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Tuesday, June 19, 2007

Consumer Financial Services: Overview

At the end of 2006, outstanding consumer credit (excluding loans secured on real estate) in the US amounted to $2,390 billion, an increase of 2.6% on the previous year. This marked a slowdown from the annual growth rates for consumer during the 2001-2004 period. The main creditors were commercial banks, who lent 30% of these funds, while finance companies accounted for a further 22%.In 2006, home mortgages outstanding exceeded $10,000 billion, up by 10% on 2005. Home ownership rates are currently historically high in the US, although there has been a slight downturn in 2005 and 2006 since the peak of 2004, and by late 2006, hitherto soaring house prices were beginning to slow down their rate of increase.At the end of 2006, outstanding consumer credit (excluding loans secured on real estate) in the US amounted to $2,390 billion, an increase of 2.6% on the previous year. This marked a slowdown from the annual growth rates for consumer during the 2001-2004 period. The main creditors were commercial banks, who lent 30% of these funds, while finance companies accounted for a further 22%.In 2006, home mortgages outstanding exceeded $10,000 billion, up by 10% on 2005. Home ownership rates are currently historically high in the US, although there has been a slight downturn in 2005 and 2006 since the peak of 2004, and by late 2006, hitherto soaring house prices were beginning to slow down their rate of increase. A strong stock market performance is encouraging the growth of margin loans, secured on investments rather than real estate. During the 2005-2006 period, the prime rate of interest was increasing, which in principle should dampen demand for consumer credit. More stringent legislation introduced in 2005 has greatly reduced the number of individuals having recourse to bankruptcy to deal with unsustainable debt. Leading players in the industry include Fannie Mae, Freddie Mac, American Express, and Countrywide Financial. The US has a large number of banks and related institutions when compared to Japan or Europe, and a long-term trend for consolidation persisted in 2006. Mortgage facilitators such as Fannie Mae are committed to extending home ownership among lower income- and minority groups in the US through the development and marketing of appropriate financial products. For credit card providers, a focus of investment has been the upgrading of transaction security, and the offering of innovative hardware, such as RFID-enabled cards.

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