data, and reputational and finan-
cial damage to our brand, which could reduce
the use and acceptance of our Cards, and have
a material adverse impact on our business.”19
Value Impact
Consumer finance companies that do not
adequately address the potential for security
breaches and other intrusions will likely be
subject to contingent liabilities that may not be
covered by insurance. In addition, regulatory
actions aimed at addressing the issue of data
privacy and security could increase general
and administrative expenses, thereby lowering
operational efficiency.
Significant disruptions or security breaches are
also likely to impair intangible assets through
reputational damage, and lead to a loss in
customer confidence. Subsequently, companies
could lose markets share and revenue, as
customers switch to different providers. More-
over, companies prone to cyber-attacks are
perceived as more risky which leads to higher
cost of capital
Transparent Information & Fair Advice for Customers
Consumer finance companies will continue
to face scrutiny as the Consumer Financial
Protection Bureau (CFPB) enforces the transpar-
ency and disclosure rules established under the
Credit CARD Act. In a 2012 bulletin, the CFPB
indicated that it would focus on the industry’s
marketing practices as they relate to credit card
add-on products, including debt cancellation,
identity theft protection, and credit reporting
and monitoring. The CFPB has subsequently
engaged in a number of enforcement actions.
As of January 2014, these actions against
major consumer finance companies provided
for $800 million in refunds to consumers.20 In
addition, to add-on products, the CFPB is also
enforcing aspects of the Credit CARD Act that
address interest rate structures, disclosures, and
service fees.
The ability of consumer finance companies
to ensure that customers are provided with
transparent information and fair advice related
to these and other products will likely continue
to present material implications. Subsequently,
firms should enhance disclosure on fines and
settlements associated with disclosure, trans-
parency, marketing, and how add-on products
are managed.
Evidence
In December 2013, American Express was
ordered to pay $75 million to settle claims that
it charged improper fees and misled customers
over add-on products.21 This followed a 2012
fine of $27.5 million and $85 million reim-
bursement to customers for illegal card prac-
tices that included misleading consumers.22
In September 2013, JPMorgan Chase was fined
$389 million for deceiving customers into buy-
ing credit card add-on products between 2005
and 2012. The company will be required to pay
$309 million to reimburse roughly 2.1 million
customers.23
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In July 2012, the Bureau fined Capital One
Financial $210 million for charges that the
company’s call-center representatives misled
consumers into paying for extra credit card
products. These ‘add-on’ products, which
consumers were allegedly pressured or misled
into purchasing during credit card activation,
included payment protection and credit moni-
toring services.24 Discover Financial was fined
$214 million for similar practices in September
2012.25
Value Impact
Companies that fail to provide transparent
information and fair advice are likely to experi-
ence reputational damage, and a diminished
ability to retain and attract customers. This will
also lead to a decrease in market share, and
in revenue associated with fees and interest.
Weaker profitability and riskier profile are
likely to result in higher cost of capital.
Companies that rely on deceptive practices
to generate additional revenue will likely face
enforcement actions, which can put pressure
on operational efficiency through increased
general and administrative expenses and
contingent liabilities. Increased enforcement by
the CFPB suggests that transparency and fair
advice will continue to impact value.
Responsible Lending & Debt Prevention
An increase in subprime lending and payment
delinquency indicates that lenders are lower-
ing standards and providing capital to con-
sumers that are prone to excessive credit card
debt. Although consumer finance companies
can benefit in the short term from increased
customer debt through late fees and interest
charges, a reliance on these revenue streams
can have a negative impact on results, and
erode social capital.
The social ramifications of these practices were
examined in a recent study published in Eco-
nomic Inquiry. The report found that younger
Americans borrow more heavily on their credit
cards, and repay debt more slowly than previ-
ous generations. The findings suggest that an
individual born between 1980 and 1984 has,
on average, $5,000 more in credit card debt
than his or her parents at the same stage of
life, and $8,000 more than his or her grandpar-
ents.26 As a result, the typical young credit card
holder who maintains a balance is expected to
die in debt to credit card companies.
Disclosure of key characteristics of a lending
portfolio, including average customer debt,
mean and median age of accounts, average
monthly full-payment rate, percentage of ap-
plications accepted, and fees associated with
pre-paid products will allow shareholders to
determine which consumer finance companies
are better positioned to protect value.
