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). This branch of the financial services industry is more extensive in the United States than in some other countries, because the major banks in the U. S. are less willing to lend to people with marginal credit ratings than their counterparts in many other countries. A credit rating assesses the Credit worthiness of an individual Corporation, or even a country Examples of these companies include American General Finance, Inc. ,HSBC Finance, CIT, CitiFinancial, and Wells Fargo Financial. "HFC Bank" redirects here for the bank in Ghana see Home Finance Company HSBC Finance Corporation is a financial services company CIT Group Inc (an abbreviation of an early corporate name of Commercial Investment Trust is a leading global commercial and consumer finance company founded in 1908 Wells Fargo & Co ( is a diversified Financial services company headquartered in San Francisco California, United States with operations around the
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:
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.
The more dubious consumer finance companies are held to engage in the following practices.
Critics consider also the concept and geographical placement of consumer finance stores as a form of "redlining". Credit Insurance is a term used to describe both Trade Credit Insurance and Credit Life Insurance Redlining is the practice of denying or increasing the cost of services such as Banking, Insurance, access to jobs access to health care or even Supermarkets This is because the sub prime lenders in poorer communities will often be the only local store, yet will be higher priced.