Monday, July 11, 2016

OCC Finds Auto Lending Risk Is Increasing

The Office of the Comptroller Currency (OCC) today expressed concern about increased auto lending risk.

The OCC's Semiannual Risk Perspective for Spring 2016 found less stringent underwriting standards and increased risk layering, as lenders compete for market share. In addition, used car values have started to decline, which could lead to higher losses on repossessions.

OCC wrote:
Auto lending risk is increasing because of notable and unprecedented growth across all types of lenders. Recently, delinquencies on auto loans have begun to increase and used car values have started to decline. As banks have competed for market share, some banks have responded with less stringent underwriting standards, or both, for direct and indirect auto loans. In addition to the easing of underwriting standards and potential layering of risks (higher loan-to-value ratios combined with longer terms), concentrations in auto loans have been increasing. These factors create the potential for increasing levels of embedded credit risk in auto loan portfolios. The elevated risk results in higher probable credit losses and may warrant additional provisions to the ALLL or higher capital allocations. Supervisory work to date has noted that some banks’ risk management practices have not kept pace with the growth and increasing risk in these portfolios.

Read the press release.

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