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Evidence
Following the financial crisis, write-offs on
domestic credit cards reached $6.5 billion in
2009.27 Despite these recent losses, consumer
finance companies are again pursuing risky
lending practices. In the second quarter of
2012, banks issued 3.1 percent more credit
cards than in the same quarter in 2011. Esti-
mates indicate that 30 percent of new cards
were issued to consumers that are identified as
higher risk, because of nonprime credit scores.28
The extension of credit to subprime consum-
ers has contributed, in part, to an increase in
the percentage of credit card accounts with
payments at least 90 days overdue from 0.71
to 0.75 percent between the third quarters
of 2011 and 2012, respectively. Total credit
card debt has increased by six percent during
the same time period to reach $852 billion.29
Meanwhile, average U.S. credit card debt per
borrower increased 4.9 percent between the
July to September period in 2011 to the same
period in 2012 to reach $4,996.30
Value Impact
Reduced lending standards and the inability
to assess credit worthiness can impose signifi-
cant risks to value and profitability. The exten-
sion of credit to customers with lower credit
scores could enhance default rates, lower
interest income, and expose companies to a
credit downgrade and higher cost of capital.
The accumulation of bad debt through ag-
gressive portfolio expansion will likely lead to
significant asset adjustments, and diminished
shareholder value.
The chronic mismanagement of responsible
lending and debt prevention could lead to a
deterioration of intangible assets in the me-
dium and long-term.
HUMAN CAPITAL
Human capital addresses the management
of a company’s human resources (employees
and individual contractors), as a key asset to
delivering long-term value. It includes fac-
tors that affect the productivity of employees,
such as employee engagement, diversity, and
incentives and compensation, as well as the
attraction and retention of employees in highly
competitive or constrained markets for specific
talent, skills, or education. It also addresses the
management of labor relations in industries
that rely on economies of scale and compete
on the price of products and services or in
industries with legacy pension liabilities associ-
ated with vast workforces. Lastly, it includes
the management of the health and safety of
employees and the ability to create a safety cul-
ture for companies that operate in dangerous
working environments.
Consumer finance companies rely on human
capital to maintain value. However, relative to
other industries in the financial sector, these
companies do not face specific material risks or
opportunities associated with human capital.
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BUSINESS MODEL & INNOVATION
This dimension of sustainability is concerned
with the impact of environmental and social
factors on innovation and business models. It
addresses the integration of environmental and
social factors in the value creation process of
companies, including resource efficiency and
other innovation in the production process,
as well as product innovation and looking
at efficiency and responsibility in the design,
use-phase, and disposal of products. It includes
management of environmental and social im-
pacts on tangible and financial assets—either
a company’s own or those it manages as the
fiduciary for others.
The consumer finance industry provides
services that allow for the extension of credit
and ease of financial transaction. Innovation
has been a key component of the industry’s
success, and will continue to be as companies
seek to capitalize on new opportunities and
markets, and manage emerging risks. The rel-
evant sustainability issues, ‘Financial Inclusion’
and ‘Customer Privacy and Data Security’ are
addressed in the Social Capital section above.
LEADERSHIP & GOVERNANCE
As applied to sustainability, governance
involves the management of issues that are
inherent to the business model or common
practice in the industry and that are in po-
tential conflict with the interest of broader
stakeholder groups (government, community,
customers, and employees) and therefore cre-
ate a potential liability, or worse, a limitation
or removal of license to operate. This includes
regulatory compliance, lobbying, and political
contributions. It includes risk management,
safety management, supply chain and resource
management, conflict of interest, anti-com-
petitive behavior, and corruption and bribery.
It also includes risk of business complicity with
human rights violations.
An increasingly stringent regulatory environ-
ment combined with new technology and
enhanced competition will place additional em-
phasis on the importance of strong governance
in the consumer finance industry. In order to
protect shareholder value, management must
be able to ensure compliance with new laws,
while negotiating a market that continues to
shift with the development of new technology
and the emergence of new competitors. How-
ever, the key challenges as they relate to
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sustainability are addressed in the ‘Transparent
Information and Fair Advice’ and ‘Responsible
Lending and Debt Prevention’ in the Social
Capital section above.
SASB INDUSTRY WATCH LIST
The following section provides a brief descrip-
tion of sustainability issues that did not meet
SASB’s materiality threshold at present, but
could have a material impact on the consumer
finance industry in the future.
Regulatory Capture and Political Influence
The issue of regulatory capture and political
influence continues to be prominent in the
consumer finance industry. Specifically, compa-
nies are widely seen as having had significant
influence on the development of new regula-
tions since the 2008 financial crisis, through
lobbying, contributions, and direct relationships
with regulators.
