Recapturing CLIs
How a Diversified Data Strategy Can Help Card Issuers
Restore Credit Line Increases—and Boost Revenue
Michael Blix
Analytic Expert
September 2013
Table of Contents
1 The CLI conundrum
3 Create an internal hub
3 Institute a consumer outreach program
4 Leverage annualized income data from The Work Number®
6 Extend the shelf life of stated income
8 Conclusion
Equifax Inc. | Recapturing CLIs | ii
The CLI conundrum: How to overcome
regulatory hurdles to restore the credit line
increases consumers and card issuers want.
When credit cardholders can spend more on their
cards, they usually do. And that boosts revenue for
card issuers. It is a simple formula for success that
has served the credit card industry well for years.
In the past, card issuers used in-house data, credit
bureau data and analysis to determine a cardholder’s
ability to pay. Those who met the criteria were
automatically given a credit line increase. The resulting
revenue was impressive: Cardholders who received
a 10-30% credit line increase boosted their
balance by about 3% within a year. By contrast,
consumers who did not receive a credit line increase
actually cut spending—showing a 4% balance drop
in the same 12 months1, netting a 7% swing. It should
also be noted that consumers were generally paying
down their balances during this period (June '11 June '12), so the results should be more compelling
in the present day.
That is what makes credit line increases such an
important opportunity for card issuers: CLIs produce
new revenue, and when CLIs do not happen, revenue
does not hold steady. It actually falls.
Credit line increases drive bankcard balance growth
Source: Equifax
8%
6%
4%
2%
0%
-2%
-4%
2%
6%
Line increase
.01% - 10%
Line increase
11% - 30%
-4%
No change
-6%
-8%
-10%
-12%
-11%
Line
decrease
-14%
Credit line changes measured over 6 months (Jan.-Jun. 2011).
Balance changes measured one year after line increase (Jun. 2011-Jun. 2012).
1
Equifax research based on a random sample of 870,000 The Work Number®-verified
incomes with bankcard trades appended.
Equifax Inc. | Recapturing CLIs | 1
Regulation Spotlight:
How Reg Z and
the CARD Act Affect
Credit Line Increases
A key component of the
Credit Card Accountability
Responsibility and
Disclosure Act is an abilityto-pay provision. It expands
upon the long-standing
Truth in Lending law, or
Regulation Z. Under Reg Z,
credit card issuers cannot
open a credit card account
or increase the credit limit
of an existing account
without considering a
consumer's ability to make
the required payments.
To assess ability to pay for
a credit line increase, credit
card companies may rely
on financial information
provided by the consumer—
so called stated income—
or they may use third-party
verified income data.
The ability-to-pay provisions
have made the process
of identifying eligible
customers more difficult,
contributing to the 85%
decline in credit line
increases since 2010.
Sources: Federal Reserve Bank of Philadelphia,
Equifax research
Today, offering credit line increases is much more difficult for card issuers.
Regulators have changed the rules on how cardholders qualify for CLIs.
Issuers are limited in using personal income models to demonstrate
a cardholder’s ability to pay—a crucial prerequisite for offering a credit
line increase. Now, card issuers must rely on the stated income a consumer
provides in the initial application—information that regulators say is only
valid for CLI verification for a limited time frame. Or issuers must use income
data that is verified by a third party.
The regulatory change has been a costly one for card issuers, who have seen
an 85-90% drop in CLI-eligible accounts since the Credit Card Accountability,
Responsibility, and Disclosure Act took effect in early 20102. Having relied for
years on income modeling to show ability to pay, many card issuers simply do
not possess all the verified income information now required for CLI ability to
pay decisions.
Before the ability to pay provisions, 10-15% of card issuers' customer
base was CLI-eligible. Now, that eligible customer base has dropped to
2-5%—not because these consumers are less worthy of credit line increases,
but because card issuers lack the ability to demonstrate income that indicates
an ability to pay.
