Multiple banks view their auto lending behavior for both prime and subprime customers today as on the tougher end of their historic spectrum, according to the Federal Reserve's senior loan officer survey released in July.
More than one-fifth of lenders polled in June said they were showing prime auto borrowers strictness beyond the "midpoint" of the range of underwriting rigor they had from 2005 to 2023; one-tenth called themselves looser. When it came to subprime lenders, more than half of the bank executives surveyed considered their companies tighter than that historical middle ground. None said they were looser.
"We're experiencing a tightening or contracting of the subprime market in general," Matthew Phillips, CEO of Car Pros Automotive Group, told Automotive News. He said it had been harder to find financing for Car Pros' subprime borrowers.
The Fed said the survey found consumer loan standards "on the tighter ends of their historical ranges for all consumer loan categories, especially for subprime credit card and subprime auto loans, with major net shares of banks reporting standards for these loans being on the tighter end of their ranges."
However, the Fed also found "credit card loans and auto loans to prime borrowers had been reported on the easier end of the range in the July 2022 survey but are now on the tighter end."
A quarter of banks planned to get even tougher on auto loans during the second half of the year, while a single large bank expected to ease its standards somewhat. However, that's slightly more positive for consumers than the results during the Fed's previous survey in the spring, when 39 percent expected to get tougher in the future and none planned to ease up.
The Fed's June survey found 81 percent of banks had made no changes to their underwriting during the previous three months, a time period the Fed said largely falls within the second quarter.
The Fed's polling of large banks ($50 billion or more in assets) and smaller institutions began June 15, with responses due by June 30.
Of 48 respondents, 39 banks had made no changes, and seven large banks and one small bank tightened their vehicle lending, the Fed said. One large bank loosened auto credit in the previous three months, the Fed said. Perhaps not surprisingly, nearly one-third of banks described seeing moderately weaker demand for auto loans.
Tightening strategies during that time period involved lenders calling for more money down, increasing the minimum credit score they would approve and giving less wiggle room to approve customers below their credit threshold. More than one-third of lenders also increased the "spread" between their cost to borrow money and the interest rate charged to consumers before the June polling.