CONSUMER FINANCE - SASB Librarylibrary.sasb.org/.../Financials/SASB_Consumer_Finance_Brief.pdf · 2014 SASB ™ RESEARCH BRIEF | CONSUMER FINANCE 1 non-financial forms of capital

CONSUMER FINANCEResearch Brief

Sustainable Industry Classificaton System™ (SICS™) #FN0201

Research Briefing Prepared by the

Sustainability Accounting Standards Board®

February 2014

www.sasb.org© 2014 SASB™

T M

™

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© 2014 SASB™

SASB’s Industry Research Brief provides evidence for the material sustainability issues in the industry.

The brief opens with a summary of the industry, including relevant legislative and regulatory trends

and sustainability risks and opportunities. Following this, evidence for each material sustainability

issue (in the categories of Environment, Social Capital, Human Capital, Business Model and

Innovation, and Leadership and Governance) is presented. SASB’s Industry Brief can be used

to understand the research and data underlying SASB Sustainability Accounting Standards. For

accounting metrics and disclosure guidance, please see SASB’s Sustainability Accounting Standards.

For information about the legal basis for SASB and SASB’s standards development process, please

see the Conceptual Framework.

SASB identifies the minimum set of sustainability issues likely to be material for companies within

a given industry. However, the final determination of materiality is the onus of the company.

Related Documents

• Financials Sustainability Accounting Standards

• Industry Working Group Participants

• SASB Conceptual Framework

• Example of Integrated Disclosure in Form 10-K

CONTRIBUTORSEric Kane

Andrew Collins

Anton Gorodniuk

Jerome Lavigne-Delville

Himani Phadke

Arturo Rodriguez

Jean Rogers

CONSUMER FINANCEResearch Brief

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Classification System, Accounting for a Sustainable Future, and Materiality Map are trademarks

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1RESEARCH BRIEF | CONSUMER FINANCE © 2014 SASB™

non-financial forms of capital that consumer

finance companies rely on to create long-term

value. Firms that work to improve performance

on these issues will be well-positioned to pro-

tect shareholder value in the future.

The sustainability issues that will drive competi-

tiveness within the consumer finance industry

include:

• Expanding services to underserved markets

and building financial capacity

• Ensuring the privacy and security of con-

sumer data

• Providing transparent information and fair

advice to consumers

• Engaging in responsible lending and

debt prevention

The extent to which these sustainability factors

impact value will become increasingly clear as

the regulatory environment continues to em-

phasize transparency and consumer protection

throughout the financial services sector.

INDUSTRY SUMMARY

The consumer finance industry provides loans

to consumers. Loan services include auto, mi-

crolending, credit and debit, and student loans.

In addition, companies in this industry provide

payment processing services, consumer to con-

sumer money transfers, money orders, prepaid

debit cards, and bill payment services.I

MATERIAL SUSTAINABILITY ISSUES

Social Capital

• Financial Inclusion

• Customer Privacy & Data Security

• Transparent Information & Fair

Advice for Customers

• Responsible Lending & Debt

Prevention

INTRODUCTION

The extension of credit and other consumer

finance services is essential to the functioning

of the U.S. and global economies. Although

traditional value drivers will continue to impact

industry performance, the recent financial crisis

and the subsequent regulatory developments

have articulated how social capital contributes to

market value. These issues can affect traditional

valuation by impacting profits, assets, liabilities,

and cost of capital.

To ensure that shareholders are able to evalu-

ate these factors, consumer finance companies

should report on the material sustainability risks

and opportunities that may affect value in the

near and long term. Enhanced reporting will

provide stakeholders with a more holistic (and

comparable) view of performance that includes

both positive and negative externalities, and the

I A list of five companies representative of this industry and its activities appears in Appendix I.



Consumer spending drives growth in the con-

sumer finance industry. Industry performance

is determined by consumer spending, rates

of unemployment, per capita GDP, income,

and population growth. Although emerging

markets present a considerable opportunity for

growth in the industry, the U.S. remains the

largest market for lenders. Consumer finance

companies engaged in the credit and debit

segment continue to face challenges associated

with an evolving regulatory environment. New

payment technologies provide significant op-

portunities for growth for both established and

emerging companies in the consumer finance

industry.

