A recent quarterly FICO survey, conducted by the Professional Risk Managers’ International Association (PRMIA), found strong evidence of a credit gap for U.S. consumers as lenders expect credit availability to fall short of consumer demand through the end of 2010. The survey found 73% of bankers expect credit applications to increase or remain steady over the next six months. 38% expect the approval rate for credit applications to decline, while only a quarter of those surveyed expect a higher approval rate.

Today's G.19 Consumer Credit report from the Federal Reserve shows that revolving consumer credit continued to decline in January at a 2.3% annual rate. While still shrinking, the rate of decline has slowed significantly from 2008. Overall consumer credit grew in the month at an annual rate of 2.4%.

Demos has published a new report titled "THE PLASTIC SAFETY NET - How Households are Coping in a Fragile Economy" by Tamara Draut and Jose Garcia.

From the abstract:

"While the economic recession continues to threaten the financial security of low- and middle-income households, its effects have been heightened by the reality that, even before the downturn, millions of households were experiencing difficulties meeting the most basic expenses. Now, as families experience declining home values and tightened credit markets, many are falling behind on their mortgage and credit card payments.

The following report shows how skyrocketing costs, dwindling savings, stagnant wages and medical debt have forced low and middle-income families to turn to plastic as the de-facto safety net.

The report is based on a survey conducted between April and August 2008-consisted of 1,205 phone interviews with low- and middle-income households whose incomes fell between 50 percent and 120 percent of local median income; such households comprise roughly half of all households in the country.

The Center for Financial Services Innovation has released a new paper titled “A Fundamental Need: Small-Dollar, Short-Term Credit” by CFSI’s Michael J. Herrmann and Jennifer Tescher that explores "recent trends in small-dollar value, short-term credit, placing it within the context of the longstanding demand for these loans and the successes and failures of those who have provided them. Regulatory pressure and market changes are spurring private-sector innovation in this market niche. Herrmann and Tescher identify factors that are likely to lead to success in developing and delivering new products that are profitable for the provider and fair to the consumer."

MicroBilt and PRBC have announced are that they are "teaming to help small-to-medium (SME) enterprises and financial institutions conduct more business with an estimated 50-70 million American consumers with “thin” or no established credit histories. The two companies will merge payment data collected by MicroBilt and PRBC in PRBC’s data repository to help more consumers qualify for FICO® Expansion® scores used by lenders and financial institutions in underwriting new loans. As part of the agreement, MicroBilt will make an equity investment in PRBC." READ MORE »

RBC has published the latest edition of its RBC CASH (Consumer Attitudes and Spending by Household) Index reporting that 'pessimism among U. S. consumers continues to spread as Americans' sentiments concerning the future turn particularly gloomy.' READ MORE »

TowerGroup has announced new research titled "Process and Data Risks in a
Changing Economy: How Credit Card Issuers Can Protect Their Portfolios" that identifies critical steps credit card issuers can take to withstand the current credit storm, and recover more quickly when the economy normalizes.

Business Week's cover story by Michael Mandel this week is titled "The Consumer Crunch" and reviews the issues facing the economy as a result of tightened consumer credit. "What comes next could be scary—the largest pullback in consumer spending in decades, perhaps as much as $200 billion to $300 billion, or 2%-3% of personal income. Reduced access to credit will combine with falling real estate values to hit poor and rich alike."

Citigroup this morning announced that its third quarter financial results would be impacted by "dislocations in the mortgage-backed securities and credit markets, and deterioration in the consumer credit environment". With respect to its global consumer business, Citi said it estimates "an increase in credit costs of approximately $2.6 billion pre-tax versus the prior-year quarter due to continued deterioration in the credit environment, organic portfolio growth, and acquisitions."

BankServ has announced that Lending Club's collaborative person-to-person (P2P) lending platform is built upon BankServ's Magex Payment Platform, ACH reporting and cash management solutions.

PayPal has announced that it is now "offering consumers more ways to pay online with PayPal Pay Later, a new convenient and secure service that allows merchants to offer promotional financing. Buyers that choose the promotional offer can defer payments for purchases on participating merchant web sites, allowing them to shop now and pay later."

Christopher Peterson of the University of Florida - Levin College of Law has written a paper titled "Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits" (PDF).

The Credit Slips blog reports on six research papers to be presented at the upcoming conference "Recent Developments in Consumer Credit and Payments" sponsored by the Federal Reserve Bank of Philadelphia on September 20-21.

