Survey of Finance Companies, 2015. (2024)

Introduction and Summary

Finance companies are nondepository financial firms whose primarybusiness is providing debt and lease financing to consumers andbusinesses. At the end of 2015, finance companies held nearly $747billion of consumer credit and lease receivables, $160 billion of realestate debt, and $405 billion of business credit and lease receivables.(1) Of note, finance companies are the third-largest institutionalsupplier of consumer credit, behind banks and the federal government,holding nearly one-third of consumer motor vehicle debt and providing asubstantial amount of lease financing of motor vehicles. By contrast,while finance companies continue to account for a substantial share ofresidential mortgage originations, they hold only a modest share of suchcredit. In addition, finance companies' business portfolios includeshort- and medium-term credit and leases to finance inventory, accountsreceivable, and acquisition of motor vehicles and equipment. Financecompanies hold a small amount of commercial real estate debt as well.

The Federal Reserve produces comprehensive data on the volume andcomposition of credit and lease financing provided by the financecompany industry and reports these data in its G.19, "ConsumerCredit"; G.20, "Finance Companies"; and Z.1,"Financial Accounts of the United States" statisticalreleases. To maintain the quality of its statistics, the Federal Reserveconducts a Survey of Finance Companies every five years to benchmark itsfinance company estimates. (2) This article reports developments in thefinance company industry using data from its latest survey in 2015. Inaddition to the balance sheet data used to benchmark its statisticalreleases, the Federal Reserve for the first time requested respondentsto the 2015 survey to provide income statement data. The last section ofthis article presents the new 2015 income statement data, the first timesuch data have been collected since the late 1980s.

The following list highlights several prominent findings from ouranalysis:

* The finance company industry is highly concentrated. Small firmsare numerous but accounted for a very small share of aggregate industryassets in 2015. In contrast, firms with assets of $20 billion or moreaccounted for less than 0.5 percent of firms but provided 71 percent ofthe industry's assets in 2015.

* Finance companies provide many types of financing to householdsand businesses, but their primary business is consumer credit andconsumer lease financing. Consumer loans and leases accounted for overone-half of receivables of finance companies in 2015.

* Overall, total assets of the finance company industry was 10percent lower in 2015 than in 2010. Declines in credit and leasefinancing were broadly distributed, with the exceptions of consumermotor vehicle, business motor vehicle wholesale, and business equipmentfinancing.

* While the finance company industry provides a wide variety ofcredit and lease products, firms in the industry are highly specialized.Nearly all finance companies hold a majority of their assets in one typeof credit--consumer, real estate, or business credit.

* In 2015, about one-half of consumer lenders' assetsconsisted of motor vehicle loans and leases, but consumer lenders alsoheld a considerable share of assets in other (nonvehicle) closed-endconsumer credit. By far, most real estate lenders' assets weremortgages on one- to four-family homes, with multifamily or othercommercial mortgages constituting the small remaining share. More thanone-half of business lenders' assets consisted of equipment loansand leases. Business lenders also provided business motorvehicle--related financing, but that financing accounted for only arelatively small share of assets.

* Finance charges among the consumer, real estate, and businesslenders varied significantly in 2015, in large part reflectingdifferences in operating costs. Despite large differences in revenue andexpenses, operating return on assets (a measure of the efficiency ofgenerating income from assets) was about the same for the three types oflenders.

* Among consumer lenders, auto lenders had relatively low operatingexpenses. Low operating costs can be attributed at least in part to theprevalence of sales finance in auto lending, in which auto dealers incurmuch of the expense of originating loans and leases. Personal loancompanies have higher revenue per $100 of outstanding credit and higheroperating costs than auto lenders. Personal loan companies'relatively high finance charges and operating expenses can largely beattributed to their loans' high risk and small dollar amount.

* Comparing revenues and costs of personal loan companies in 2015with available historical data from selected earlier years, we find thatrevenues and operating costs in 2015 were higher than in 1987, one ofthe last years in which such industry data were collected. However,operating income in 2015 was somewhat lower than in 1987. Greater riskmay at least in part explain greater finance charges and losses andadditions to loss reserves for personal loans in 2015.

* The cost of borrowed funds did not account for much of grossrevenue in the recent low-rate environment. The cost of borrowed fundswas

just 8 percent of gross revenue in 2015, a considerably lowerpercentage than in 1959, 1983, and 1987.

The remainder of this article is divided into six sections:

* A Brief History of the Federal Reserve's Survey of FinanceCompanies

* Recent Finance Company Industry Developments

* Financial Characteristics of Different Specialized Types ofFinance Companies

* Major Types of Consumer Lenders: Auto Lenders and Personal LoanCompanies

* Trends in Revenue, Cost, and Performance at Personal FinanceCompanies

* Appendix: Historical Survey Practices, Recent Innovations, andCurrent Procedures

A Brief History of the Federal Reserve's Survey of FinanceCompanies

The Federal Reserve's statistics on finance companies dateback to 1919. (3) At that time, two distinct types of finance companiesfocusing on consumer lending had emerged. Sales finance companiesprimarily purchased from retailers installment paper arising from salesof automobiles and other consumer goods. Consumer finance companies(also known as small-loan companies or licensed lenders) primarilyprovided direct personal loans authorized by state small-loan laws,which created exemptions from rate ceilings in state usury laws forfirms that obtained a license. (4) Consumer credit outstanding at salesfinance companies and at consumer finance companies were reported inseparate categories in the Federal Reserve's statistical systembetween 1919 and 1964. (5)

The Federal Reserve obtained estimates of finance company lendingbefore 1939 from data collected by the Russell Sage Foundation, theNational Bureau of Economic Research (NBER), and the Department ofCommerce. Between 1939 and 1954, estimates of sales finance and consumerfinance lending were derived from monthly surveys and were benchmarkedby available Census Bureau surveys, Federal Reserve surveys, orregulatory reports. In February 1945, the Census Bureau's survey ofsales finance companies was transferred to the Federal Reserve, whichearlier had begun to collect consumer credit data to implement wartimecredit restrictions. The transfer centralized the collection ofstatistics for consumer installment credit at finance companies in oneagency, the Federal Reserve.

By the 1950s, many sales finance companies had establishedsubsidiaries that lent directly to consumers. Some of the largercompanies also financed or factored business accounts receivable orfinanced sales of commercial, industrial, and farm equipment. Similarly,consumer finance companies purchased some sales finance contracts andoriginated business credit. (6) Beginning in 1955, the Federal Reservebegan conducting regular benchmark surveys covering the finance companyindustry on a regular five-year interval. (7) The 1955 benchmark surveycovered nondepository financial institutions that were primarily engagedin installment lending to consumers. The Federal Reserve expanded the1960 benchmark survey to include finance companies specializing infinancing sales of business and farm equipment and financing orfactoring business receivables. Assets and liabilities of the specialistbusiness finance companies were first reported in an October 1961Federal Reserve Bulletin article discussing changes in finances of salesfinance and consumer finance companies from 1955 to 1960. (8)

Reflecting a trend toward multiproduct credit offerings in thefinance company industry, the Federal Reserve in 1965 combined the salesfinance and consumer finance categories in its consumer credit releases.In its finance company releases, however, the Federal Reserve continuedto report sales finance and consumer finance company lending separatelyuntil September 1970. At that time, a new, consolidated G.20"Finance Companies" release replaced the previous G.20"Sales Finance Companies" and G.22 "Consumer Credit atConsumer Finance Companies" releases. The new G.20 "FinanceCompanies" release also reflected the expansion of the financecompany industry to include lending by business finance companies. (9)

Recent Additions in Finance Company Industry Coverage

The Federal Reserve continues to update its coverage of the financecompany industry to reflect developments in the industry. Financecompanies historically have not been a large supplier of mortgagecredit. However, finance companies participated in the growth in homeequity lending in the mid-1990s. (10) In addition, nondepositorymortgage lenders specializing in originating residential mortgages usingtheir own or borrowed funds had an increasing market presence in thelate 1990s and 2000s. These nondepository mortgage lenders typically didnot hold the mortgages in their own asset portfolios but instead soldthem to investors. The expansion of mortgage originations bynondepository mortgage lenders prompted the Federal Reserve in 2005 toexpand its coverage of the finance company industry to includenondepository mortgage lenders.