LEGISLATIVE & REGULATORY TRENDS IN THE CONSUMER FINANCE INDUSTRY

Although the regulatory environment that gov-

erns the consumer finance industry continues

to evolve, an ongoing trend toward disclosure

and consumer fairness has the potential to

impact shareholder value and sustainability

performance. The following section provides a

brief summary of key legislative efforts that are

likely to impact value in the industry and to fur-

ther amplify the importance of social capital.II

In 2009, the U.S. Congress passed the Credit

Card Accountability Responsibility and Disclo-

sure Act (Credit CARD Act) to establish fair and

transparent practices relating to the extension

of credit. The legislation sought to limit ac-

tions that contributed to the fact that in 2009,

Americans paid $15 billion in penalty fees

annually with 44 percent of families carrying a

balance on their credit cards. The Credit CARD

Act bans unfair interest rate increases and fee

traps. In addition, the legislation provides for

new disclosure requirements, enhanced ac-

countability, and protects students and young

people from certain marketing practices.

Further restrictions on disclosure are pending

as the Consumer Financial Protection Bureau is

developing a standard credit-card contract that

is devoid of small print.1

Although the Credit CARD Act effectively

limits certain revenue generating practices, the

legislation has helped to reduce the amount of

debt that consumer finance companies deem

uncollectible. This debt, which reached a peak

of $821 million in August 2009 was reduced to

$276 million as of May 2012.2

Recent legal settlements will also limit prac-

tices that consumer finance companies have

engaged in to increase revenue. In 2012, an

antitrust suit was settled that will effectively al-

low retailers to charge customers more for pay-

ing with credit cards. An earlier settlement also

limited the amount that companies can charge

retailers when customers use debit cards.3

II Data as of June 30 2013. Based on annual summary of branch office deposits for all FDIC-insured institutions, including U.S. branches of foreign banks.



SUSTAINABILITY-RELATED RISKS & OPPORTUNITIES

Recent shifts towards consumer protection and

transparency have and will continue to align

the interests of society with those of long-term

investors. Companies will therefore not be

able to maximize financial capital unless social

capital is managed effectively. Firms that are

able to navigate new regulations will be better

positioned to protect shareholder value in the

long term.

The following section provides a brief descrip-

tion of how the consumer finance industry

depends on each form of capital and how

specific sustainability issues will drive perfor-

mance including: evidence and value impact.

Issues are divided into five categories: Environ-

ment, Social Capital, Human Capital, Business

Model and Innovation, and Leadership and

Governance. A table indicating the nature of

the value impact and evidence of interest from

stakeholders appears in Appendix IIA. Appen-

dix IIB expands on the channels of financial

impacts of each sustainability issue, and the

recommended disclosure framework appears in

Appendix III.

ENVIRONMENT

The environmental dimension of sustainability

includes corporate impact on the environ-

ment, either through the use of non-renewable

natural resources as input to the factors of

production (e.g., water, minerals, ecosystems,

and biodiversity) or through environmental

externalities or other harmful releases in the

environment, such as air and water pollution,

waste disposal, and greenhouse gas emissions.

The consumer finance industry’s primary reli-

ance on environmental capital is in the form

of energy consumed to operate offices, data

centers, and branch locations. Although energy

use contributes to negative externalities, this

issue was determined not to be material for

the consumer finance industry. The industry’s

primary opportunity in the area of environmen-

tal capital is to influence consumer behavior

through various products such as affinity cards

that support renewable energy development.

Again, this issue was determined not to be

material. Subsequently, there were no envi-

ronmental issues that were considered to be

material in this industry.



SOCIAL CAPITAL

Social capital relates to the perceived role of

business in society, or the expectation of busi-

ness’s contribution to society in return for its

license to operate. It addresses the manage-

ment of relationships with key outside stake-

holders, such as customers, local communities,

the public, and the government. It includes is-

sues related to access to products and services,

affordability, responsible business practices in

marketing, and customer privacy.

Consumer finance companies operate in an

increasingly strict regulatory environment. New

policies which are intended to protect con-

sumers serve to enhance the link between the

industry and social capital. Companies in this

industry have the opportunity to create social

value through inclusion and capacity build-

ing, but must also work to ensure that current

customers are receiving transparent informa-

tion, lending is done responsibly, and cus-

tomer privacy is protected. As the correlation

between shareholder performance and social

capital becomes increasingly tangible, investors

must understand how individual companies are

addressing these key issues.