Carolyn Said writes for the San Francisco Chronicle about San Francisco-based startup Rex & Co. - short for Real Estate and Equity Exchange. Rex allows home owners to sell a share of the future appreciation potential in their homes in exchange for an immediate cash payment to the home owner. According to the companay, "the REX Agreement is not a loan, but a real estate investment agreement in the form of a purchase option. It gives homeowners a portion of their home’s equity in cash today—in exchange for the right of REX & Co. to share in a specified percentage of the future increase or decrease in the home’s value."

This morning's NPR Morning Edition radio show included a segment titled "Cell Phone Loans Might Be Too Easy" - describing the market in Finland for taking out consumer loans via SMS messages from your mobile phone. "Nearly 20 companies have begun offering these loans since the business started in Finland two years ago."

The Get Rich Slowly blog has an interesting post titled "What’s It Like to BORROW Money with Prosper?" written by Tricia (who also writes her own blog titled Blogging Away Debt) describing her experiences as a borrower using Prosper.com to find other folks willing to lend her money. She describes her experience seeking to borrow $3,500. She posted a starting interest rate she was willing to pay of 12%. As it turns out, lenders competed for her business and she ended up getting an interest rate of 9.9% from a group of 13 Prosper lenders.

Philip J. Philliou has been named CEO of Grameen America, Inc., a for-profit microfinance company that "provides small loans, savings programs, and other services to poor people in the United States."

Purpose Money, a financial services portal owned and operated by CompuCredit Corporation, has announced the release of the Purpose Money Financial Guide, a "comprehensive, step-by-step, financial resource guide developed specifically for Spanish-speaking audiences. The Purpose Money Financial Guide offers Latinos operational knowledge of the U.S. financial system, with insider tips from financial experts, as well as practical application exercises, to help Hispanic consumers manage their finances and credit in the U.S."

David Lazarus writes for the San Francisco Chronicle about consumer debt levels in the US - with $12.3 trillion in total consumer debt outstanding or $2.4 trillion if mortgages aren't included, according to the Federal Reserve which reports this data on a monthly basis. Lazarus goes on to remind consumers to be careful using their credit cards this holiday season - which he says "are the only consumer product for which the terms of sale can change after you sign a contract."

Mercator Advisory Group has published a new report titled "Back To The Future With Alternative And Promotional Credit" that examines the emerging sources of promotional credit, delivered in some cases through new alternative credit providers.

"The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below. Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights." The New York Times says "microcredit, also known as microfinance, is the practice of giving or loaning seed money for small businesses to people -- often women traditionally excluded from normal financial channels -- in villages or towns across the developing world, on the theory that economic strength in a country or region can be built from the grass-roots level up."

I4 Commerce has announced that AirTran Airways is offering customers the ability to pay with Bill Me Later.

I4 Commerce, a provider of payment and marketing technology solutions for multichannel retailers, has announced that Brookstone is now offering customers the option to buy now and pay later with Bill Me Later. Part of I4 Commerce's PayCapture suite, Bill Me Later is a fast, convenient and secure way for Brookstone customers to pay for purchases without providing credit card information.

Following up on its launch earlier this year of Guided by History, a blog now focused on general disaster preparedness in the US, Wells Fargo Bank is launching a new blog called "The Student LoanDown". Wells Fargo is the first major financial services company to launch a blog that's devoted to financing college and managing student debt - and which takes advantage of the bank's almost 40 years of experience in education financing.

General Motors Corp. has announced it has entered into a definitive agreement to sell a 51-percent controlling interest in General Motors Acceptance Corp. (GMAC) to a consortium of investors led by Cerberus Capital Management and including Citigroup and Aozora Bank. GM expects to receive approximately $14 billion in cash from this transaction over three years, including distributions from GMAC, with an estimated $10 billion by closing.

Carolyn Said reports for the San Francisco Chronicle about hometown startup Prosper.com, the latest person to person lending enabler that is backed by $20 million raised from venture investors Accel Partners, Benchmark Capital, Fidelity Ventures and Omidyar Network.

Andrew Reinbach, editor of Electronic Payments Week, has recently written about Prosper.com and Prosper's CEO Chris Larsen. Here's Andy's analysis - posted with permission.

One of the cool things about Zopa is their Zopa blog where they talk regularly about the stuff they're doing in revolutionizing the consumer finance space. We first wrote about Zopa last August.

A colleague comments on our earlier mention of Zopa:

This is, after all, exactly what happened in the U.S. to the short term corporate lending market 20 years ago, when the commercial paper marketplace took out commercial banks as the primary source of liquidity for short term corporate financing.....

Eliminate the banking middle man -- that's what Zopa's about. Rebecca Jarvis reports for Business 2.0 on what the UK's Richard Duvall is up to with Zopa.