Finance Receivables

Our pre-acquisition and post-acquisition consumer finance portfolios are now reported on a combined basis, due to the diminished size of the pre-acquisition portfolio, which was $189 million at September 30, 2015 and $459 million at December 31, 2014.

The finance receivables portfolio consists of the following (in millions):



	September 30, 2015									December 31, 2014
	North America			International			Total			North America			International			Total
Consumer
Consumer finance receivables, collectively evaluated for impairment, net of fees^(a)	$	15,479		$	10,993		$	26,472		$	12,127		$	12,262		$	24,389
Consumer finance receivables, individually evaluated for impairment, net of fees	1,515			—			1,515			1,234			—			1,234
Total consumer finance receivables^(b)	16,994			10,993			27,987			13,361			12,262			25,623
Less: allowance for loan losses - collective	(408		)	(95		)	(503		)	(405		)	(78		)	(483		)
Less: allowance for loan losses - specific	(215		)	—			(215		)	(172		)	—			(172		)
Total consumer finance receivables, net	16,371			10,898			27,269			12,784			12,184			24,968
Commercial
Commercial finance receivables, collectively evaluated for impairment, net of fees	3,498			4,295			7,793			3,180			4,803			7,983
Commercial finance receivables, individually evaluated for impairment, net of fees	5			47			52			—			89			89
Total commercial finance receivables	3,503			4,342			7,845			3,180			4,892			8,072
Less: allowance for loan losses - collective	(20		)	(13		)	(33		)	(21		)	(14		)	(35		)
Less: allowance for loan losses - specific	(1		)	(6		)	(7		)	—			(5		)	(5		)
Total commercial finance receivables, net	3,482			4,323			7,805			3,159			4,873			8,032
Total finance receivables, net	$	19,853		$	15,221		$	35,074		$	15,943		$	17,057		$	33,000

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(a) Amounts reported in the International Segment include $1.1 billion and $1.0 billion of direct-financing leases at September 30, 2015 and December 31, 2014.

(b) Net of unamortized premiums and discounts, and deferred fees and costs of $167 million and $245 million at September 30, 2015 and December 31, 2014.

Consumer Finance Receivables

Following is a summary of activity in our consumer finance receivables portfolio (in millions):



	Nine Months Ended September 30,
	2015									2014
	North America			International			Total			North America			International			Total
Consumer finance receivables, net of fees - beginning of period	$	13,361		$	12,262		$	25,623		$	11,388		$	11,742		$	23,130
Loans purchased	8,070			5,037			13,107			4,874			6,255			11,129
Principal collections and other	(3,818		)	(4,318		)	(8,136		)	(3,102		)	(4,622		)	(7,724		)
Charge-offs	(609		)	(101		)	(710		)	(543		)	(102		)	(645		)
Foreign currency translation	(10		)	(1,887		)	(1,897		)	(2		)	(672		)	(674		)
Balance at end of period	$	16,994		$	10,993		$	27,987		$	12,615		$	12,601		$	25,216

A summary of the activity in the allowance for consumer loan losses is as follows (in millions):



	Three Months Ended September 30,
	2015									2014
	North America			International			Total			North America			International			Total
Balance at beginning of period	$	627		$	94		$	721		$	515		$	60		$	575
Provision for loan losses	106			35			141			119			43			162
Charge-offs	(221		)	(35		)	(256		)	(194		)	(36		)	(230		)
Recoveries	111			13			124			96			10			106
Foreign currency translation	—			(12		)	(12		)	—			(5		)	(5		)
Balance at end of period	$	623		$	95		$	718		$	536		$	72		$	608



	Nine Months Ended September 30,
	2015									2014
	North America			International			Total			North America			International			Total
Balance at beginning of period	$	577		$	78		$	655		$	468		$	29		$	497
Provision for loan losses	334			103			437			312			109			421
Charge-offs	(609		)	(101		)	(710		)	(543		)	(102		)	(645		)
Recoveries	321			36			357			299			41			340
Foreign currency translation	—			(21		)	(21		)	—			(5		)	(5		)
Balance at end of period	$	623		$	95		$	718		$	536		$	72		$	608

Consumer Credit Quality

We use proprietary scoring systems in the underwriting process that measure the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g. FICO score), and contract characteristics. In addition to our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay. At the time of loan origination, substantially all of the consumers in our International Segment have the equivalent of prime credit scores. In the North America Segment, while we historically focused on consumers with lower than prime credit scores, we are expanding our prime and near-prime lending programs. A summary of the credit risk profile by FICO score band, determined at origination, of the consumer finance receivables in the North America Segment is as follows (dollars in millions):



	September 30, 2015				December 31, 2014
	Amount		Percent		Amount		Percent
Prime - FICO Score 680 and greater	$	3,245	19.1	%	$	596	4.4	%
Near-prime - FICO Score 620 to 679	2,747		16.2	%	1,691		12.7
Sub-prime - FICO Score less than 620	11,002		64.7	%	11,074		82.9
Balance at end of period	$	16,994	100.0	%	$	13,361	100.0	%

