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Submarginal Credit Risk Classification

Published online by Cambridge University Press:  19 October 2009

Sylvia Lane
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Extract

Installment credit grantors require a method of distinguishing delinquent borrowers from whom an extension will be likely to result in repayment of the loans from those for whom the probability of repayment is too low to warrant further expenditure and against whom additional collection efforts would be unprofitable. A method evolved from the techniques utilized in the Marginal Credit Risk Study in the attempt to distinguish personal bankrupts, who in filing bankruptcy could be presumed to express the intent to not repay, from petitioners filing under Chapter XIII of the Bankruptcy Act and debt counselees who, under both plans, voluntarily enter programs for the repayment of their debts.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 1 , January 1972 , pp. 1379 - 1385
Copyright
Copyright © School of Business Administration, University of Washington 1972

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References

1 The Marginal Credit Risk Study stimulated by and begun with the aid and encouragement of the Federal Reserve Bank of San Francisco, and particularly of the economist Charles Peterson, has been financially supported by Consumer Credit Counselors of California and those organizations contributing through that body and the Security Pacific Bank of Los Angeles. Their aid and especially that of Mr. George Nickel, Mr. Roy Stanley of Thompson-Ramo-Wooldridge, Inc., Mr. Owen Guenthard, and Professor Herbert Rutemiller, Chairman, Department of Quantitative Methods, and Professor Jerry Brown, both of California State College, Fullerton, is gratefully acknowledged, but the full responsibility for the study, its findings, and the reports is the.author's. The study is scheduled for completion in 1971.

2 Debt counselees is the term used for persons who find they are having difficulty in repaying their debts and seek counsel from the nonprofit consumer credit counseling organization. See “Family Service Association of America,” Family Credit Counseling — An Emerging Community Service (New York, 1967)Google Scholar.

3 See Durand, David, Risk Elements in Consumer Installment financing, National Bureau of Economic Research (New York, 1941)Google Scholar; Smith, Paul, “Measuring Risk on Installment Credit,” Management Science (November 1964), pp. 327–340Google Scholar; McCracken, Paul W., Mao, James C., and Fricke, Cedric V. in Consumer Installment Credit and Public Policy (Ann Arbor, Michigan, 1965), pp. 134–140Google Scholar; the results of the Federal Reserve Survey reported in the Monthly Review, Federal Reserve Bank of Atlanta (November 1966), pp. 85–88; and particularly Moore, Geoffrey H. and Klein, Philip A., The Quality of Consumer Installment Credit, National Bureau of Economic Research (1967), Chapter 4Google Scholar, and Myers, J. H. and Forgy, E. W., “Development of Numerical Credit Scoring Systems,” Journal of the American Statistical Association, (September 1963), Vol. 58, pp. 799–806Google Scholar.

4 see Herrmann, Robert O., “Families in Bankruptcy — A Survey of Recent Studies,” Journal of Marriage and the Family (August 1966), pp. 324—330Google Scholar.

5 Mitchiner, Morton and Peterson, Raymond P., “An Operations-Research Study of the Collection of Defaulted Loans,” Operations Research, (August 1957), Vol. 5, pp. 522–545CrossRefGoogle Scholar.

6 See Kendall, M. G., A Course in Multivariate Analysis (New York: Hafner Publishing Company, 1957), p. 147Google Scholar; Peters, William S. and Summers, G. W., Statistical Analysis for Business decisions (Englewood Cliffs, New Jersey: Prentice-Hall, 1968), pp. 401–415Google Scholar; Hoel, Paul G., Introduction to Mathematical Statistics (New York: John Wiley and Sons, Inc., 1947), pp. 121–125Google Scholar; and Johnson, Norman L. and Leone, F. C., Statistics and Experimental Design (New York: John Wiley and Sons, Inc., 1964), Vol. II, pp. 281–289Google Scholar.

8 See Mitchiner and Peterson, “An Operations-Research Study,” op. cit.