The material implications of lobbying efforts
and campaign contributions remain contro-
versial. Specifically, there is little evidence on
how these actions impact shareholder value,
and whether the cost of these activities is
outweighed by corporate gains. Addition-
ally, the issue raises questions of the efficacy
of lobbying for or against a regulation that
protects near-term profits, but is misaligned
with longer-term strategic investments and
initiatives.
Although investor interest in the issue appears
to be increasing, it is not clear whether share-
holder resolutions requiring such disclosure
will receive widespread support. Additionally,
after indicating it as a priority issue for 2013,
the SEC dropped the issue of political spending
from its 2014 agenda.31
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APPENDIX I: Five Representative Companies | Consumer FinanceIII
COMPANY NAME (TICKER SYMBOL)
American Express (AXP)
Capital One Financial (COF)
Discover Financial Services (DFS)
Mastercard (MA)
Visa (V)
III This list includes five companies representative of the Consumer Finance Industry and its activities. Only companies that are US listed and where at least 20 percent of revenue is generated by activities in this industry according to the latest information available on Bloomberg Professional Service were included.
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APPENDIX IIA: Evidence for Material Sustainability Issues
HM: Heat Map, a score out of 100 indicating the relative importance of the issue among SASB’s initial list of 43 generic sustainability issues. The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly listed companies.
IWGs: SASB Industry Working Groups
%: The percentage of IWG participants that found the issue to be material. (-) denotes that the issue was added after the IWG was convened.
Priority: Average ranking of the issue in terms of importance. One denotes the most material issue. (N/A) denotes that the issue was added after the IWG was convened.
EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings.
EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings.
FLI: Forward Looking Impact, a subjective assessment on the presence of a material forward-looking impact.
MATERIAL SUSTAINABILITY ISSUES
EVIDENCE OF INTERESTEVIDENCE OF
FINANCIAL IMPACTFORWARD-LOOKING IMPACT
HM (1-100)
IWGsEI
Revenue/Expenses
Asset/ Liability
Risk Profile
EFI Probability Magnitude Externalities FLI% Priority
SOCIAL CAPITAL
Financial Inclusion 52 93 3 Medium • • • Low • • • Yes
Customer Privacy & Data Security 70 79 4 Low • • • Medium • • • Yes
Transparent Information & Fair Advice for Customers
65 100 2 High • • • High • • Yes
Responsible Lending & Debt Prevention
57 93 1 High • • • High • Yes
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EVID
ENCE
OF
FI
NA
NCI
AL
IMPA
CT
REV
ENU
E &
EX
PEN
SES
ASS
ETS
& L
IAB
ILIT
IES
RIS
K P
RO
FILE
Rev
enu
eO
per
atin
g E
xpen
ses
No
n-o
per
atin
g
Exp
ense
sA
sset
sLi
abili
ties
Co
st o
f
Cap
ital
Ind
ust
ry
Div
estm
ent
Ris
kM
arke
t Sh
are
New
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arke
ts
Pric
ing
Pow
erCo
st o
f Re
venu
eR&
DG
ener
al &
Ad
min
istra
tive
CapE
xEx
tra-
or
dina
ry
Expe
nses
Fina
ncia
l A
sset
sTa
ngib
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Ass
ets
Inta
ngib
le
Ass
ets
Dep
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s
Cont
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nt
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iliti
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isio
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SOC
IAL
C
API
TAL
Fina
ncia
l Inc
lusio
n•
••
•
•
Cust
omer
Priv
acy
& Da
ta S
ecur
ity•
•
•
•
•
•
Tran
spar
ent
Info
rmat
ion
& Fa
ir Ad
vice
for
Cust
omer
s
•
•
•
•
••
Resp
onsib
le
Lend
ing
& De
bt
Prev
entio
n•
•
•
•
APPENDIX IIB: Evidence of Financial Impact for Material Sustainability Issues
HIG
H I
MPA
CT
MED
IUM
IM
PAC
TLO
W I
MPA
CT
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APPENDIX III: Sustainability Accounting Metrics | Consumer Finance
TOPIC ACCOUNTING METRIC CATEGORYUNIT OF
MEASURECODE
Financial Inclusion
Revenue from credit and debit products targeting unbanked and underbanked segments
Quantitative U.S. dollars ($) FN0201-01
Percentage of new accounts held by first-time credit card holders
Quantitative Percentage (%) FN0201-02
Customer Privacy & Data Security
Number of data security breaches and percentage involving customers’ personally identifiable informationIV
Quantitative Number (#), percentage (%)
FN0201-03
Amount of fraudulent transaction activity, percentage from: (1) card-not-present fraud and (2) card-present and other fraud
Quantitative U.S. dollars ($), percentage (%)
FN0201-04