Financial Inclusion

In the U.S., an estimated 11 percent of con-

sumers are unbanked, meaning they do not

have a checking, savings, or money market

account, and their spouse also does not have

such an account. An additional 11 percent

have a checking, savings, or money market ac-

count, but have also used on alternative finan-

cials service in the last 12 months, indicating

they are underbanked.4 These findings, cou-

pled with a recent study by the Federal Reserve

which found that 63 percent of unbanked

consumers and 91 percent of underbanked

consumers have a mobile phone, suggest there

is significant opportunity for consumer finance

companies.5 Specifically, advancements in new

products and payment technology can allow

companies in this industry to expand access to

financial services to underserved populations,

domestically and abroad.

Expansion into new markets and technologies

can provide significant sources of revenue;

however, firms must also ensure that the asso-

ciated regulatory and financial risks are man-

aged. In addition, technological advancements

have lowered barriers to entry and allowed

new companies to enter the consumer finance

industry, thereby increasing competition and

putting pressure on incumbents.

Enhanced disclosure on revenue associated with

products that target the unbanked and un-

derbanked, and success in reaching previously

unserved consumers, will provide shareholders

with an understanding of how companies are

increasing corporate and societal value.

Evidence

In Latin America, where an estimated 35

percent of the population has access to finan-

cial services, Mastercard has partnered with

Telefonica to launch a mobile banking plat-

form. The company reports that this initiative



will provide access for 87 million people across

the region.6

Citi and its Mexican subsidiary, Banamex,

partnered with America Movil to introduce

mobile wallets, which enable customers to

make and receive payments on their mo-

bile phones. The product targets 50 million

unbanked and underbanked individuals in

Mexico, and could provide financial services

to 250 million America Movil customers in

the region.7

Much of the growth in both the U.S. and

emerging markets will be driven in part by

the development of new technologies, such

as those being introduced by Mastercard and

Citi. Worldwide, the mobile payment market

is expected to exhibit annual growth of 42

percent to reach $617 billion with 448 million

users by 2016.8 In addition, new products and

technologies such as prepaid debit and near-

field communication will also contribute to

growth for the industry. Purchases on prepaid

debit cards in the U.S. are expected to increase

by 5.3 percent annually to $139.4 billion in

2017.9 Juniper Research estimates that the

value of near-field communication technology,

which allows enabled devices to exchange data

(including payment information) wirelessly, will

reach $110 billion by 2017.10

The potential for revenue growth associated

with serving new markets is further illustrated

by a KPMG study that suggests that Asia’s

share of global payment transaction volume on

purchasing cards is expected to be double that

of the U.S. by 2015.11

Value Impact

Consumer finance companies that have access

to a broader market will be better positioned

to create shareholder value. Firms that are able

to successfully expand access through new

products and technologies will likely generate

additional service fees and data processing

revenue. Further, these companies will capture

new markets and enhance pricing power. This

will also result in lower cost of capital.

Companies also have the potential to generate

positive social impact in the long term through

financial inclusion, which can serve to improve

reputation and the value of intangible assets.

Customer Privacy & Data Security

Ensuring the privacy and security of personal

financial data is an essential responsibility of

the consumer finance industry. As the frequen-

cy and magnitude of information security risks

continues to increase with the proliferation

of new technologies, the increased use of the

Internet for financial transactions, and the so-

phistication of those who pose threats, compa-

nies will be required to devote more resources

to mitigation and regulatory compliance.

In the absence of federal legislation relating to

cybersecurity, various regulatory agencies con-

tinue to examine this issue and propose new

rules and standards. In addition to the potential

for increased costs of compliance associated

with new rule making, consumer finance



companies are currently forced to comply with

a patchwork of state laws.

Enhanced disclosure of the number of security

breaches, the extent of fraudulent charges, and

efforts to manage these risks will allow share-

holders to understand how consumer finance

companies are protecting long-term value.

Evidence

In 2014, Target revised the number of custom-

ers whose personal information had been sto-

len in the previous year to between 70 million

and 110 million. As a result, consumer finance

companies were forced to alert their customers

of potential fraud, and provide new cards and

account numbers.12

In March 2012, a security breach at Global Pay-

ments exposed private customer information

for an undisclosed number of Mastercard and

Visa cardholders. Global Payments’ stock fell

nine percent after it was determined to be the

target of the attack.13

In 2009, Heartland Payment Systems an-

nounced that a security breach in the prior year

compromised the security of an estimated 130

million credit and debit cards.14 The company

was subsequently removed temporarily from

Visa’s list of PCI DSS Validated Service Provid-

ers. Financial statements indicate that Heart-

land Payment Systems accrued $139.4 million

in breach related expenses.15

The magnitude of this issue is demonstrated by

recent estimates, which suggest that identity

thefts increased by 13 percent between 2010

and 2011, affecting 12 million Americans.16

Further, in 2010, global fraud losses for credit

and debit card companies amounted to $7.6

billion with 47 percent of false charges occur-

ring in the U.S. 17

These incidents and the increasing frequency of

intrusions, indicates a significant risk for con-

sumer finance companies engaged in both pay-

ment processing, and those providing capital.