85-90% drop in CLI-eligible
accounts since 2010
3
But card issuers can recapture that eligible consumer base and restore
CLI-related revenue with four possible (and complementary) strategies:
1
2
3
4
Card issuers can consolidate their existing ability-to-pay data into
an internal income hub.
They can reach out directly to CLI prospects to request updated
income information.
Issuers can go to the marketplace for third-party solutions that will
help them fill the verified income gap with speed and confidence.
They can lobby regulators to expand the validity of consumers’ stated
income beyond the current thresholds.
Equifax Inc. | Recapturing CLIs | 2
1 Create an internal income hub
By building an internal income hub, card issuers can harness the power of information already within
reach. The first step is to consolidate income data across all portfolios to which a card issuer has
access. Mortgage records, auto loans, student loans, personal lines of credit and even data related
to other credit cards are all loaded with financial facts and figures, including the income data—stated
and/or internally verified—that can enable credit line increases. In addition, card issuers should look
at other business lines to which they are privy.
Such information is a treasure trove for card issuers, but there are some drawbacks. For example,
many card issuers do not have in-house access to this full sweep of financial data, so collecting and
consolidating it can prove both time-consuming and expensive. Even when the data is contained
within a financial institution, regulatory rules or internal silos may hamper data collection and
consolidation and drive up the cost of mining the information for income-verifying “gold.”
Ultimately, the expense of extracting data through an internal income hub across lines of businesses
may not seem worth the return. In general, an internal hub with auto, mortgage, student loans and
personal lines of credit information yields a credit line increase recapture rate of 4-6%, based
on information from Credit Trends®, Equifax's proprietary consumer credit database.
2 Institute a consumer outreach program
The reality is that consumers generally like credit line increases. That is why their spending goes
up after a credit limit rise. Card issuers can tap into that consumer interest to help get credit limit
increases back on track. Reach out to consumers whose credit profiles make them likely candidates
for credit line increases. Then invite them to apply for a credit limit rise with an application that
requires employment and income information.
The largest benefit of such an outreach program is that it provides card issuers with targeted,
up-to-date stated income data that comes directly from consumers—a source specifically approved
under the new credit card regulations. Another plus is that it fosters what is likely to be a positive
exchange between a card issuer looking to increase a consumer’s credit line and a consumer
who would like a higher credit limit. It is simply good customer relations.
But, as with the internal income hub, there are a few potential drawbacks. First, the effort is—at its
most basic—a fishing expedition. There is no guarantee consumers will bite. Second, the marketing
and communications dollars needed to facilitate such outreach can add up very quickly.
If the outreach is successful, it still offers a slightly lower return than the income hub. It yields a credit
line increase recapture rate of 3-5%, according to Equifax research.
ibid.
2
ibid.
3
Equifax Inc. | Recapturing CLIs | 3
3 Leverage annualized income data from The Work Number®
The Work Number can quickly jumpstart CLIs by providing instantly accessible, viable and verified
income data that shows ability to pay. The Work Number includes more than 53 million payroll records
today and is expected to reach 66 million payroll records by 2014. It comes from Equifax, a brand
that regulators, card issuers and consumers have come to know. And it is available immediately.
Using The Work Number as a verified source for income information allows card issuers to resume
CLIs without delay. The constantly updated income information comes directly from millions of
employer payroll records. And if a card issuer wants data on specific consumers whose income
records are not already in the database, The Work Number can retrieve that data in a matter of
hours or days.
Tapping into The Work Number database also enables financial institutions to build a knowledgebase
using the “waterfall” approach. The idea is to combine internal and external data from reliable sources
like The Work Number. It is a Big Data approach that can transform discrete streams of information
into insightful and predictive customer profiles.
The return on The Work Number investment is impressive. Using The Work Number, credit card issuers
can realize a potential CLI recapture rate of 15-18%.
