Unemployment reached historic highs in the first months of the coronavirus pandemic and remained in double digits for most of the summer, prompting auto lenders to ramp up scrutiny on employment and income verification before approving loans.
Misrepresented employment or income information on credit applications could lead lenders to unwittingly approve auto loans. The misinformation also could cause lenders to extend more favorable loan-to-value terms than fit the risk that loan presents to their portfolios. With such high levels of unemployment, more consumers could be looking to fudge the details of their situation to be approved.
Many people were put on furlough at the onset of the pandemic in states on the hard-hit East Coast. According to Ruben Arcila, general sales manager at DCH Kay Honda in Eatontown, N.J., lenders responded swiftly, tightening lending requirements and requesting more documents to validate employment.
"You could be a 700 FICO and they were asking for your most recent pay stub," he said. "A lot of people were trying to purchase cars, but they were still on furlough."