Mastercard reports that “a failure or breach of

our security systems or infrastructure as a result

of cyber-attacks could disrupt our business,

result in the disclosure or misuse of confidential

or proprietary information, damage our reputa-

tion, increase our costs and cause losses.” The

company adds that “Increased fraud levels

involving our cards, or misconduct or negli-

gence by third parties processing or otherwise

servicing our cards, could lead to regulatory in-

tervention, such as enhanced security require-

ments, as well as damage to our reputation,

which could reduce the use and acceptance

of our cards or increase our compliance costs,

and thereby have a material adverse impact on

our business.”18

American Express indicates that if its “in-

formation technology systems experience a

significant disruption or breach or if actual or

perceived fraud levels or other illegal activities

involving our Cards were to rise due to the ac-

tions of third parties, employee error, malfea-

sance or otherwise, it could lead to regulatory

intervention (such as mandatory card reissu-

ance), increased litigation and remediation

costs, greater concerns of customers and/or



business partners relating to the privacy and se-

curity of their data, and reputational and finan-

cial damage to our brand, which could reduce

the use and acceptance of our Cards, and have

a material adverse impact on our business.”19

Value Impact

Consumer finance companies that do not

adequately address the potential for security

breaches and other intrusions will likely be

subject to contingent liabilities that may not be

covered by insurance. In addition, regulatory

actions aimed at addressing the issue of data

privacy and security could increase general

and administrative expenses, thereby lowering

operational efficiency.

Significant disruptions or security breaches are

also likely to impair intangible assets through

reputational damage, and lead to a loss in

customer confidence. Subsequently, companies

could lose markets share and revenue, as

customers switch to different providers. More-

over, companies prone to cyber-attacks are

perceived as more risky which leads to higher

cost of capital

Transparent Information & Fair Advice for Customers

Consumer finance companies will continue

to face scrutiny as the Consumer Financial

Protection Bureau (CFPB) enforces the transpar-

ency and disclosure rules established under the

Credit CARD Act. In a 2012 bulletin, the CFPB

indicated that it would focus on the industry’s

marketing practices as they relate to credit card

add-on products, including debt cancellation,

identity theft protection, and credit reporting

and monitoring. The CFPB has subsequently

engaged in a number of enforcement actions.

As of January 2014, these actions against

major consumer finance companies provided

for $800 million in refunds to consumers.20 In

addition, to add-on products, the CFPB is also

enforcing aspects of the Credit CARD Act that

address interest rate structures, disclosures, and

service fees.

The ability of consumer finance companies

to ensure that customers are provided with

transparent information and fair advice related

to these and other products will likely continue

to present material implications. Subsequently,

firms should enhance disclosure on fines and

settlements associated with disclosure, trans-

parency, marketing, and how add-on products

are managed.

Evidence

In December 2013, American Express was

ordered to pay $75 million to settle claims that

it charged improper fees and misled customers

over add-on products.21 This followed a 2012

fine of $27.5 million and $85 million reim-

bursement to customers for illegal card prac-

tices that included misleading consumers.22

In September 2013, JPMorgan Chase was fined

$389 million for deceiving customers into buy-

ing credit card add-on products between 2005

and 2012. The company will be required to pay

$309 million to reimburse roughly 2.1 million

customers.23



In July 2012, the Bureau fined Capital One

Financial $210 million for charges that the

company’s call-center representatives misled

consumers into paying for extra credit card

products. These ‘add-on’ products, which

consumers were allegedly pressured or misled

into purchasing during credit card activation,

included payment protection and credit moni-

toring services.24 Discover Financial was fined

$214 million for similar practices in September

2012.25

Value Impact

Companies that fail to provide transparent

information and fair advice are likely to experi-

ence reputational damage, and a diminished

ability to retain and attract customers. This will

also lead to a decrease in market share, and

in revenue associated with fees and interest.