For the 2015 survey, the prominence of high-rate, single-paymentlenders led the Federal Reserve to further expand its coverage of thefinance company industry to include pawn shops, payday lenders, andvehicle title lenders. Each of these single-payment lenders'primary product is a distinct small, short-term (commonly one month orless), single-payment cash loan. Another consideration in includingthese lenders is that some of these firms also offer small installmentcash loans, which is the main product of traditional consumer financecompanies.

Income Statement Data

The collection of income statement data is a further innovation ofthe 2015 Survey of Finance Companies. Previously, the survey did notcollect income statement data. Past efforts to collect income statementdata include Ernst Dauer for the NBER in the 1930s and 1940s, Paul Smithfor the NBER in the 1940s and 1950s, and the American Financial ServicesAssociation (AFSA) in the 1960s, 1970s, and 1980s. The most recentincome statement data available are from the 1989 AFSA survey, whichwere analyzed by Durkin and Elliehausen (1998). (11)

Income statement data are useful to understand the relationshipsbetween operational scale and costs, competition and the level offinance charges, and rate ceilings and credit availability. Furthermore,income statement data also speak to the effects of deregulation andfinancial innovation. However, the most recent evidence on the coststructure (for example, economies of scale at firm and office levels aswell as economies of average loan size) is based on the last four AFSAsurveys in the late 1980s. Advances in credit reporting and creditevaluation as well as changes in consumer protection regulation havesignificantly influenced credit underwriting, monitoring, andcollection. Research based on more recent data is needed to informpolicy and is long overdue.

Recent Finance Company Industry Developments

We look first at the balance sheet data that the Federal Reserveuses to benchmark the finance company industry. The finance companyindustry has a large percentage of small firms. Just over one-half offinance companies had assets of less than $1 million in 2015, and 82percent had assets of less than $10 million (table 1). These small firmsprovided an insignificant share of aggregate assets in 2015, however. Incontrast, the largest finance companies (less than 0.5 percent of allcompanies) provided 71 percent of the industry's assets in 2015.

The percentage of firms in the two smallest asset groups increasedbetween 2010 and 2015, and the percentage of firms in the third assetgroup declined. These results largely reflect changes in the sizedistribution of real estate lenders (not shown in tables). Thepercentages of firms in larger asset-size groups were little changedbetween 2010 and 2015. In both years, firms in the largest two assetcategories accounted for nearly all of aggregate assets.

The finance company industry provides many types of financing, butconsumer financing predominates. In dollar volume, the largest type isconsumer motor vehicle financing (consisting of both credit and leases).In 2015, finance companies held $479 billion of consumer motor vehiclecredit and leases, of which $303 billion (63 percent) was creditfinancing and $176 billion (37 percent) was lease financing (table 2).Motor vehicle financing includes not only dealer-originated credit andleases held by the large captive finance companies of motor vehiclemanufacturers, but also credit held by independent finance companies,especially in the used vehicle market segment. (12)

Other consumer credit is the second-largest type of financingprovided by finance companies. This category consists mainly ofclosed-end sales credit for other (nonvehicle) consumer goods, cashloans, and student loans. Finance companies held $233 billion of suchcredit, which accounted for 14 percent of industry assets. The industryalso held about $26 billion of revolving consumer credit, which was just2 percent of industry assets.

At $219 billion, business equipment financing was the third-largesttype of financing. It accounted for 13 percent of industry assets in2015 and a little more than one-half of the industry's nonmortgagebusiness assets. Business equipment financing includes loans and leasesfor diverse equipment such as construction equipment, aircraft, farmequipment, railway cars, computers, and office equipment. Loansaccounted for $122 billion (56 percent) of business equipment financing,and leases accounted for $97 billion (44 percent) of business equipmentfinancing. Leases can be classified as either capital leases oroperating leases. Capital leases extend over most of the economic lifeof the asset and are not cancelable by the lessee without penalty.Operating leases are short term and are cancelable at the option of thelessee. In 2015, 42 percent of business equipment leases were capitalleases, and 58 percent were operating leases (numbers not shown intables).

Finance companies also provide motor vehicle financing tobusinesses. Wholesale loans finance dealer inventories of commercial andlight motor vehicles for sale ($80 billion in 2015). Business retailloans and leases finance vehicle acquisitions by businesses ($15 billionand $9 billion, respectively, in 2015).

Finance companies held $159 billion of real estate debt on theirbalance sheets in 2015 (10 percent of total assets). Of this amount,$123 billion was mortgages on one- to four-family homes, and $36 billionwas mortgages on multifamily housing or commercial real estate.

In total, loans and leases were $1,302 billion in 2015, which was78 percent of total assets. Non-loan, non-lease assets consist of cash,deposits, securities, and any other assets.

Overall, the finance company industry shrank between 2010 and 2015.In percentage terms, the greatest declines were in business motorvehicle lease financing, revolving consumer credit, other real estatefinancing, and other consumer credit, all of which are among thegenerally riskier areas of finance company lending. Finance companiesoriginated many near-prime and subprime loans and closed-end secondmortgages before the most recent recession. Licensed small-loancompanies provide small high-risk cash loans in many states. (13) Mostrevolving consumer credit consists of unsecured credit card lending. Thefinancial crisis in 2008 and 2009 and the subsequent recessionapparently prompted many lenders to reduce their exposure to riskierforms of credit. (14)

Consumer motor vehicle and business equipment financing were amongthe types of financing that did not decline. Consumer motor vehiclefinancing increased $90 billion from 2010 to 2015. Leases contributedstrongly to this increase, with 57 percent growth in leases compared to9 percent growth in motor vehicle loans. Consumer motor vehicle andbusiness equipment financing generally involves secured lending, whichtends to reduce risk. Collateral makes defaults costly for borrowersbecause they lose the asset, and it reduces lenders' losses whenborrowers default. (15) Thus, these forms of financing tend to be lessrisky for the lender than many other types of credit. Finance companiesmay have increased their reliance on secured lending as a result of arecession that prompted lenders to reduce exposure to riskier types ofcredit.

The loan and lease share of total assets was just 1 percentagepoint lower in 2015 compared with 2010.

