Consumer finance in the most basic sense of the word refers to any kind of lending to consumers. However, in the United States financial services industry, the term "consumer finance" often refers to a particular type of business, sub prime branch lending (that is lending to people with less than perfect credit). Examples of these companies include HSBC Finance, CIT, Citifinancial, Wells Fargo Financial, and Allied Business Systems, LLC. HSBC Finance Corporation is a financial services company and a member of the HSBC Group. ... From CITs web site: CIT Group Incorporated is a leading commercial and consumer finance company, providing clients with financing and leasing products and advisory services. ... Citigroup Inc. ... A typical Wells Fargo branch, located in Berkeley, California Norwest redirects here. ...

Consumer Finance in General

Consumer finance covers a wide range of activities, including loans from banks and indirect finance such as hire-purchase agreements, and loans by specialist retail finance companies. A loan is a type of debt. ... The First Provincial Bank of Taiwan in Taipei, Republic of China was formerly the central bank of the Republic of China and issued the New Taiwan dollar. ... Indirect finance is where borrowers borrow funds from the financial market through indirect means, such as through a financial intermediary. ...

At the most respectable end of the market, consumer finance is an integral part of retail banking and an important source of unsecured loans It has been suggested that this article or section be merged with Banking. ... It has been suggested that this article or section be merged into Bond (finance). ...

However, in many countries some 'consumer finance' companies are little different from loan sharks, offering considerably higher interest rates than those available on other unsecured loans. A loan shark is a person or body that offers illegal unsecured loans at high interest rates to individuals, often backed by blackmail or threats of violence. ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ...

On another view, however, such companies are beneficial because they offer credit to sectors of society which are otherwise excluded from financial markets, and the credit offered is no worse than the alternative credit cards. In finance, financial markets facilitate: The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); and International trade (in the currency markets). ... Credit cards A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. ...

The term as used in the United States

The Consumer Finance industry (meaning branch based subprime lenders) mainly came to fruition in the middle of the twentieth century. At that time these companies were all standalone companies, not owned by banks and an alternative to banks. However, at that time the companies were not focused on subprime lending, instead they attempted to lend to everyone who would accept their high rates of interest. There were many reasons why certain people would:

• Banks made it difficult to obtain personal credit. Banks did not have the wide variety of programs or aggressive marketing that they do today.
• Many people simply didn't like to deal with bank employees and branches, and preferred the more relaxed environment of a consumer finance companies
• Consumer finance companies focused on lowering the required payment for their customers debts. Many customers would gladly refinance 10,000.00 worth of auto loan debt at 7 percent for a home equity loan at 18 percent because the auto loan would have to be paid off in 5 years while the home equity loan would have a 20 year repayment plan, making the monthly payments for the customer lower (even though overall the customer would end up paying dramatically higher amounts of interest).

However, as the financial services industry evolved and banks and other kinds of financial services companies began offering more consumer credit, consumer finance companies came to serve primarily those with bad credit, who couldn't obtain financing elsewhere.

A typical consumer finance office engages in some unsecured, and auto secured, but primarily home equity secured loans. To find new customers, these companies often provide the store financing for furniture stores, pool stores, and other stores where homeowners might shop. When buyers of products at those stores want to pay in installments, it is often a consumer finance company which actually does the loan for that purpose. Since this loan is usually at a high interest rate, the consumer finance company employees will call the customer to offer to refinance the loan as a home equity secured loan at a somewhat lower rate and a lower payment.

Besides charging a higher interest rate compensating for their risk, consumer finance companies are usually able to operate successfully because their employees are given more flexibility in structuring loans and in collections than compared to banks.

Controversial practices of the United States Consumer Finance Industry

The more dubious consumer finance companies are held to engage in the following practices.

• Failing to tell people who ask for a loan from the lender that they really have good credit and can get a better deal somewhere else (a subprime loan is usually more expensive than a prime loan). This is one of the primary criticisms of industry and is implied in many others critiques. For example consumer finance companies have been called racist because of branches they might have opened in primarily African American areas. If their customers all had bad credit they would be working in the same way they would elsewhere, but it is implied that they are preying on the communities' lack of knowledge of lower priced alternatives.
• Sending live checks through the mail which when used become loans. This can trick some people, and the interest rate is usually purposely high (although disclosed)
• Charging very high fees on a mortgage refinance.
• Offering refinance deals that are worse than the previous loan, usually by showing that the new payment will be lower, but not revealing that the new payment does not include taxes and insurance.
• Selling single premium credit insurance, also financing that into the loan

Critics consider also the concept and geographical placement of consumer finance stores as a form of "redlining". This is because the sub prime lenders in poorer communities will often be the only local store, yet will be higher priced. Refinancing refers to applying for a secured loan intended to replace an existing loan secured by the same assets. ... Refinancing refers to applying for a secured loan intended to replace an existing loan secured by the same assets. ... Credit Insurance is an insurance policy associated with a specific loan or line of credit which pays back some or all of any monies owed should certain things happen to the borrower, such as death, disability, or unemployment. ... Redlining is the practice of denying or increasing the cost of services, such as banking or insurance, to residents of certain areas. ...

See also

• Consumer debt
• Financial literacy
• Payday loan
• Settlement (finance)