Weaker profitability and riskier profile are

likely to result in higher cost of capital.

Companies that rely on deceptive practices

to generate additional revenue will likely face

enforcement actions, which can put pressure

on operational efficiency through increased

general and administrative expenses and

contingent liabilities. Increased enforcement by

the CFPB suggests that transparency and fair

advice will continue to impact value.

Responsible Lending & Debt Prevention

An increase in subprime lending and payment

delinquency indicates that lenders are lower-

ing standards and providing capital to con-

sumers that are prone to excessive credit card

debt. Although consumer finance companies

can benefit in the short term from increased

customer debt through late fees and interest

charges, a reliance on these revenue streams

can have a negative impact on results, and

erode social capital.

The social ramifications of these practices were

examined in a recent study published in Eco-

nomic Inquiry. The report found that younger

Americans borrow more heavily on their credit

cards, and repay debt more slowly than previ-

ous generations. The findings suggest that an

individual born between 1980 and 1984 has,

on average, $5,000 more in credit card debt

than his or her parents at the same stage of

life, and $8,000 more than his or her grandpar-

ents.26 As a result, the typical young credit card

holder who maintains a balance is expected to

die in debt to credit card companies.

Disclosure of key characteristics of a lending

portfolio, including average customer debt,

mean and median age of accounts, average

monthly full-payment rate, percentage of ap-

plications accepted, and fees associated with

pre-paid products will allow shareholders to

determine which consumer finance companies

are better positioned to protect value.



Evidence

Following the financial crisis, write-offs on

domestic credit cards reached $6.5 billion in

2009.27 Despite these recent losses, consumer

finance companies are again pursuing risky

lending practices. In the second quarter of

2012, banks issued 3.1 percent more credit

cards than in the same quarter in 2011. Esti-

mates indicate that 30 percent of new cards

were issued to consumers that are identified as

higher risk, because of nonprime credit scores.28

The extension of credit to subprime consum-

ers has contributed, in part, to an increase in

the percentage of credit card accounts with

payments at least 90 days overdue from 0.71

to 0.75 percent between the third quarters

of 2011 and 2012, respectively. Total credit

card debt has increased by six percent during

the same time period to reach $852 billion.29

Meanwhile, average U.S. credit card debt per

borrower increased 4.9 percent between the

July to September period in 2011 to the same

period in 2012 to reach $4,996.30

Value Impact

Reduced lending standards and the inability

to assess credit worthiness can impose signifi-

cant risks to value and profitability. The exten-

sion of credit to customers with lower credit

scores could enhance default rates, lower

interest income, and expose companies to a

credit downgrade and higher cost of capital.

The accumulation of bad debt through ag-

gressive portfolio expansion will likely lead to

significant asset adjustments, and diminished

shareholder value.

The chronic mismanagement of responsible

lending and debt prevention could lead to a

deterioration of intangible assets in the me-

dium and long-term.

HUMAN CAPITAL

Human capital addresses the management

of a company’s human resources (employees

and individual contractors), as a key asset to

delivering long-term value. It includes fac-

tors that affect the productivity of employees,

such as employee engagement, diversity, and

incentives and compensation, as well as the

attraction and retention of employees in highly

competitive or constrained markets for specific

talent, skills, or education. It also addresses the

management of labor relations in industries

that rely on economies of scale and compete

on the price of products and services or in

industries with legacy pension liabilities associ-

ated with vast workforces. Lastly, it includes

the management of the health and safety of

employees and the ability to create a safety cul-

ture for companies that operate in dangerous

working environments.

Consumer finance companies rely on human

capital to maintain value. However, relative to

other industries in the financial sector, these

companies do not face specific material risks or

opportunities associated with human capital.



BUSINESS MODEL & INNOVATION

This dimension of sustainability is concerned

with the impact of environmental and social

factors on innovation and business models. It

addresses the integration of environmental and

social factors in the value creation process of

companies, including resource efficiency and

other innovation in the production process,

as well as product innovation and looking

at efficiency and responsibility in the design,

use-phase, and disposal of products. It includes

management of environmental and social im-

pacts on tangible and financial assets—either

a company’s own or those it manages as the

fiduciary for others.

The consumer finance industry provides

services that allow for the extension of credit

and ease of financial transaction. Innovation

has been a key component of the industry’s

success, and will continue to be as companies

seek to capitalize on new opportunities and

markets, and manage emerging risks. The rel-

evant sustainability issues, ‘Financial Inclusion’

and ‘Customer Privacy and Data Security’ are

addressed in the Social Capital section above.