Regarding their financing, finance companies relied heavily onnonrecourse debt associated with structured financing activities ($648billion) and notes, bonds, and debentures ($242 billion) to fund theirlending activities in 2015 (table 3). (16) Together these sourcesaccounted for more than one-half of total liabilities and net worth.Equity (net worth) was $220 billion, which was 13 percent of totalliabilities and net worth in 2015.

Nonrecourse debt increased 38 percent between 2010 and 2015. Theincrease reflects recovery in capital markets from steep declinesfollowing the financial crisis and recession. Bank loans also increased,up 70 percent from 2010. The equity share of liabilities and net worthin 2015 was not much different from its share in 2010 or 2005.

Although still an important large source of funds, traditionalsorts of borrowing through notes, bonds, and debentures (14 percent oftotal liabilities and net equity in 2015) declined 60 percent between2010 and 2015. Short-term commercial paper, a relatively small source offunds following the financial crisis and recession (4 percent of totalliabilities and net worth in 2015), fell 32 percent between 2010 and2015.

Financial Characteristics of Different Specialized Types of FinanceCompanies

The finance company industry provides a wide variety of credit andlease products, which tend to be offered by specialized firms: Nearlyall finance companies hold most of their assets in one specific type ofcredit. (17) Consumer lenders were the most numerous specialist financecompany. In 2015, 68 percent of finance companies were consumer lendingspecialists, 17 percent were real estate lending specialists, and 13percent were business lending specialists (numbers not shown in tables).Only a very small percentage (2 percent) of finance companies can becharacterized as diversified broadly across different types offinancing. In the tables that follow, diversified firms are not includedbecause statistics derived from such a small sample are not reliable.

Overall, specialist finance companies held far more than one-halfof their assets in their specialty type of financing. Consumer lendersheld 79 percent of assets in consumer loans and leases in 2015 (table4). Their share of consumer loans and leases is unchanged from 2010 andonly a bit smaller than in 2005. Consumer lenders' real estatelending share in 2015 was small and not much different from previousyears. Their business loans and leases share was 10 percent of assets in2015, up from 5 percent of assets in 2005.

Real estate lenders held 74 percent of their assets in real estateloans in 2015. This share is higher than the share of real estatelending in 2010, but not much different from the share of real estatelending in 2005. The lower real estate share in 2010 may be a reflectionof the slow recovery of real estate lending following the 2007-09recession. Consumer lending accounted for a much larger share of assetsin 2010 (16 percent of assets) than in 2005 (1 percent) and 2015 (2percent).

Business loans and leases made up 84 percent of businesslenders' assets in 2015, which accounted for nearly all of businesslenders' loans and leases. Consumer loans and leases and realestate loans were a negligible share of business lenders' assets.

The remainder of this section discusses financial characteristics(firm size, balance sheets, and income statements) of consumer, realestate, and business lenders in 2015.

Distribution of Firms

For each type of specialization, most lenders had less than $10million of assets. Consumer lenders had the largest share of smallfirms: 61 percent of consumer lenders had less than $1 million ofassets, and another 32 percent had between $1 million and $10 million ofassets (table 5). By contrast, 27 percent of business lenders had lessthan $1 million of assets, and 33 percent had between $1 million and $10million of assets. For real estate lenders, a little more than one-halfhad $10 million or less of assets (37 percent had less than $1 millionof assets, and 17 percent had between $1 million and $10 million ofassets).

Regardless of type, relatively few finance companies were large.Among the types of specialist companies, business lenders had thegreatest percentage of large firms, with 5 percent of firms havingassets of $1 billion or more.

Balance Sheets for Specialized Lenders

As previously mentioned, almost all finance companies arespecialized lenders. Table 6 provides more detailed information on theextent of specialization in 2015. The most common forms of financingprovided by consumer lenders were motor vehicle loans and leases (31percent and 20 percent of assets, respectively). Other consumer creditaccounted for 26 percent of assets and consists of various types ofclosed-end credit. This category includes installment cash loans, somenonvehicle sales credit, and small, single-payment loans (principallypawn, payday, and auto title lenders). Consumer lenders'nonconsumer lending consists largely of business wholesale loans (8percent of assets) financing dealers' inventories of motorvehicles. Consumer finance companies did not provide much revolvingcredit. Revolving consumer credit amounted to just 3 percent of assets.All other types of business financing and mortgage loans collectivelywere only a very small percentage of assets.

Real estate lenders held mostly household real estate loans ontheir balance sheets (63 percent of assets). Commercial real estateholdings accounted for a small percentage of assets of real estatelenders (12 percent of assets). Asset shares of consumer loans andbusiness loans at real estate lenders were inconsiderable.

Business lenders' financing activities consisted mostly ofbusiness equipment loans and leases (58 percent of assets). Their otherbusiness offerings--wholesale loans and retail motor vehicle loans andleases--were a small share of assets (6 percent). (18) Shares ofconsumer loans and leases and real estate loans were inconsiderable.

Table 7 shows that finance companies' funding of lendingactivities varies by specialization. Consumer lenders rely heavily ondebt capital markets. Nonrecourse loans associated with structuredfinancing activities provided nearly one-half of their funding (44percent of total liabilities and net worth) in 2015. Notes, bonds, anddebentures--the second-largest source of funds--accounted for 21 percentof total liabilities and net worth. Banks were a small source of fundsfor consumer lenders (7 percent). Equity was 10 percent of totalliabilities and net worth.

Real estate lenders also relied on debt markets for financing butobtained substantial funding from banks as well. Twenty percent of theirfunds was from nonrecourse loans, and 19 percent was from notes, bonds,and debentures. The bank loan share was 20 percent. Owners' equitywas 19 percent of total liabilities and net worth.

Business lenders relied less on debt markets than consumer or realestate lenders. They obtained 20 percent of their funds from nonrecoursedebt and 7 percent from notes, bonds, and debentures. Loans from banksand from parent companies accounted for large shares of their funding(17 percent and 18 percent, respectively). Owners' equity accountedfor 15 percent of total liabilities and net worth.

Income Statements for Specialized Lenders

Finance Charges and Operating Expenses

Finance charges differ widely across the different specializedfinance companies. Finance charges of mortgage lenders, at $20 per $100of outstanding credit, were nearly 60 percent larger than those ofconsumer lenders and just under 2 1/4 times greater than those ofbusiness lenders (table 8). The large variation in finance charges amongconsumer, real estate, and business lenders in large part reflects theirdifferences in operating costs. (19) For example, real estatelenders' operating costs were 83 percent of gross revenue comparedwith about 50 percent of revenue for consumer and business lenders.Salary and wages ($8.65 per $100 of outstanding credit) accounted for 43percent of gross revenue. The relatively high salary and wage share ofreal estate lenders' finance charges may be attributed at least inpart to a labor-intensive, comprehensive underwriting process andextensive documentation requirements for mortgage loans. (20)

Strict credit standards and comprehensive underwriting producedrelatively low loan losses and additions to loss reserves for realestate lenders, at $0.82 per $100 of outstanding credit (4 percent offinance charges). Business lenders specialize in business equipmentloans and leases, which are generally secured by the equipment beingfinanced. Thus, their loan losses and additions to loss reserves wererelatively small.

