Wednesday, October 29, 2014

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.

1 comment:

  1. Focus your time here - eliminating evil. The most under-regulated industry in finance. It hurts many people.

    ReplyDelete

 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.