LEADERSHIP & GOVERNANCE

As applied to sustainability, governance

involves the management of issues that are

inherent to the business model or common

practice in the industry and that are in po-

tential conflict with the interest of broader

stakeholder groups (government, community,

customers, and employees) and therefore cre-

ate a potential liability, or worse, a limitation

or removal of license to operate. This includes

regulatory compliance, lobbying, and political

contributions. It includes risk management,

safety management, supply chain and resource

management, conflict of interest, anti-com-

petitive behavior, and corruption and bribery.

It also includes risk of business complicity with

human rights violations.

An increasingly stringent regulatory environ-

ment combined with new technology and

enhanced competition will place additional em-

phasis on the importance of strong governance

in the consumer finance industry. In order to

protect shareholder value, management must

be able to ensure compliance with new laws,

while negotiating a market that continues to

shift with the development of new technology

and the emergence of new competitors. How-

ever, the key challenges as they relate to



sustainability are addressed in the ‘Transparent

Information and Fair Advice’ and ‘Responsible

Lending and Debt Prevention’ in the Social

Capital section above.

SASB INDUSTRY WATCH LIST

The following section provides a brief descrip-

tion of sustainability issues that did not meet

SASB’s materiality threshold at present, but

could have a material impact on the consumer

finance industry in the future.

Regulatory Capture and Political Influence

The issue of regulatory capture and political

influence continues to be prominent in the

consumer finance industry. Specifically, compa-

nies are widely seen as having had significant

influence on the development of new regula-

tions since the 2008 financial crisis, through

lobbying, contributions, and direct relationships

with regulators.

The material implications of lobbying efforts

and campaign contributions remain contro-

versial. Specifically, there is little evidence on

how these actions impact shareholder value,

and whether the cost of these activities is

outweighed by corporate gains. Addition-

ally, the issue raises questions of the efficacy

of lobbying for or against a regulation that

protects near-term profits, but is misaligned

with longer-term strategic investments and

initiatives.

Although investor interest in the issue appears

to be increasing, it is not clear whether share-

holder resolutions requiring such disclosure

will receive widespread support. Additionally,

after indicating it as a priority issue for 2013,

the SEC dropped the issue of political spending

from its 2014 agenda.31



APPENDIX I: Five Representative Companies | Consumer FinanceIII

COMPANY NAME (TICKER SYMBOL)

American Express (AXP)

Capital One Financial (COF)

Discover Financial Services (DFS)

Mastercard (MA)

Visa (V)

III This list includes five companies representative of the Consumer Finance Industry and its activities. Only companies that are US listed and where at least 20 percent of revenue is generated by activities in this industry according to the latest information available on Bloomberg Professional Service were included.



APPENDIX IIA: Evidence for Material Sustainability Issues

HM: Heat Map, a score out of 100 indicating the relative importance of the issue among SASB’s initial list of 43 generic sustainability issues. The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly listed companies.

IWGs: SASB Industry Working Groups

%: The percentage of IWG participants that found the issue to be material. (-) denotes that the issue was added after the IWG was convened.

Priority: Average ranking of the issue in terms of importance. One denotes the most material issue. (N/A) denotes that the issue was added after the IWG was convened.

EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings.

EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings.

FLI: Forward Looking Impact, a subjective assessment on the presence of a material forward-looking impact.

MATERIAL SUSTAINABILITY ISSUES

EVIDENCE OF INTERESTEVIDENCE OF

FINANCIAL IMPACTFORWARD-LOOKING IMPACT

HM (1-100)

IWGsEI

Revenue/Expenses

Asset/ Liability

Risk Profile

EFI Probability Magnitude Externalities FLI% Priority

SOCIAL CAPITAL

Financial Inclusion 52 93 3 Medium • • • Low • • • Yes

Customer Privacy & Data Security 70 79 4 Low • • • Medium • • • Yes


65 100 2 High • • • High • • Yes


57 93 1 High • • • High • Yes



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APPENDIX IIB: Evidence of Financial Impact for Material Sustainability Issues

HIG

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APPENDIX III: Sustainability Accounting Metrics | Consumer Finance

TOPIC ACCOUNTING METRIC CATEGORYUNIT OF

MEASURECODE

Financial Inclusion

Revenue from credit and debit products targeting unbanked and underbanked segments