Consumer lenders provide both secured and unsecured financing.Motor vehicle loans generally are secured by assets that have effectivemarkets for used vehicles. Personal finance and other nonvehicleclosed-end installment loans may be unsecured or secured by collateralthat does not have a well-developed secondary market. Lenders thatprovide single-payment loans (pawn, payday, and auto title loans)provide short-term credit to consumers who otherwise might not be ableto obtain additional credit. Because of the presence of risky personalloan companies and single-payment lenders, loan losses and additions toloss reserves of consumer lenders were relatively high. The next sectionprovides further evidence of operating costs and risks in consumerlending, focusing on two types of consumer lenders--lenders thatspecialize in motor vehicle loans and leases, and lenders thatspecialize in personal loans.

Funding Costs

Among the specialized finance companies, real estate lenders hadthe highest funding costs, $2.69 per $100 of outstanding credit,compared with $2.26 for consumer lenders and $1.58 for business lenders.However, because they had relatively high gross revenue and operatingcosts, real estate lenders' funding costs were a smaller percentageof gross revenue (13 percent) than those of consumer lenders (18percent) or business lenders (18 percent).

Profitability

Despite considerable differences in gross revenue, operating returnon assets, an indicator of the efficiency in generating income fromassets, did not differ much across the three types of lenders.Before-tax return on assets did not vary either.

Major Types of Consumer Lenders: Auto Lenders and Personal LoanCompanies

This section compares income statements of two different types ofconsumer lenders--auto lenders and personal loan companies--thathistorically have been and continue to be major participants in thefinance company industry. The revenue and costs of these two types ofconsumer lenders reflect the product differences in auto and personallending.

Auto lenders, defined here as consumer lenders having more than 50percent of assets in consumer motor vehicle loans and leases, includenot only the captive finance companies of vehicle manufacturers, butalso many independent finance companies. The captive finance companiesprimarily purchase paper originated by dealers and account for aboutone-half of new vehicle financings. Independent finance companiesfinance a large share of used vehicle acquisitions. (21) As mentionedearlier, vehicle loans typically are secured by the vehicle beingacquired.

Personal loans are closed-end installment cash loans, which areoften extended by companies that operate under state small-loan laws.Personal loan companies are defined here as consumer lenders that havemore than 50 percent of assets in other (nonvehicle) consumer credit anddo not make pawn, payday, or auto title loans. (22) Personal loancompanies ordinarily do not offer single-payment loans. Lendersspecializing in student loans or mobile-home loans also are notincluded. Some firms in the personal loan company category may havesignificant nonvehicle sales finance shares. Such firms have for a longtime also made direct cash loans, however. Their presence has declinedas revolving credit has increasingly substituted for closed-end creditfor financing consumers' nonvehicle durables acquisitions. (23)Personal loans are often unsecured.

Finance charges for auto lenders, $14.65 per $100 of outstandingcredit, were about one-half of the finance charges for personal loancompanies, $29.20 (table 9). Low operating costs at auto lenders can beattributed at least in part to the prevalence of sales finance in autolending. Some auto lenders--notably the large captive finance companiesof vehicle manufacturers but also many independent financecompanies--purchase loans originated by auto dealers. The dealers handlemany of the activities necessary to originate loans or leases. (24)Dealers' employees respond to questions about financing, takeapplications, and prepare loan documents. Low salary and wage expenses($1.47 per $100 of outstanding credit, or 10 percent of revenue) areconsistent with auto finance companies avoiding much of the originationcost on purchased auto contracts. Finance companies operating in thismanner also do not incur the expense of maintaining large numbers ofretail branches to acquire loans and leases. In addition, takingsecurity interest may also contribute to auto finance companies'willingness to accept relatively low finance charges. Auto loans aretypically secured by liens on financed vehicles. Lenders' securityinterest offsets losses on defaulted loans, and the prospect of losingthe vehicle in the event of default reinforces borrowers' incentiveto repay as promised. (25) These considerations help explain relativelylow losses and additions to loss reserves for these companies ($1.49 per$100 of outstanding credit, or 10 percent of finance charges).

Personal loan companies' relatively high finance charges canlargely be attributed to their loans' high risk and small dollaramount. Many loans made by these lenders are unsecured (small cashloans, for example). Others are secured by household durables beingfinanced that have little resale value and therefore do little to offsetlosses (sales finance). Borrowers from firms that make small cash loansoften have had previous credit problems. Instead of relying oncollateral, these companies work with borrowers to arrange loans withrelatively low monthly payments, which borrowers can afford to pay withease. Yet despite such arrangements, delinquencies are common in thismarket segment. (26) Origination and collections are labor intensive,giving rise to relatively high salary and wage expenses (30 percent offinance charges). Losses and additions to loss reserves, $5.88 per $100of credit outstanding (20 percent of finance charges), are markedlyhigher for personal loan companies than for auto lenders, suggesting thehigher risk in this segment. Finally, many of the activities performedto originate loans, process payments, and collect delinquent accountsoccur because an application is taken or credit is granted and do notvary much by loan size. Consequently, finance charges must be largerelative to loan size to cover lenders' costs and provide a returnon investors' funds.

Trends in Revenue, Cost, and Performance at Personal FinanceCompanies

Statistics in the previous sections indicated that revenues andcosts differ by the type of finance company. In this section, we examinerevenues and costs for finance companies that specialize in personalloans (that is, non-auto closed-end consumer installment lending). Thistype of finance company likely is similar to consumer finance companiesexamined in earlier studies. In both categories, cash loans are theprimary type of loan, but these firms also held some sales financecontracts.

As previously mentioned, historical income statement data areavailable from studies by Paul Smith and the AFSA. Smith examined costsat nine large, nationwide consumer finance companies in the 1940s and1950s. These companies held about 70 percent of the FederalReserve's estimate of the loans outstanding at consumer financecompanies at the end of 1959. The companies operated primarily understate small-loan laws, but most also purchased sales finance contractsor made loans under other state laws.

The AFSA surveyed member companies in the 1960s, 1970s, and 1980s.Member companies included both sales finance and consumer financecompanies. At the end of the 1980s, the AFSA survey accounted for about90 percent of the Federal Reserve's estimate of outstanding creditat finance companies. Because asset diversification had increasinglyblurred distinctions between sales finance and consumer finance, by the1980s the AFSA no longer distinguished between the two types of financecompanies in its reports. However, the reports did produce separatestatistics for firms with 50 percent or more of receivables in personalloans. As previously noted, personal loans at finance companiestypically are cash loans made under state small-loan laws. In selectingdata for firms that have 50 percent or more of receivables in personalloans, we have a category that is roughly comparable with Smith'sconsumer finance and our non-auto closed-end consumer installmentcategories. Nevertheless, the possibility that AFSA members in thesample are not representative of the population of finance companiescannot be ruled out.

Revenue in 2015, $29.20 per $100 of outstanding credit, wasnoticeably higher than in previous years (table 10). Operating cost in2015, $20.82 per $100 of outstanding credit, was also higher than inprevious years. However, operating income in 2015, $8.38 per $100 ofoutstanding credit, was lower than in previous years. Operating returnon assets, a measure of profitability relating operating income to afirm's assets, was about the same as in previous years.

Salaries and wages as well as losses and additions to loss reservescontributed to the higher operating costs in 2015. Losses and additionsto loss reserves in 2015, $5.88 per $100 of outstanding credit, wereseveral times the $1 or $2 per $100 for losses and additions to lossreserves in previous years. Salaries and wages in 2015 were a littlemore than one-third higher than in 1959 but nearly three times higherthan in 1983 and 1987.