Description of data security and fraud prevention efforts related to new and emerging technologies and/or new and emerging threats
Discussion and Analysis
n/a FN0201-05
Transparent Information & Fair Advice for Customers
Amount of legal and regulatory fines and settlements associated with disclosure, transparency, or marketingV
Quantitative U.S. dollars ($) FN0201-06
Payout ratio for add-on productsVI Quantitative Ratio in U.S. dollars ($)
FN0201-07
Responsible Lending & Debt Prevention
For customers with FICO scores above and below 640 (subprime): (1) average customer debt (2) average APR (3) mean and median age of accounts (4) average monthly full payment rate
Quantitative U.S. dollars ($), percentage (%), years, rate
FN0201-08
Percentage of applications accepted for applicants with FICO scores above and below 640 (subprime)
Quantitative Percentage (%) FN0201-09
Average annual fees per account for pre-paid transaction products
Quantitative U.S. dollars ($) FN0201-10
IV Note to FN0201-03 – Disclosure shall include a description of corrective actions implemented in response to data security incidents or threats. V Note to FN0201-06 – Disclosure shall include a description of fines and settlements and corrective actions implemented in response to events. VI Note to FN0201-07 – Disclosure shall include a description of the type of add-on products offered and of how compensation of sales representatives is related to the sales of these products.
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APPENDIX IV: Analysis of 10-K Disclosures | Consumer Finance
The following graph demonstrates an aggregate assessment of how the top nine U.S. domiciled companies, by revenue, in the consumer finance industry are currently reporting on material sustainability issues in the Form 10-K.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
DISCLOSURE ON MATERIAL SUSTAINABILITY ISSUES
NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS
CONSUMER FINANCE
Financial Inclusion
Customer Privacy & Data Security
Transparent Information & Fair Advice for Customers
Responsible Lending & Debt Prevention
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References
1 Weise, Karen. “For Credit-Card Issuers, a Silver Lining in the CARD Act.” Bloomberg Businessweek, July 19, 2012. <http://www.businessweek.com/articles/2012-07-19/for-card-issuers-a-silver-lining-in-the-card-act>
2 Ibid.
3 Silver-Greenberg, Jessica. “MasterCard and Visa Will Pay Billions to Settle Antitrust Suit.” The New York Times, July 13, 2012. <http://www.nytimes.com/2012/07/14/business/mastercard-and-visa-settle-antitrust-suit.html>
4 “Use of Financial Services by the Unbanked and Underbanked and the Potential for Mobile Financial Services Adoption.” Federal Reserve Bulletin, September 2012. <http://www.federalreserve.gov/pubs/bulletin/2012/pdf/mobile_financial_services_201209.pdf>
5 “Consumers and Mobile Financial Services.” Board of Governors of the Federal Reserve System, March 2012. <http://www.federalreserve.gov/econresdata/mobile-device-report-201203.pdf>
6 “Wanda.” MasterCard. <https://www.mastercard.com/corporate/responsibility/telefonica-wanda.html>
7 “2012 Global Citizenship Report.” Citigroup Inc., 2013. <http://www.citigroup.com/citi/about/data/corp_citizenship/global_2012_english.pdf>
8 “Press Release: Gartner Says Worldwide Mobile Payment Transaction Value to Surpass $171.5 Billion.” Gartner, May 29, 2012. <http://www.gartner.com/newsroom/id/2028315>
9 Doughtery, Carter and Margaret Collins. “Bieber Joins Ex-Addicts Fighting Chase in Prepaid Market.” Bloomberg, January 2, 2013. <http://www.bloomberg.com/news/2013-01-02/bieber-joins-ex-addicts-fighting-chase-in-prepaid-market.html>
10 “Press Release: Mobile NFC Growth Forecast Scaled Back to $110bn in Transactions by 2017 as iPhone 5 Omits Chipset.” Juniper Research, December 5, 2012. <http://www.juniperresearch.com/viewpressrelease.php?pr=353>
11 “The Great Payments Transformation: Insight into the Payments Ecosystem.” KPMG, December 2012. <http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/great-payments-transformation/Documents/great-payments-transformations-v3.pdf>
12 Harris, Elizabeth A., and Nicole Perlroth. “For Target, the Breach Numbers Grow.” The New York Times, January 10, 2014. <http://www.nytimes.com/2014/01/11/business/target-breach-affected-70-million-customers.html?_r=0>
13 Sidel, Robin. “Data Breach Sparks Worry.” The Wall Street Journal, March 30, 2012. <http://online.wsj.com/article/SB10001424052702303816504577313411294908868.html?mod=e2tw>
14 Vijayan, Jaikumar. “Heartland Breach Expenses Pegged at $140M – So Far.” Computerworld, May 10, 2010. <http://www.computerworld.com/s/article/9176507/Heartland_breach_expenses_pegged_at_140M_so_far>
