Lending to customers usually shunned by banks has brought finance companies huge profits in the last few years.

Flush with capital raised on Wall Street, the companies are eager to expand. Many have grown from local to regional to national businesses. Now, they are pushing beyond North America and into uncharted lending territory.

"We're not just the little loan shop on the corner anymore," said H. Randy Lively, chief executive of the American Financial Services Association, the trade group for finance companies. "This is a whole different industry than it was a few years ago."

Excitement over both the industry's performance and its prospects was evident here as more than 700 finance company executives gathered for the association's 80th annual convention.

Finance companies fund their loans entirely with capital raised in the financial markets or by securitizing the loans. They often make smaller loans than banks and accommodate borrowers with much lower incomes or poor credit histories.

The high profit margins and ballooning customer base have even attracted the attention of large banking companies. But after years of ignoring the market, banks won't find entry easy, finance company executives say.

"One-third of the American population doesn't have a banking relationship," said Charles Walters, chief executive of World Acceptance Corp. and the association's new chairman. "Between 1989 and 1993, half of all tax filers had incomes of less than $20,000. This is the segment that our membership serves."

World Acceptance makes small consumer loans to borrowers whose incomes average between $15,000 and $25,000. During fiscal year 1996, the company saw net income increase 22.5% from 1995.

Big jumps in earnings have been the norm so far this year. For established players like Household Finance, Prospect Heights, Ill., 20% growth is typical. Relative newcomers like RAC Financial Group, Dallas, have watched earnings increase tenfold this year.

And the pool of customers that fits the finance company profile is growing, economists say, as consumer debt rises and stretched borrowers miss payments. Corporate downsizing is also said to be swelling the market.

In the past two years, subprime auto and home equity lenders have gone public at breakneck speed and enjoyed record profits. Gary Gordon, an analyst for PaineWebber Inc., New York, estimates that 25 to 30 finance companies tapped Wall Street capital in the past two years. Five years ago, such financing wasn't even considered.

Now, established players are looking globally.

Ford Motor Credit has launched operations in India, Indonesia, Korea, and Thailand, using start-up offices and joint ventures. The Dearborn, Mich., finance company has even influenced overseas trade policy by pressuring the Korean government to allow foreign companies to provide consumer financing. In late 1995, Korea opened its doors.

GE Capital Corp., Stamford, Conn., has acquired 48 companies throughout Europe in the past two and a half years. The company's global consumer finance division is slated garner $500 million in net income this year, 70% of which is generated by acquisitions.

New market niches are also being explored: Subprime auto lending and insurance-premium financing are two of this year's fastest growers, Mr. Walters said.

In the United States, finance companies account for 28% of all traditional home equity loans, 20% of all car loans, and 25% of all credit card receivables, according to the most recent data from Furash & Co.

The rush is on for large entities in the industry to snap up smaller companies, to enlarge their geographic arena, or expand into new products.

Competition is at a high point in the business, finance executives say. Recently, they have seen banks in search of higher profit margins trying to encroach on their territory.

"I don't recall ever seeing companies as fiercely competitive ever before, and I think banks are contributing to that," Mr. Walters said at the convention.

Banks, he noted, are realizing that they have to dip into the low-income borrower pools to grow.

The scope of attendees at the conference attests to the industry's diversity. Companies from John Deere to GE Capital to Porsche, from multifaceted billion-dollar nationals to one-product regionals were represented.

Banks have pushed into the subprime home equity market in the past 12 months and have been reaching out to small-business owners in a big way.

There is a marked difference in culture between the two industries.

"This is a relationship business," Mr. Walters noted. Credit scoring, which has been embraced by conventional mortgage lenders, is useful for large loans, Mr. Walters said. But at his company, looking the customer in the eye is an important part of deciding to make a loan.

"Banks traditionally are not willing to make loans where they have to do hard collection and repossession," said William Odom, chairman and chief executive of Ford Credit.

Despite bank interest, Mr. Walters is confident that finance companies will prevail. "It's difficult to take a banker and make a finance person out of them, but you can take a finance person and make one hell of a banker," he said.

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