Greater risk may at least in part explain greater finance chargesand losses and additions to loss reserves in 2015. Rapid inflation inthe late 1970s and 1980s pushed interest rates to rate ceilings andseverely restricted the supply of credit, especially for higher-riskconsumers. (27)

This development reduced risky lending in the short run, buteventually some states relaxed ceilings to make credit more broadlyavailable. As inflation subsided and interest rates fell to lowerlevels, higher-rate ceilings in those states that raised ceilings wouldenable greater lending to risky consumers.

Regardless of year, salaries and wages were a major component ofcosts, accounting for about 15 percent of gross revenue per $100 ofoutstanding credit in 1983 and 1987 and around 30 percent of grossrevenue in 1959 and 2015. Greater risk might help explain the highersalaries and wages in 2015. The tasks of evaluating applications,arranging loan terms that fit risky applicants' budgets, collectinglate payments, and negotiating refinancing of existing loans would beespecially labor intensive and costly relative to the size of the loan.

High rates of inflation had a sizable effect on funding costs inthe 1980s. The cost of borrowed funds was 17 percent of gross revenue in1959, 33 percent of gross revenue in 1983, and 37 percent of grossrevenue in 1987. In contrast, funding costs did not account for much ofgross revenue in the recent low-rate environment. The cost of borrowedfunds was just 8 percent of gross revenue in 2015.

Operating return on assets did not differ much in these years.Reflecting higher cost of funds in the 1980s, before-tax income toassets was lower in 1983 and 1987 than in 1959 or 2015.

Appendix: Historical Survey Practices, Recent Innovations, andCurrent Procedures

Through 1975, the known universe of finance companies was surveyed.In 1980, to reduce reporting burden, the survey was split into twoparts. The first part was a brief screening census used to identify theknown universe of finance companies. The second part was a longerfollow-up survey used to obtain balance sheet data from companiesidentified in the census stage.

In 1983, the Federal Reserve created the monthly Domestic FinanceCompany Report of Consolidated Assets and Liabilities (DFCR). The DFCRcollects data from a smaller sample of companies but does so morefrequently to better follow emerging trends. As with many surveys basedon a fixed sample, estimation errors tend to increase over time andrequire periodic calibration. These errors reflect the evolution of thefinancial markets as new companies enter the market and market shareschange as well as the deterioration of the monthly sample panel asrespondents close, merge, or otherwise leave the panel. The FederalReserve has used the quinquennial survey data to benchmark the monthlysample data.

In 2005, the definition of a finance company was revised toencompass companies whose largest portion of assets was made up of realestate loans. This change effectively brought mortgage companies intothe universe. Furthermore, the survey was revised to instruct financecompanies to include the assets and liabilities of their mortgagecompany subsidiaries.

Survey Methodology Modernization in 2010

In 2010, the quinquennial survey underwent a major revision. Thesurvey sampling procedures and instruments were redesigned to improvecoverage of the population, increase survey participation, developsystematic means of addressing nonresponse, and reduce reporting errors.(28)

For the purposes of this survey, the target population is the setof domestically operated finance companies, defined as entities thathave at least 50 percent of total assets in loans or leases to consumersor businesses. However, entities cannot be a government agency, anonprofit organization, a cooperative, a bank, a bank holding company, acredit union, part of the farm credit system, or a real estateinvestment trust. Structurally, they can be a subsidiary of a bankholding company but not a subsidiary of a bank or a finance company.

In the past, the absence of a comprehensive list of financecompanies was a key challenge to the survey. The regulation of financecompanies is fragmented at the federal and state levels, and noadministrative or comprehensive data are publicly available to serve asa sample frame for finance companies. Therefore, the Federal Reservedeveloped a procedure for identifying eligible finance companies withina list frame obtained primarily from commercial vendors and, to a lesserdegree, from other internally available sources. The list was broad andcomprehensive, with the intention of including all nondepositorycompanies that provided credit to households or businesses.

The survey instruments were redesigned in 2010 following modernform design principles. (29) The intention of the redesign was toprovide more visual appeal via the use of color and an attractive font.Embedded instructions and the grouping of related questions were addedto make the survey easier to follow.

The titles of the two stages of the quinquennial survey werechanged to "Census of Finance Companies" and "Survey ofFinance Companies" to clearly define the nature of each stage. Tomirror the flow of identifying a finance company, several questions onthe census were restructured as a decision tree rather than askingrespondents to self-identify. Revisions to the second stage of thesurvey were composed of the following: reordering assets and liabilitydata items from most liquid to least liquid; asking for additionaldetail on assets and liabilities; and creating a clearer distinctionamong the broad balance sheet data items, detailed loan and lease dataitems, and off-balance-sheet securitization data items. In an attempt toimprove participation, an online response option was offered in additionto the traditional choice of mailing the paper form.

Responses to the first stage of the survey revealed that the sampleframe contained a complex tangle of often interrelated companies. As aresult, a new statistical methodology was developed for the nonresponsefollow-up study to better characterize and account for the patternsobserved as well as the substantial nonresponse that did not appear tobe missing at random. Results of the study showed that the size of theuniverse of finance companies was smaller than what would have beenestimated from the original respondents if it was assumed that missingobservations were distributed in the same way as the initialrespondents.

Updates in 2015

The 2015 quinquennial survey is the most recent of the five-yearbenchmark surveys. We introduced new questions in the Census of FinanceCompanies for finding detailed types of credit offered by financecompanies. Questions about the income statement, scale of companyoperations, and small business credit were added to the Survey ofFinance Companies. Postcard reminders were sent after each of the twopaper form mailings. In contrast to historical practices, to furtherencourage participation, preliminary results from the Census of FinanceCompanies were mailed along with the Survey of Finance Companies tosurvey recipients.

Assembling a sample frame that best suits the complex definition ofa finance company remains challenging. Following the method forconstructing the sample frame adopted in 2010, we included five StandardIndustrial Classification (SIC) codes to capture companies with at leastsome financing operation as follows: 5932, 6099, 6141, 6153, and 6159.This approach reflected the further expansion of the sample frame toincorporate pawnbrokers and check-cashing services for the 2015quinquennial survey. Data collected under the Home Mortgage DisclosureAct were used to supplement the list of mortgage lenders. Overall, theCensus of Finance Companies was mailed to approximately 37,000 companiesin June 2015 to capture basic financial information as of March 31,2015. The Survey of Finance Companies was sent to more than 2,300eligible finance companies in March 2016 to obtain detailed balancesheet and income statement data as of December 31, 2015. About 41percent of these finance companies responded, and attempts were made tocontact and collect data from all nonrespondents.

Similar to survey activities in previous years, the 2015quinquennial survey faced multiple challenges. These challenges werepartly due to the unique nature of this survey, partly due to theimperfect sample frame, and partly due to the reluctance of manycompanies surveyed. The quinquennial survey aimed to collect data frombusiness entities, but its voluntary nature further compounded thedifficulty of improving survey participation. Maintaining and improvingthe existing participation rate remains a high priority for futuresurveys.

