Audit and Accounting Guide - Depository and Lending Institutions

Chapter 3 Industry Overview — Finance Companies¹

Description of Business

3.01 Finance companies provide lending and financing services to consumers (consumer financing) and to business entities (commercial financing). Many finance companies engage solely in consumer or commercial financing activities; others provide both types.

3.02 Manufacturers, retailers, wholesalers, and various other business entities may provide financing to encourage customers to buy their products and services. Such financing, generally known as captive finance activity, may be provided directly by those companies or through affiliated companies. Although most such companies originally financed only their own products and services, many have expanded their financing activities to include a wide variety of products and services sold by unaffiliated businesses.

3.03 Consumer finance activities comprise direct and indirect consumer loans, including auto, credit card, and mortgage loans and retail sales financing. Direct loan companies provide loans directly to the customers. Indirect lenders either purchase loans from retail establishments and other companies, or provide financing, typically secured by loans to the retailer’s customers, to retail establishments. Many companies that provide consumer financing also offer a variety of insurance services or other ancillary products to their borrowers.

3.04 Insurance and other ancillary products and services. Many companies engaged in consumer finance activities ...