FICO Survey Finds U.S. Consumers Face Growing Credit Gap

Survey also Finds Stark Pessimism among Bank Risk Officers Responsible for Auto Loans and Credit Cards

MINNEAPOLIS--(BUSINESS WIRE)--FICO (NYSE:FICO), the leading provider of analytics and decision management technology, today announced the results of its quarterly survey of bank risk professionals. The survey, conducted for FICO by the Professional Risk Managers’ International Association (PRMIA), found strong evidence of a credit gap for U.S. consumers as lenders expect credit availability to fall short of consumer demand through the end of 2010.

“Although the outlook isn’t as pessimistic as it was earlier this year, it’s clear we still haven’t reached a point of equilibrium between supply and demand for consumer credit”

The numbers behind the credit gap

The survey found 73 percent of 235 respondents expect the volume of credit applications to increase or remain steady over the next six months. However, 46 percent of respondents expect approval criteria for credit to get stricter and only 14 percent expect criteria to be loosened. Furthermore, 38 percent of bankers surveyed expect the approval rate for credit applications to decline, while only a quarter of those surveyed expect a higher approval rate.

“Although the outlook isn’t as pessimistic as it was earlier this year, it’s clear we still haven’t reached a point of equilibrium between supply and demand for consumer credit,” said Dr. Andrew Jennings, chief research officer at FICO and head of FICO Labs, which works with PRMIA on the quarterly survey. “Banks remain concerned about loss prevention. Government data released in August indicates personal bankruptcies are at their highest levels in five years, and other recent data confirms the ongoing challenges in the employment and housing sectors. This type of economic environment makes it difficult for lenders to open up the flow of credit without taking on significant risk.”

Evidence of a credit gap is consistent with other research by FICO Labs, which recently examined credit data compiled in the 12 months ending in April 2010. During those 12 months, the number of new credit cards opened by U.S. consumers dropped by 17.7 percent compared to the previous 12 months. By contrast, the number of inquiries for new credit fell by only three percent during that time, indicating that consumers were unable to access all the credit they were seeking. Furthermore, the total amount of credit available on all U.S. consumer credit cards fell by 12.2 percent during the same 12-month period.

Delinquencies expected to continue rising

When asked about expected delinquency rates for several types of credit products, large pluralities of bankers said they expected delinquencies to increase. This includes home mortgages (53 percent of respondents expected a rise in delinquencies while only 14 percent expected a decrease), credit cards (42 percent expected an increase), small business loans (47 percent expected an increase) and student loans (49 percent expected an increase).

In a somewhat unexpected survey result, bank risk officers who are responsible for auto loans and credit cards had a particularly negative outlook about their own sectors. Among bankers who manage auto loans, 96 percent expect delinquencies on auto loans to increase or remain the same. Less than four percent expect delinquencies to drop. And among bankers who manage credit cards, nearly 85 percent expect delinquencies on credit cards to increase or remain the same, while approximately 15 percent expect delinquencies to drop.

Respondents were also asked about their overall expectations for new delinquencies (i.e., accounts that become 30-days late) and charge-offs (i.e., older delinquencies that are written off). Respondents felt both categories of delinquencies were going to rise, and the sentiment was similar in strength for both categories, which suggests the pipeline of delinquencies isn’t going to shrink in the near future.

Still pessimistic, but less so

While the results of this survey indicate pessimism among bank risk professionals, the results were less negative than the results of the same survey taken in the second quarter of 2010. For example, while 53 percent of all respondents in the third quarter expected mortgage delinquencies to rise, the figure was 60 percent in the second quarter. Likewise, the percentage of all respondents expecting an increase in credit card delinquencies fell from 59 percent to 42 percent. The percentage of all respondents expecting an increase in delinquencies on auto loans fell from 41 percent to 30 percent.

In summarizing the survey results, PRMIA member Professor Russell Walker of the Zell Center for Risk Research at Northwestern University’s Kellogg School of Management said, “With banks still seeing a rather negative outlook, we expect a lot of unmet demand in consumer credit for quite some time. However, as economic conditions in the U.S. continue to improve, this unmet demand provides banks with a potentially profitable opportunity that will require a strong risk management approach to offering credit.”

A detailed report of the survey results is available at http://www.prmia.org/PRMIA-News/USConsumerCreditRisk3rdQtr.pdf. FICO and PRMIA extend special appreciation to The Zell Center for Risk Research at The Kellogg School of Management for its assistance in analyzing the survey responses and writing the report.

About PRMIA

The Professional Risk Managers’ International Association (PRMIA) is a higher standard for risk professionals, with 60 chapters around the world and over 70,000 members in nearly 200 countries. A non-profit, member-led association, PRMIA is dedicated to defining and implementing the best practices of risk management through education, including the Professional Risk Manager (PRM) designation and Associate PRM certificate; webinar, online, classroom and in-house training; events; networking; and online resources. More information can be found at www.PRMIA.org.

About the Zell Center for Risk Research

The Zell Center for Risk Research promotes the study and understanding of the way people perceive risk, the effects of these perceptions, and the management of risk. The center accomplishes these objectives by encouraging academic research in this area, and through the communication of research findings to a wide audience of academics, students and practitioners. The center is housed within the Kellogg School of Management at Northwestern University, a widely-recognized global leader in management education. The school, located just outside of Chicago, is home to a renowned, research-based faculty and MBA students from around the globe. To learn more, visit www.kellogg.northwestern.edu.

About FICO

FICO (NYSE:FICO) transforms business by making every decision count. FICO’s Decision Management solutions combine trusted advice, world-class analytics and innovative applications to give organizations the power to automate, improve and connect decisions across their business. Clients in 80 countries work with FICO to increase customer loyalty and profitability, cut fraud losses, manage credit risk, meet regulatory and competitive demands, and rapidly build market share. FICO also helps millions of individuals manage their credit health through the www.myFICO.com website. Learn more about FICO at www.fico.com.

FICO Statement Concerning Forward-Looking Information

Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company’s Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2009. If any of these risks or uncertainties materializes, FICO’s results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.

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