The Work Number CLI recapture rate exceeds all sources but stated income4
Source: The Work Number®/Credit Trends®/Equifax
Total CLI eligible bankcard population
(FICO 700+ w/ balance)
Volume: 121.6M
# New bankcards in past 12 months
(stated income)
Volume: 21.8M
Expanding stated income
window to 18 months
Volume: 11.6M
Income hub non-card sources
(Mortgage, auto, retail banking)
Volume: 4.4M
Proactive customer
reach (4%)
Volume: 3.4M
The Work Number
verified income
Volume: 14.5M
Equifax Inc. | Recapturing CLIs | 4
46%
Potential CLI eligible
recapture volumes and rates
Volume: 55.7M
The Work Number enables a quick return to CLIs—and related revenue5
$240M
$236.2M
$220M
$200M
$74.2M
$180M
$160M
$162.0M
$140M
Profit increase with income hub
and The Work Number income
Recapture with income hub
and The Work Number income
is based on the following assumptions:
• Expanding the ‘stated’ income
window on cards to 18 months
(9% of eligible population)
• Building an internal income hub
with ‘stated’ incomes from accounts
that crossover from auto, mortgage,
and direct deposit income (5%)
• Customer outreach to get updated
incomes (4%)
• The Work Number annualized
income (18%)
Recapture with 12 months
“Stated” card income only
assumes that all credit eligible bankcards
opened in the past 12 months would
be eligible for a credit line increase.
$120M
$100M
$94.5M
$80M
$29.7M
Assumption: 30% utilization, 6% net interest.
$59.0M
$60M
$64.8M
$18.5M
$40M
$35.4M
$11.1M
$20M
$40.5M
$24.3M
$750 Line increase
$1,250 Line increase
$2,000 Line increase
$5,000 Line increase
Used on its own, The Work Number’s potential CLI recapture rate outpaces all other information sources
except stated income. Combined with other information, it enables a “waterfall” of data that allows
lenders to recapture almost half of the eligible population for credit line increase programs.
Percentage listed applies to volume after prior tier is subtracted.
4
Recapture rate with 12 months of ‘stated’ card income assumes that all bankcards opened in the past 12 months would be eligible for a credit line increase.
5
Equifax Inc. | Recapturing CLIs | 5
4 Extend the shelf life of stated income
There is regulatory scrutiny around the shelf life of stated income data used to validate credit line
increases. Many card issuers are wary of presenting regulators with information older than 12 months.
But what if issuers could show regulators powerful statistics demonstrating the accuracy and stability
of stated income over time? Such evidence could ease the anxiety of card issuers and regulators alike,
and potentially streamline and reinvigorate the CLI approval process.
That data exists and can be drawn from The Work Number database of more than 53 million current
payroll records. Analyzing The Work Number’s substantial database shows overall consumer income
levels are stable over time, particularly for people in the income bands most attractive to card issuers.
And when income does change, it is most likely to rise. About 1/3 of employees experience a 10%+
increase in income annually, and this number jumps to over 1/2 of employees over a three year period.
Income declines of 10% or more account for less than 14% of income changes in the first year, and
less than 17% in three years6.
Overall, consumer income is stable or rises over time
Source: The Work Number®/Equifax, based on employers reporting to The Work Number Nov. '08 through Nov. '11.
More than 10%+ Increase
10%+ Decrease
+/- 10% change or No change
100%
90%
14%
16%
17%
80%
70%
60%
54%
41%
32%
50%
40%
30%
20%
10%
32%
Migration 12 months
43%
Migration 24 months
51%
Migration 36 months
The data is real and it is compelling. Without a doubt, it offers clear evidence that stated income
retains its validity over time. The data opens the door to pushing regulators to consider reauthorizing
the use of consumer provided incomes beyond 12 months for use in validating credit line increases.
Equifax Inc. | Recapturing CLIs | 6
But changing regulators’ minds and lobbying to shift policy is a long-term play. Card issuers will not be
able to convince regulators overnight, and they might not be able to do it alone. Consumer groups that
hear from frustrated consumers who cannot get credit cards or credit line increases could be powerful
allies in making the case to regulators. The argument: Some of the new regulations for card application
and CLI approval are simply too onerous—for the credit card industry and for consumers.