Taking into account the complex and interrelated nature of thefinance company universe, we continued to utilize the statisticalmethodology developed in 2010 for the nonresponse follow-up to theCensus of Finance Companies. We split the follow-up sample ofapproximately 4,000 observations into two major parts: one part focusedon a sample of observations in candidate cluster arrangements primarilybased on very similar or identical company names, and the other partfocused on the remaining unclustered cases. Outreach and contacts wereattempted by Federal Reserve Bank staff members to collect enoughinformation to determine whether any of these observations were in-scopefinance companies.

Analysis weights were created for companies included in thenonresponse follow-up sample to represent the nonrespondents. We startedwith a base weight that is the inverse of a company's inclusionprobability in the sample. We then adjusted the base weight in amulti-stage process to account for the following: the probability thatsome of the nonrespondents to the follow-up were still in business; theprobability that the company had at least 50 percent of its assets inloans or leases, given that it was in business; and, finally, theprobability that it was an independent finance company, not a subsidiaryor a branch of a related finance company. Each follow-uprespondent's weight not only constitutes its directly estimatedshare in the population, but also the share of the nonrespondents to thefollow-up that were most similar to the follow-up respondent.

We thoroughly reviewed the data that were collected in both theCensus of Finance Companies and the Survey of Finance Companies. Moredata editing was needed for the latter survey, which included a greaternumber of, and more complex, questions. Many respondents reportedresponses in dollars instead of in thousands of dollars as requested.Less than one-half of the responses (42 percent) did not report balancedbalance sheet or income statements, and some required follow-up toclarify and correct reporting errors.

One last step before estimating the universe of finance companieswas addressing the issue of missing items. We used a type of randomizedhot deck multiple imputation. This method involves creating classes ofrespondents based on data that are available for all respondents andrandomly matching a "donor" respondent who has completeinformation with a "recipient" respondent. The process wasrepeated five times to enable estimation of the uncertainty surroundingthis imputation. (30)

(1) Consumer credit is reported in the Board of Governors of theFederal Reserve's Statistical Release G.19, "ConsumerCredit," available athttps://www.federalreserve.gov/releases/g19/current/default.htm.Consumer credit consists of all types of credit that are used byindividuals and that are not collateralized by real estate or byspecific financial assets (such as stocks and bonds) or used forbusiness purposes. Finance company receivables are reported in the Boardof Governors of the Federal Reserve's Statistical Release G.20,"Finance Companies," available athttps://www.federalreserve.gov/releases/g20/current/g20.htm.

(2) The Federal Reserve collects monthly data on loans and leasesand benchmarks these data using the universe estimates derived from aquinquennial census of the industry and the Survey of Finance Companies.Benchmarking aligns the monthly sample estimates with the higher-qualitypopulation estimates produced every five years. This procedure ensurescoherence and consistency between the two time-series data whileminimizing revisions of the observed movements

in the benchmarked series.

(3) For a detailed discussion of the history of the FederalReserve's statistics on finance companies, see section 16 in Boardof Governors of the Federal Reserve System (1976), Banking and MonetaryStatistics, 1941-1970 (Washington: Board of Governors), pp. 1049-81,https://fraser.stlouisfed.org/title/41.

(4) The distinction between sales and consumer finance companies isin large part a consequence of state regulation of interest rates. SeeThomas A. Durkin, Gregory Elliehausen, Michael E. Staten, and Todd J.Zywicki (2014), "State Regulation of Consumer Credit," chapter11 in Consumer Credit and the American Economy (New York: OxfordUniversity Press), pp. 482-541.

(5) See Board of Governors, Banking and Monetary Statistics,1941-1970, in note 3. Until 1950, the Federal Reserve's consumerfinance category contained consumer credit held by other types offinancial institutions, which included consumer credit held by mutualsavings banks and savings and loan companies.

(6) See Paul F. Smith and Francis R. Pawley (1957), "Survey ofFinance Companies, Mid-1955," Federal Reserve Bulletin, vol. 43(April), pp. 392-408,https://fraser.stlouisfed.org/files/docs/publications/FRB/1950s/frb_041957.pdf.

(7) For a description of the 1955 survey, see Smith and Pawley,"Survey of Finance Companies, Mid-1955," in note 6.

(8) Francis R. Pawley (1961), "Survey of Finance Companies,Mid-1960," Federal Reserve Bulletin, vol. 47 (October), pp.1140-60, https://fraser.stlouisfed.org/files/docs/publications/FRB/1960s/frb_101961.pdf. For the 1965 benchmark survey, a separate articlefocusing solely on business finance companies was written; see Evelyn M.Hurley (1968), "Business Financing by Business FinanceCompanies," Federal Reserve Bulletin, vol. 54 (October), pp.815-27, https://fraser.stlouisfed.org/files/docs/publications/FRB/1960s/frb_101968.pdf. An article reporting changes in financing for each ofthe different types of finance companies between the 1960 and 1965benchmark surveys was also written; see Evelyn M. Hurley (1967),"Survey of Finance Companies, Mid-1965," Federal ReserveBulletin, vol. 53 (April), pp. 534-59,https://fraser.stlouisfed.org/files/docs/publications/FRB/1960s/frb_041967.pdf.

(9) Board of Governors of the Federal Reserve System (1970),Statistical Release G.20, "Finance Companies" (November 12),https://fraser.stlouisfed.org/files/docs/releases/g20/g20_19701112.pdf.

(10) See Glenn B. Canner, Thomas A. Durkin, and Charles A. Luckett(1998), "Recent Developments in Home Equity Lending," FederalReserve Bulletin, vol. 84 (April), pp. 241-51,https://www.federalreserve.gov/pubs/bulletin/1998/199804lead.pdf.

(11) See Ernst A. Dauer (1944), Comparative Operating Experience ofConsumer Instalment Financing Agencies and Commercial Banks, 1929-41,National Bureau of Economic Research, Studies in Consumer InstalmentFinancing No. 10 (New York: NBER); Paul F. Smith (1964), Consumer CreditCosts, 1949-59, National Bureau of Economic Research, Studies inConsumer Instalment Financing No. 11 (Princeton, N.J.: PrincetonUniversity Press); Thomas A. Durkin and Gregory Elliehausen (1998),"The Cost Structure of the Consumer Finance Industry," Journalof Financial Services Research, vol. 13 (February), pp. 71-86.

(12) See Melinda Zabritski (2018) "State of the AutomotiveFinance Market: A Look at Loans and Leases in Q4 2017," Experian,presentation slides,http://www.experian.com/automotive/automotive-credit-webinar.html.

(13) See Durkin and others, "State Regulation of ConsumerCredit," in note 4.

(14) For evidence on credit card and small consumer finance lendingbetween the second quarter of 2007 and the second quarter of 2012, seeGregory Elliehausen and Simona M. Hannon (2018), "The Credit CardAct and Consumer Finance Company Lending," Journal of FinancialIntermediation, vol. 34 (April), pp. 109-19.

(15) See Robert J. Barro (1976) "The Loan Market, Collateral,and Rates of Interest," Journal of Money, Credit and Banking, vol.8 (November), pp. 439-56; and Daniel K. Benjamin (1978), "The Useof Collateral to Enforce Debt Contracts," Economic Inquiry, vol. 16(July), pp. 333-59.