15 Ibid.
16 Lipka, Mitch. “Rise in Identity Fraud Tied to Smartphone Use.” Reuters, February 22, 2012. <http://www.reuters.com/article/2012/02/22/us-idtheft-javelin-idUSTRE81L16520120222>
17 Taylor, Chris. “When Your Credit Card Charge is Denied.” Reuters, April 26, 2012. <http://www.reuters.com/article/2012/04/26/us-column-yourmoney-creditcarddenial-idUSBRE83P0ZH20120426>
18 “Form 10-K for the fiscal year ended December 31, 2012.” MasterCard Incorporated, February 14, 2013.
19 “Form 10-K for the fiscal year ended December 31, 2012.” American Express Co, February 22, 2013.
20 “News Release: Report: Capital One Most-Complained-About Credit Card Company.” U.S. PIRG, January 14, 2014. <http://www.uspirg.org/news/usf/report-capital-one-most-complained-about-credit-card-company>
21 Abrams, Rachel. “American Express to Pay $75 Million Over Credit-Card Practices.” The New York Times, December 24, 2013. <http://dealbook.nytimes.com/2013/12/24/american-express-to-pay-75-million-over-credit-card-practices/?_php=true&_type=blogs&_r=0>
22 Silver-Greenberg, Jessica. “American Express Says It Will Refund $85 Million.” The New York Times, October 1, 2012. <http://www.nytimes.com/2012/10/02/business/american-express-to-refund-85-million.html?_r=0>
23 Douglas, Daniel. “JPMorgan fined $389 million for deceptive credit card purchases.” The Washington Post, September 19, 2013. <http://www.washingtonpost.com/business/economy/jpmorgan-fined-389-million-for-deceptive-credit-card-practices/2013/09/19/be82b904-2155-11e3-966c-9c4293c47ebe_story.html>
24 Dougherty, Carter, and Dakin Campbell. “Capital One to Pay $210 Million in First CFPB Enforcement.” Bloomberg, July 18, 2012. <http://www.bloomberg.com/news/2012-07-18/capital-one-to-pay-210-million-in-first-cfpb-enforcement-case.html>
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References (Cont.)
25 Silver-Greenberg. “American Express Refund.” October 1, 2012.
26 Carrins, Ann. “Young People Paying Off Credit Card Debt More Slowly.” The New York Times, January 17, 2013. <http://bucks.blogs.nytimes.com/2013/01/17/young-people-paying-off-card-debt-more-slowly/>
27 Martin, Andrew. “Banks See a Leveling Off in Bad Consumer Loans.” The New York Times, January 20, 2010. <http://www.nytimes.com/2010/01/21/business/21bofa.html>
28 “Credit Card Balances, Delinquency Rates Inch Up in Third Quarter.” Debt.org, November 21, 2012. <http://www.debt.org/2012/11/21/credit-card-balances-delinquency-rates-up-third-quarter/>
29 Eccleston, Janine. “Why Credit Card Debt Levels are Rising.” Investopedia, November 30, 2012. <http://www.investopedia.com/financial-edge/1112/why-credit-card-debt-levels-are-rising.aspx?partner=ferss#axzz2EPMSZi00>
30 Veiga, Alex. “U.S. Credit Card Debt Grows, Fewer Americans Make Payments on Time.” Huffington Post, December 11, 2012. <http://www.huffingtonpost.com/2012/11/19/us-credit-card-debt-grows_n_2158010.html>
31 ElBoghdady, Dina. “SEC drops disclosure of corporate political spending from its priority list.” The Washington Post, November 30, 2013. <http://www.washingtonpost.com/business/economy/sec-drops-disclosure-of-corporate-political-spending-from-its-priority-list/2013/11/30/f2e92166-5a07-11e3-8304-caf30787c0a9_story.html>
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