Quantitative U.S. dollars ($) FN0201-01

Percentage of new accounts held by first-time credit card holders

Quantitative Percentage (%) FN0201-02


Number of data security breaches and percentage involving customers’ personally identifiable informationIV

Quantitative Number (#), percentage (%)

FN0201-03

Amount of fraudulent transaction activity, percentage from: (1) card-not-present fraud and (2) card-present and other fraud

Quantitative U.S. dollars ($), percentage (%)

FN0201-04

Description of data security and fraud prevention efforts related to new and emerging technologies and/or new and emerging threats

Discussion and Analysis

n/a FN0201-05


Amount of legal and regulatory fines and settlements associated with disclosure, transparency, or marketingV


Payout ratio for add-on productsVI Quantitative Ratio in U.S. dollars ($)

FN0201-07


For customers with FICO scores above and below 640 (subprime): (1) average customer debt (2) average APR (3) mean and median age of accounts (4) average monthly full payment rate

Quantitative U.S. dollars ($), percentage (%), years, rate

FN0201-08

Percentage of applications accepted for applicants with FICO scores above and below 640 (subprime)

Quantitative Percentage (%) FN0201-09

Average annual fees per account for pre-paid transaction products


IV Note to FN0201-03 – Disclosure shall include a description of corrective actions implemented in response to data security incidents or threats. V Note to FN0201-06 – Disclosure shall include a description of fines and settlements and corrective actions implemented in response to events. VI Note to FN0201-07 – Disclosure shall include a description of the type of add-on products offered and of how compensation of sales representatives is related to the sales of these products.



APPENDIX IV: Analysis of 10-K Disclosures | Consumer Finance

The following graph demonstrates an aggregate assessment of how the top nine U.S. domiciled companies, by revenue, in the consumer finance industry are currently reporting on material sustainability issues in the Form 10-K.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

DISCLOSURE ON MATERIAL SUSTAINABILITY ISSUES

NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS

CONSUMER FINANCE

Financial Inclusion






References

1 Weise, Karen. “For Credit-Card Issuers, a Silver Lining in the CARD Act.” Bloomberg Businessweek, July 19, 2012. <http://www.businessweek.com/articles/2012-07-19/for-card-issuers-a-silver-lining-in-the-card-act>

2 Ibid.

3 Silver-Greenberg, Jessica. “MasterCard and Visa Will Pay Billions to Settle Antitrust Suit.” The New York Times, July 13, 2012. <http://www.nytimes.com/2012/07/14/business/mastercard-and-visa-settle-antitrust-suit.html>

4 “Use of Financial Services by the Unbanked and Underbanked and the Potential for Mobile Financial Services Adoption.” Federal Reserve Bulletin, September 2012. <http://www.federalreserve.gov/pubs/bulletin/2012/pdf/mobile_financial_services_201209.pdf>

5 “Consumers and Mobile Financial Services.” Board of Governors of the Federal Reserve System, March 2012. <http://www.federalreserve.gov/econresdata/mobile-device-report-201203.pdf>

6 “Wanda.” MasterCard. <https://www.mastercard.com/corporate/responsibility/telefonica-wanda.html>

7 “2012 Global Citizenship Report.” Citigroup Inc., 2013. <http://www.citigroup.com/citi/about/data/corp_citizenship/global_2012_english.pdf>

8 “Press Release: Gartner Says Worldwide Mobile Payment Transaction Value to Surpass $171.5 Billion.” Gartner, May 29, 2012. <http://www.gartner.com/newsroom/id/2028315>

9 Doughtery, Carter and Margaret Collins. “Bieber Joins Ex-Addicts Fighting Chase in Prepaid Market.” Bloomberg, January 2, 2013. <http://www.bloomberg.com/news/2013-01-02/bieber-joins-ex-addicts-fighting-chase-in-prepaid-market.html>

10 “Press Release: Mobile NFC Growth Forecast Scaled Back to $110bn in Transactions by 2017 as iPhone 5 Omits Chipset.” Juniper Research, December 5, 2012. <http://www.juniperresearch.com/viewpressrelease.php?pr=353>

11 “The Great Payments Transformation: Insight into the Payments Ecosystem.” KPMG, December 2012. <http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/great-payments-transformation/Documents/great-payments-transformations-v3.pdf>