(16) Nonrecourse debt associated with structured financingactivities is debt that is repaid solely from cash flows on underlyingloans or securities. This type of debt arises from asset securitization,loan participation, and other structured financing activities, includingliabilities that were brought on balance sheet as a result of FinancialAccounting Standard 166 or Financial Accounting Standard 167.

(17) Respondents self-defined their specialization in the 2005Census of Finance Companies. The 2010 and 2015 censuses definedspecialization as having 50 percent or more of assets in consumer, realestate, or business loans and leases. All three censuses also providedrespondents with a "no specialization" choice.

(18) This percentage does not include wholesale loans or retailbusiness vehicle loans and leases of most vehicle manufacturers'captive finance companies. Vehicle manufacturers' captive financecompanies are typically classified as consumer finance companies, as themajority of their assets are consumer loans and leases.

(19) As this article is concerned with coverage of costs byrevenue, the term "finance charge" as used here includescharges for ancillary products such as credit insurance sold inconjunction with the credit. This treatment of ancillary productsdiffers from that in disclosure regulation, which is concerned with theprice of credit and includes in the finance charge only those costsassociated with the credit.

(20) Comparisons of finance companies with banks are difficultbecause banks are multiproduct firms and do not account for costsseparately for each product. Cost accounting data for consumer lendingat banks are available from the Federal Reserve System's FunctionalCost Analysis Program through 1999, when it was discontinued. Data for1999 indicate that gross revenue per $100 of outstanding credit forconsumer lending at banks was about one-half that of finance companies.The difference can be attributed largely to differences in risk.Operating

expenses for consumer lending at banks were 45 percent of grossrevenue. For further discussion, see Thomas A. Durkin, GregoryElliehausen, Michael E. Staten, and Todd J. Zywicki (2014), "TheSupply of Consumer Credit," chapter 5 in Consumer Credit and theAmerican Economy (New York: Oxford University Press), pp. 173-240.

(21) See Zabritski, "State of the Automotive FinanceMarket," in note 12.

(22) Payday lenders in several states are required to offerinstallment loans under specified circ*mstances (usually after aspecified number of loans or renewals), and in the face of regulatorypressure some payday lenders have begun to offer installment loans. Afew auto-title lenders offer fully amortizing auto-title loans as wellas typical single-payment loans.

(23) See Thomas A. Durkin, Gregory Elliehausen, Michael E. Staten,and Todd J. Zywicki (2014), "Introduction and Overview of ConsumerCredit: Development, Uses, Kinds, and Policy Issues," chapter 1 inConsumer Credit and the American Economy (New York: Oxford UniversityPress), pp. 1-33.

(24) To compensate dealers for these activities, dealers receive ashare of finance charges. Dealers' share of finance charges is notincluded in finance companies' gross revenue in table 8.

(25) See Barro, "The Loan Market, Collateral, and Rates ofInterest," in note 15 or Benjamin, "The Use of Collateral toEnforce Debt Contracts," in note 15.

(26) For further discussion of personal loan companies'operations, see Durkin and others, "The Supply of ConsumerCredit," in note 20.

(27) See Donna C. Vandenbrink (1982), "The Effects of UsuryCeilings," Federal Reserve Bank of Chicago, Economic Perspectives,vol. 6 (Midyear), pp. 44-55,https://fraser.stlouisfed.org/files/docs/historical/frbchi/economicperspectives/frbchi_econper_1982midyear.pdf; Donna C. Vandenbrink (1985),"Usury Ceilings and DIDMCA," Federal Reserve Bank of Chicago,Economic Perspectives, vol. 9 (September/October), pp. 25-30,https://www.chicagofed.org/publications/economic-perspectives/1985/september-october-vandenbrink.

(28) Arthur Kennickell was instrumental in the work of modernizingthe survey methodology.

(29) See Don A. Dillman, Arina Gertseva, and Taj Mahon-Haft (2005),"Achieving Usability in Establishment Surveys through theApplication of Visual Design Principles," Journal of OfficialStatistics, vol. 21 (June), pp. 183-214.

(30) See Donald B. Rubin (1987), Multiple Imputation forNonresponse in Surveys (New York: Wiley).

