Government Concern Over Growing Auto Loans Increases

$1 trillion in auto loans and increasing delinquencies cause alarm

Government Concern Over Growing Auto Loans Increases
July 12, 2016

As the auto loan industry tops $1 trillion dollars, the Office of the Comptroller of the Currency (OCC) has voiced concern over the unprecedented growth, increased delinquencies, and decreasing value of used cars. Many banks and other lenders have also relaxed their standards for borrowers to beat the competition, which has led to many unqualified borrowers receiving auto loans and then defaulting on them.

During its recent report, the OCC stated that it believes some banks may soon face financial stress due to the increase in issues related to auto loans, although it did not name any specific lenders. Some banks, however, have voiced their own concerns. For example, Jamie Dimon of JPMorgan Chase has gone on record as saying that the auto loan industry is starting to look "stretched" and fears that lenders will soon see the repercussions of making too many subprime loans. Fitch Ratings said earlier this year that the industry is seeing the highest number of delinquent loans since 1996.

The OCC's report went on to state that lenders may need to budget in extra funds to serve as a cushion if the number of delinquent auto loans increases. This growing delinquency may hit the biggest auto loan makers in the U.S., such as Wells Fargo and Ally Financial, especially hard unless they re-evaluate their risk management policies.

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Photo ©iStock.com/KirbyHamilton

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