A withering account of subprime auto lending in Sunday’s New York Times reinforces bad stereotypes about used-car dealers, smears subprime lenders and their investors, takes out of context an increase in delinquencies and loan losses from record lows, and provides ammunition to auto finance industry critics in Washington.
It also blurs the differences between subprime mortgages, which contributed heavily to the Great Recession, and subprime auto loans, which came out of the Great Recession smelling like a rose, in contrast to mortgages.
A close reading of the article does let auto loans off the hook for directly causing the Great Recession. But on balance, it leaves the impression that if we avoid another Great Recession, it will be no thanks to subprime auto lending.
As bad as all that is, the worst effect is that the article throws gasoline on the fire at the Consumer Financial Protection Bureau and the Federal Trade Commission. That effect could last a lot longer than the piece in the Times.
The story has attracted nearly 500 online comments as of this morning.
There are a few that say, “Buyer beware.” There are far more comments that say, “Time for the government to step in.”
The government, in the form of the CFPB and the FTC, doesn’t need any encouragement. But if it did, the article checks every box on the laundry list of offenses the feds already have under scrutiny: discrimination against legally protected minorities and failure to disclose dealer participation and other dealership fees, lender fees and add-on products.
That’s not to minimize the real-life suffering of customers who found themselves in used-car loans they couldn’t even remotely afford or to deny that there are some unscrupulous used-car salesmen and finance managers. The article also makes you wonder what lenders are thinking, apparently making loans that in some cases are far out of proportion to what the vehicles are worth.
But the timing is terrible for the auto lending industry. The industry’s critics are going to take every opportunity to cite that article.