It is a long-term battle that could be worth waging. Equifax research shows that if card issuers could
extend the viability of stated income from 12 months to 18 months and use it for automatic credit
line increases, their CLI recapture rate could rise from 18% to as much as 27%.
Extending the shelf life of stated income pumps up the CLI recapture rate7
Total CLI eligible bankcard pop.
(FICO 700+ w/ balance)
121.6M records
New bankcards
in past 6 months
11.1M records
New bankcards
in past 12 months
21.8M records
New bankcards
in past 18 months
33.4M records
ibid.
6
Many lending institutions do not provide credit line increases to consumers who have held cards less than six months. This may reduce the eligible
population with stated incomes by as much as 50%.
7
Equifax Inc. | Recapturing CLIs | 7
100%
9%
18%
27%
Conclusion
New regulations make offering credit line increases much more difficult for card issuers,
which now must use stated or third-party verified income to show a consumer's ability
to pay. As a result, card issuers have seen an 85-90% drop in CLI-eligible accounts since
2010. But card issuers can recapture that eligible consumer base and restore some
CLI-related revenue with four possible strategies:
Proposed Solution
Pros
Cons
Card issuers can
consolidate their existing
ability-to-pay data into
an internal income hub.
Harnesses the power of
consolidating data across
all portfolios to which a
card issuer has access.
Collecting and
consolidating the data can
be time-consuming and
expensive, and the CLI
recapture rate is just 4-6%.
Card issuers can reach out
directly to CLI prospects to
request updated income
information.
Yields the targeted, up-todate stated income data
that regulators like and
can bolster the relationship
between the issuer and
consumer.
The marketing and
communications costs can
be high, and there is no
guarantee consumers will
sign on. The CLI recapture
rate is only 3-5%.
Issuers can go to the
marketplace for third-party
solutions that will help
them fill the verified
income gap with
speed and confidence.
The Work Number’s
53 million active payroll
records can jumpstart a
CLI program by instantly
demonstrating ability to
pay. The Work Number also
can enable a “waterfall”
approach to data
consolidation. Using The
Work Number, credit card
issuers can realize a CLI
recapture rate of 15-18%.
The payroll records
database is not universal,
but is still growing and
is expected to reach
66 million payroll
records by 2014.
Issuers can lobby
regulators to expand the
validity of consumers’
stated income beyond
the current thresholds.
Regulatory change would
yield a long-term and
effective solution. Their
CLI recapture rate could
rise from 18% to as
much as 27%.
Lobbying to change
regulators’ minds and
shift policy would take time
and resources and could
require card issuers to ally
with other interest groups.
Equifax Inc. | Recapturing CLIs | 8
About The Work Number®
The Work Number database is the largest central source of consolidated employment and income
information. The database houses more than 53 million active employment records and more
than 165 million historical records. These records are contributed by more than 2,500 employers
nationwide—from Fortune 500 companies to small regional and local employers representing
every major industry. Accessible 24/7, The Work Number database enables a streamlined
verification process for lenders of all types.
About Equifax
Equifax is a global leader in consumer, commercial and workforce information solutions, providing
businesses of all sizes and consumers with information they can trust. Equifax organizes and
assimilates data on more than 500 million consumers and 81 million businesses worldwide,
and uses advanced analytics and proprietary technology to create and deliver customized
insights that enrich both the performance of businesses and the lives of consumers.
Contact Us Today
For more information, please contact
[email protected]
888-577-1999
www.theworknumber.com
Equifax Inc. | Recapturing CLIs | 9
For more information on Equifax
Verification Services, please visit
www.theworknumber.com.
EFX-WS-4100-07/30/2013
There are references throughout this publication/website to various trademarks or service marks and these, whether registered or not, are the property of their
respective owners. Equifax is a registered trademark of Equifax Inc. Inform > Enrich > Empower is a trademark of Equifax Inc. The Work Number is a registered
trademark of TALX Corporation, a wholly owned subsidiary of Equifax Inc. Copyright © 2013. Equifax Inc., Atlanta, Georgia. All rights reserved.