12 Harris, Elizabeth A., and Nicole Perlroth. “For Target, the Breach Numbers Grow.” The New York Times, January 10, 2014. <http://www.nytimes.com/2014/01/11/business/target-breach-affected-70-million-customers.html?_r=0>

13 Sidel, Robin. “Data Breach Sparks Worry.” The Wall Street Journal, March 30, 2012. <http://online.wsj.com/article/SB10001424052702303816504577313411294908868.html?mod=e2tw>

14 Vijayan, Jaikumar. “Heartland Breach Expenses Pegged at $140M – So Far.” Computerworld, May 10, 2010. <http://www.computerworld.com/s/article/9176507/Heartland_breach_expenses_pegged_at_140M_so_far>

15 Ibid.

16 Lipka, Mitch. “Rise in Identity Fraud Tied to Smartphone Use.” Reuters, February 22, 2012. <http://www.reuters.com/article/2012/02/22/us-idtheft-javelin-idUSTRE81L16520120222>

17 Taylor, Chris. “When Your Credit Card Charge is Denied.” Reuters, April 26, 2012. <http://www.reuters.com/article/2012/04/26/us-column-yourmoney-creditcarddenial-idUSBRE83P0ZH20120426>

18 “Form 10-K for the fiscal year ended December 31, 2012.” MasterCard Incorporated, February 14, 2013.

19 “Form 10-K for the fiscal year ended December 31, 2012.” American Express Co, February 22, 2013.

20 “News Release: Report: Capital One Most-Complained-About Credit Card Company.” U.S. PIRG, January 14, 2014. <http://www.uspirg.org/news/usf/report-capital-one-most-complained-about-credit-card-company>

21 Abrams, Rachel. “American Express to Pay $75 Million Over Credit-Card Practices.” The New York Times, December 24, 2013. <http://dealbook.nytimes.com/2013/12/24/american-express-to-pay-75-million-over-credit-card-practices/?_php=true&_type=blogs&_r=0>

22 Silver-Greenberg, Jessica. “American Express Says It Will Refund $85 Million.” The New York Times, October 1, 2012. <http://www.nytimes.com/2012/10/02/business/american-express-to-refund-85-million.html?_r=0>

23 Douglas, Daniel. “JPMorgan fined $389 million for deceptive credit card purchases.” The Washington Post, September 19, 2013. <http://www.washingtonpost.com/business/economy/jpmorgan-fined-389-million-for-deceptive-credit-card-practices/2013/09/19/be82b904-2155-11e3-966c-9c4293c47ebe_story.html>

24 Dougherty, Carter, and Dakin Campbell. “Capital One to Pay $210 Million in First CFPB Enforcement.” Bloomberg, July 18, 2012. <http://www.bloomberg.com/news/2012-07-18/capital-one-to-pay-210-million-in-first-cfpb-enforcement-case.html>



References (Cont.)

25 Silver-Greenberg. “American Express Refund.” October 1, 2012.

26 Carrins, Ann. “Young People Paying Off Credit Card Debt More Slowly.” The New York Times, January 17, 2013. <http://bucks.blogs.nytimes.com/2013/01/17/young-people-paying-off-card-debt-more-slowly/>

27 Martin, Andrew. “Banks See a Leveling Off in Bad Consumer Loans.” The New York Times, January 20, 2010. <http://www.nytimes.com/2010/01/21/business/21bofa.html>

28 “Credit Card Balances, Delinquency Rates Inch Up in Third Quarter.” Debt.org, November 21, 2012. <http://www.debt.org/2012/11/21/credit-card-balances-delinquency-rates-up-third-quarter/>

29 Eccleston, Janine. “Why Credit Card Debt Levels are Rising.” Investopedia, November 30, 2012. <http://www.investopedia.com/financial-edge/1112/why-credit-card-debt-levels-are-rising.aspx?partner=ferss#axzz2EPMSZi00>

30 Veiga, Alex. “U.S. Credit Card Debt Grows, Fewer Americans Make Payments on Time.” Huffington Post, December 11, 2012. <http://www.huffingtonpost.com/2012/11/19/us-credit-card-debt-grows_n_2158010.html>

31 ElBoghdady, Dina. “SEC drops disclosure of corporate political spending from its priority list.” The Washington Post, November 30, 2013. <http://www.washingtonpost.com/business/economy/sec-drops-disclosure-of-corporate-political-spending-from-its-priority-list/2013/11/30/f2e92166-5a07-11e3-8304-caf30787c0a9_story.html>


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