Table 1. Percentage distribution of finance companies by number offirms and asset size, 2005, 2010, and 2015 Number of firms (percent)Asset size (dollars) 2005 2010 2015Less than 1 million 25 44 521-10 million 38 25 3010-100 million 23 24 12100 million-1 billion 9 5 51-20 billion 4 2 120 billion or greater 1 <0.5 <0.5Total 100 100 100 Aggregate assets (percent)Asset size (dollars) 2005 2010 2015Less than 1 million <0.5 1 <0.51-10 million <0.5 <0.5 110-100 million 1 3 2100 million-1 billion 2 4 51-20 billion 17 18 2120 billion or greater 81 74 71Total 100 100 100Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2005, 2010,and 2015), Census of Finance Companies (Washington: Board of Governors).Table 2. Loan and lease receivables by asset category, 2005, 2010, and2015 Level ($billion) Percent changeAsset category 2005 2010 2015 2005-2010 2010-2015Consumer Motor vehicle loans 278 277 303 0 9 Motor vehicle leases 85 112 176 32 57 Revolving 66 85 26 29 -69 Other 175 346 233 98 -33Subtotal 604 820 738 36 -10Real estate 1-4 family 466 170 123 -64 -28 Other 48 74 36 54 -51Subtotal 513 244 159 -52 -35Business Motor vehicles 106 117 104 10 -11 Retail loans 15 18 15 20 -17 Wholesale loans 61 69 80 13 16 Leases 29 30 9 3 -70 Equipment 286 204 219 -29 7 Loans 98 118 122 20 3 Leases 188 86 97 -54 13 Other 92 86 82 -7 -5Subtotal 484 408 405 -16 -1Total loans and leases 1,601 1,472 1,302 -8 -12Memo: Total assets 2,142 1,875 1,680 -12 -10 Share of total assets (percent)Asset category 2005 2010 2015Consumer Motor vehicle loans 13 15 18 Motor vehicle leases 4 6 11 Revolving 3 5 2 Other 8 19 14Subtotal 28 44 44Real estate 1-4 family 22 9 7 Other 2 4 2Subtotal 24 13 10Business Motor vehicles 5 6 6 Retail loans 1 1 1 Wholesale loans 3 4 5 Leases 1 2 1 Equipment 13 11 13 Loans 5 6 7 Leases 9 5 6 Other 4 5 5Subtotal 23 22 24Total loans and leases 75 79 78Memo: Total assets 100 100 100Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2005, 2010,and 2015), Survey of Finance Companies (Washington: Board of Governors).Table 3. Liabilities and net worth of finance companies, 2005, 2010,and 2015 Level ($billion)Liability category or net worth 2005 2010 2015Commercial paper 182 99 67Bank loans 71 92 156Nonrecourse debt n.a. 471 648Notes, bonds, and debentures n.a. 608 242Combined total of nonrecoursedebt and notes, bonds, anddebentures 892 1,078 890Debt due to parent company 221 181 157Other liabilities 512 192 190Total liabilities 1,878 1,642 1,460Net worth 264 233 220Total liabilities and net worth 2,142 1,875 1,680 Percent changeLiability category or net worth 2005-2010 2010-2015Commercial paper -46 -32Bank loans 30 70Nonrecourse debt n.a. 38Notes, bonds, and debentures n.a. -60Combined total of nonrecoursedebt and notes, bonds, anddebentures 21 -17Debt due to parent company -18 -13Other liabilities -63 -1Total liabilities -13 -11Net worth -12 -6Total liabilities and net worth -12 -10 Share of total assets (percent)Liability category or net worth 2005 2010 2015Commercial paper 8 5 4Bank loans 3 5 9Nonrecourse debt n.a. 25 39Notes, bonds, and debentures n.a. 32 14Combined total of nonrecoursedebt and notes, bonds, anddebentures 42 57 53Debt due to parent company 10 10 9Other liabilities 24 10 11Total liabilities 88 88 87Net worth 12 12 13Total liabilities and net worth 100 100 100Note: Components may not sum to totals because of rounding.n.a. Not available.Source: Board of Governors of the Federal Reserve System (2005, 2010,and 2015), Survey of Finance Companies (Washington: Board of Governors).Table 4. Asset shares by type of financing and specialization oflender, 2005, 2010, and 2015 Share of total assets (percent)Type of financing 2005 2010 2015Consumer lenderConsumer 84 79 79Real estate 1 4 1Business 5 8 10Total loans and leases 90 90 90Real estate lenderConsumer 1 16 2Real estate 71 59 74Business 2 7 2Total loans and leases 73 82 78Business lenderConsumer 2 8 2Real estate <0.5 9 1Business 73 49 84Total loans and leases 75 66 86Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2005, 2010,and 2015), Survey of Finance Companies (Washington: Board of Governors).Table 5. Percentage distribution of finance companies by asset size andspecialization of lender, 2015 Type of finance companyAsset size (dollars) Consumer Real estate BusinessLess than 1 million 61 37 271-10 million 32 17 3310-100 million 5 36 18100 million-1 billion 1 8 171-20 billion <0.5 2 420 billion or greater <0.5 <0.5 1Total 100 100 100Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2015), Censusof Finance Companies (Washington: Board of Governors).Table 6. Asset shares by type of finance company, 2015 (Percent oftotal assets) Type of finance companyAsset category Consumer Real estate BusinessConsumer Motor vehicle loans 31 2 <0.5 Motor vehicle leases 20 <0.5 <0.5 Revolving 3 <0.5 1 Other 26 <0.5 1Subtotal 79 2 2Real estate 1-4 family 1 63 <0.5 Other 1 12 <0.5Subtotal 1 74 1Business Motor vehicles 9 <0.5 6 Retail loans 1 <0.5 2 Wholesale loans 8 <0.5 3 Leases <0.5 <0.5 2 Equipment <0.5 <0.5 58 Loans <0.5 <0.5 34 Leases <0.5 <0.5 24 Other 1 1 19Subtotal 10 2 84Total loans and leases 90 78 86Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2015), Surveyof Finance Companies (Washington: Board of Governors).Table 7. Liability and net worth shares by type of finance company, 2015 Type of finance companyLiability category or net worth Consumer Real estate BusinessCommercial paper 5 1 6Bank loans 7 20 17Nonrecourse debt 44 20 20Notes, bonds, and debentures 21 19 7Debt due to parent company 7 13 18Other liabilities 6 9 18Total liabilities 90 81 85Net worth 10 19 15Total liabilities and net worth 100 100 100Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2015), Surveyof Finance Companies (Washington: Board of Governors).Table 8. Revenue, costs, and profitability by type of finance company,2015 Type of finance companyItem Consumer Real estate Business creditDollars per $100 of outstandingGross revenue (finance charges) 12.56 20.00 8.92Total operating costs 6.54 16.60 4.42 Salaries and wages 1.62 8.65 1.16 Losses/additions to loss reserves 1.60 0.82 0.42 Other operating costs 3.33 7.14 2.85Operating income 6.01 3.40 4.49Cost of borrowed funds 2.26 2.69 1.58Before-tax income 3.76 0.71 2.92Percent of gross revenueGross revenue (finance charges) 100 100 100Total operating costs 52 83 50 Salaries and wages 13 43 13 Losses/additions to loss reserves 13 4 5 Other operating costs 27 36 32Operating income 48 17 50Cost of borrowed funds 18 13 18Before-tax income 30 4 33Rate of returnOperating return on assets 5 3 4Before-tax return on assets 3 1 3Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2015), Surveyof Finance Companies (Washington: Board of Governors).Table 9. Revenue, costs, and profitability of auto lenders and personalloan companies, 2015 Type of consumer installment lenderItem Personal loan Auto lender companyDollars per $100 of outstanding creditGross revenue (finance charges) 14.65 29.20Total operating costs 6.96 20.82 Salaries and wages 1.47 8.81 Losses/additions to loss reserves 1.49 5.88 Other operating costs 4.00 6.13Operating income 7.69 8.38Cost of borrowed funds 2.79 2.28Before-tax income 4.90 6.10Percent of gross revenueGross revenue (finance charges) 100 100Total operating costs 47 71 Salaries and wages 10 30 Losses/additions to loss reserves 10 20 Other operating costs 27 21Operating income 53 29Cost of borrowed funds 19 8Before-tax income 33 21Rate of returnOperating return on assets 7 8Before-tax return on assets 4 6Note: Components may not sum to totals because of rounding.Source: Board of Governors of the Federal Reserve System (2015), Surveyof Finance Companies (Washington: Board of Governors).Table 10. Trends in revenue, costs, and profitability of personal loancompanies, 1959, 1983, 1987, and 2015Item Year 1959 1983 1987 2015Dollars per $100 of outstanding creditGross revenue (finance charges) 23.87 23.31 18.88 29.20Total operating costs 14.25 11.40 8.69 20.82 Salaries and wages 6.45 3.35 2.97 8.81 Losses/additions to loss reserves 1.98 1.37 2.12 5.88Other operating costs 5.82 6.67 3.61 6.13Operating income 9.62 11.92 10.18 8.38Cost of borrowed funds 3.97 7.65 6.90 2.28Before-tax income 5.65 4.27 3.28 6.10Percent of gross revenueGross revenue (finance charges) 100 100 100 100Total operating costs 60 49 46 71 Salaries and wages 27 14 16 30 Losses/additions to loss reserves 8 6 11 20Other operating costs 24 29 19 21Operating income 40 51 54 29Cost of borrowed funds 17 33 37 8Before-tax income 24 18 17 21Rate of returnOperating return on assets 9 9 10 8Before-tax return on assets 5 3 3 6Note: Components may not sum to totals because of rounding.Source: For 1959 data, Paul F. Smith (1964), Consumer Credit Costs,1949-59, National Bureau of Economic Research, Studies in ConsumerInstalment Financing No. 11 (Princeton, N.J.: Princeton UniversityPress); for 1983 data, Thomas A. Durkin and Ysabel M. Burns (1984),Finance Companies in 1983: American Financial Services AssociationResearch Report and Second Mortgage Lending Report (Washington: AFSA);for 1987 data, Ysabel Burns McAleer (1988), Finance Companies in 1987:American Financial Services Association Research Report and SecondMortgage Lending Report (Washington: AFSA); for 2015 data, Board ofGovernors of the Federal Reserve System (2015), Survey of FinanceCompanies (Washington: Board of Governors).