OCC: Auto Lending Risk Growing

In a speech to the 22nd Annual Financial Services Collections and Credit Risk Conference, Darrin Benhart, Deputy Comptroller for Supervision Risk Management for the Office of the Comptroller of the Currency (OCC), spoke about the increased risk the OCC is seeing in auto finance.

While the OCC regulates national banks and federal thrifts, Benhart's comments should resonate with credit unions.

He noted that increased comeptition is causing an easing of underwriting standards.

Benhart said:

Competitive pressure is driving some auto lenders to pursue growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. The marketing of these loans is focusing more on monthly payment, with little attention to the overall debt of the borrower. Average loan-to-value, or LTV rates for both new and used vehicles are getting more liberal and exceeded 100 percent for all major lender categories at the end of 2013. These high LTVs reflect both rising car prices and a greater bundling of add-on products such as extended warranties, credit life insurance, and aftermarket accessories into the financing.

While Benhart acknowledges that there has not been a large-scale deterioration in loan performance at the portfolio level, the agency is clearly seeing increased signs of risk.

In addition, Benhart pointed out another troubling trend -- the average loss per vehicle has risen significantly over the past 24 months across all types of lenders. He stated that this is a by-product of higher LTVs and longer terms on auto loans.

Read Benhart's speech.