In addition, we review the credit quality of all of our consumer finance receivables based on consumer payment activity. A consumer account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Consumer finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. The following is a summary of the contractual amounts of delinquent consumer finance receivables, which is not significantly different than recorded investment, that are (i) more than 30 days delinquent, but not yet in repossession and (ii) in repossession, but not yet charged off (dollars in millions):



	September 30, 2015								September 30, 2014
	North America		International		Total		Percent of Contractual Amount Due		North America		International		Total		Percent of Contractual Amount Due
31 - 60 days	$	1,039	$	98	$	1,137	4.0	%	$	865	$	114	$	979	3.9	%
Greater than 60 days	362		92		454		1.6		305		120		425		1.7
	1,401		190		1,591		5.6		1,170		234		1,404		5.6
In repossession	47		6		53		0.2		44		5		49		0.2
	$	1,448	$	196	$	1,644	5.8	%	$	1,214	$	239	$	1,453	5.8	%

The accrual of finance charge income has been suspended on $726 million and $682 million of consumer finance receivables (based on contractual amount due) at September 30, 2015 and December 31, 2014.

Impaired Consumer Finance Receivables - TDRs

Consumer finance receivables that become classified as troubled debt restructurings ("TDRs") are separately assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. The financial effects of the accounts that become classified as TDRs result in an impairment charge recorded as part of the provision for loan losses. Accounts that become classified as TDRs because of a payment deferral still accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer; therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in the U.S. in Chapter 13 bankruptcy would have already been placed on non-accrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs.

At September 30, 2015 and December 31, 2014, the outstanding balance of consumer finance receivables in the International Segment determined to be TDRs was insignificant; therefore, the following information is presented with regard to the TDRs in the North America Segment only (in millions):



	September 30, 2015			December 31, 2014
Outstanding recorded investment	$	1,515		$	1,234
Less: allowance for loan losses	(215		)	(172		)
Outstanding recorded investment, net of allowance	$	1,300		$	1,062
Unpaid principal balance	$	1,543		$	1,255

Additional information about loans classified as TDRs is presented below (in millions, except for number of loans):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Average recorded investment	$	1,403	$	1,057	$	1,361	$	937
Finance charge income recognized^(a)	$	41	$	33	$	122	$	92
Number of loans classified as TDRs during the period	16,122		13,543		42,246		35,748
Recorded investment of loans classified as TDRs during the period	$	270	$	232	$	716	$	598

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(a)	Amounts presented for the three and nine months ended September 30, 2014 have been corrected from amounts previously presented.

A redefault is when an account meets the requirements for evaluation under our charge-off policy (See Note 1 - "Summary of Significant Accounting Policies" in our Form 10-K for additional information). The unpaid principal balance, net of recoveries, of loans that redefaulted during the reporting period and were within 12 months of being modified as a TDR was insignificant for the three and nine months ended September 30, 2015 and 2014.

Commercial Finance Receivables

Following is a summary of activity in our commercial finance receivables portfolio (in millions):



	Nine Months Ended September 30,
	2015									2014
	North America			International			Total			North America			International			Total
Commercial finance receivables, net of fees - beginning of period	$	3,180		$	4,892		$	8,072		$	1,975		$	4,725		$	6,700
Net funding (collections) of commercial finance receivables	373			(81		)	292			551			144			695
Charge-offs	—			—			—			—			—			—
Foreign currency translation	(50		)	(469		)	(519		)	(13		)	(231		)	(244		)
Balance at end of period	$	3,503		$	4,342		$	7,845		$	2,513		$	4,638		$	7,151

Commercial Credit Quality

We extend wholesale credit to dealers primarily in the form of approved lines of credit to purchase new vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral for the loan. We use proprietary models to assign each dealer a risk rating. These models use historical performance data to identify key factors about a dealer that we consider significant in predicting a dealer's ability to meet its financial obligations. We also consider numerous other financial and qualitative factors including, but not limited to, capitalization and leverage, liquidity and cash flow, profitability and credit history.

We regularly review our models to confirm the continued business significance and statistical predictability of the factors and update the models to incorporate new factors or other information that improves statistical predictability. In addition, we verify the existence of the assets collateralizing the receivables by physical audits of vehicle inventories, which are performed with increased frequency for higher risk (i.e., Groups III, IV, V and VI) dealers. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary. The credit lines for Group VI dealers are typically suspended and no further funding is extended to these dealers.

Performance of our commercial finance receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables is generally not required until the dealer has sold the vehicle inventory. All receivables from the same dealer customer share the same risk rating.

A summary of the credit risk profile by dealer grouping of the commercial finance receivables is as follows (in millions):



			September 30, 2015		December 31, 2014
Group I	-	Dealers with superior financial metrics	$	1,191	$	1,062
Group II	-	Dealers with strong financial metrics	2,354		2,090
Group III	-	Dealers with fair financial metrics	2,571		2,856
Group IV	-	Dealers with weak financial metrics	1,114		1,250
Group V	-	Dealers warranting special mention due to potential weaknesses	409		559
Group VI	-	Dealers with loans classified as substandard, doubtful or impaired	206		255
Balance at end of period			$	7,845	$	8,072

At September 30, 2015 and December 31, 2014 substantially all of our commercial finance receivables were current with respect to payment status and none were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three and nine months ended September 30, 2015 and 2014.