Shopper Monetary Safety Bureau alerts consideration to auto loans

The Shopper Monetary Safety Bureau will keep watch over underwater auto loans and research subprime auto lending competitors, the agency said last week.

The company mentioned it was “involved” about loan-to-value ratios, which evaluate the quantity owed on a car with its precise value.

“Whereas LTV ratios have dropped up to now yr for customers who already had automobiles resulting from excessive used-vehicle costs, LTVs have been climbing previous to the worldwide car scarcity,” the bureau wrote in a Feb. 24 weblog publish. “We count on that development to renew as soon as value pressures abate.”

New car loan-to-value ratios stood at 118 p.c within the fourth quarter of 2021, up from 110 p.c of sticker value a yr earlier, Experian mentioned the identical day. However used-vehicle loan-to-vehicle ratios had fallen from 123 p.c to 113 p.c.

The bureau adopted its weblog publish with a Feb. 28 compliance bulletin warning lenders towards improper repossession practices. The agency said in an accompanying news release that it noticed “the unlawful seizure of automobiles, sloppy report holding, unreliable steadiness statements and ransom for private property” and feared that rising auto costs would incentivize “dangerous” repo conduct.

The value of latest automobiles and vans in January rose 12 p.c over the previous yr, according to the Bureau of Labor Statistics’ Consumer Price Index. Used automobiles and vans have been up 41 p.c throughout that very same timeframe.

“Given the rise in mortgage quantities, the rising size of mortgage phrases and the uncertainty across the ongoing financial restoration, we will likely be intently monitoring lender practices and client outcomes,” the Shopper Monetary Safety Bureau wrote Feb. 24. “Particularly, we proceed to guage lending constructions the place lenders appear to depend on excessive rates of interest and charges to revenue even when customers fail.”

Whereas the bureau would not regulate dealerships, the company’s consideration to auto loans may nonetheless have ramifications for retailers. This might embody scrutiny by other regulators who do, such as the Federal Trade Commission, or new practices by dealerships’ companion lenders.

The bureau’s weblog publish referenced working with the FTC whereas discussing a discrepancy among interest rates the agency observed between subprime borrowers with similar default risk.

“We need to higher perceive potential limitations to competitors within the subprime auto-lending market which will drive these and associated outcomes,” the Shopper Monetary Safety Bureau wrote. “We are going to proceed to analysis auto-lending insurance policies and practices which will hinder a good, clear and aggressive market. And, we’ll work with our counterparts on the Federal Commerce Fee and the Federal Reserve Financial institution Board of Governors to make use of our collective authorities to deal with points available in the market.”