The Consumer Financial Protection Bureau sees the combination of easier credit, a rise in credit losses from historic lows and longer terms in subprime auto loans as an “emerging” risk worth keeping an eye on, said Steven Antonakes, deputy director.
“Combined, these trends cause us to worry that subprime borrowers are being extended credit that they are unable to pay back,” he said in a speech at the Consumer Bankers Association’s CBA Live! conference in Orlando last week.
The CFPB will be on the lookout for “potentially unfair, deceptive and abusive practices in this space,” he said.
Antonakes said the CFPB isn’t worried about the growth in subprime lending as such.
“As the economy has recovered, there has been a loosening of credit in the subprime auto loan market. From our standpoint, it is not inherently troubling that more consumers are getting auto loans; under the right conditions, increased access to credit is good for the economy and individual upward mobility,” he said.
“However, we have noticed some trends in connection with this credit expansion that give us cause for concern,” such as longer terms, he said.
According to Experian Automotive, the average term on new-vehicle loans was 66 months in the fourth quarter of 2014, up from 65 in the year-earlier period. For used vehicles, the average term was 62 months, up from 61.
The average term on a new-vehicle loan is longer for borrowers with risky credit, though. For deep subprime loans, defined as loans to borrowers with credit scores of 500 or below, the average term on a new vehicle was 71.7 months in the fourth quarter, up from 71 months the year before.
For used-vehicle loans, the average term actually gets shorter for riskier credit compared with less risky loans. For borrowers with deep subprime credit, the average term for used-vehicle financing was 55.8 months in the fourth quarter. Those loans accounted for 5.8 percent of used-vehicle loans in the period, Experian said.
“The average term of a subprime auto loan for a new vehicle has increased every year since the crisis and is now at a length never seen before,” Antonakes said.
However, according to Experian, customers in the deep subprime category accounted for just 0.68 percent of new-vehicle loans in the fourth quarter, up from 0.62 percent a year ago.