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ARTICLE · 03 AUGUST 2017

Autocorrect? Lenders Pull Back From Subprime Auto Lending, Others Follow Riskier Course

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A Federal Reserve blog post in November 2016 attracted widespread attention to subprime auto lending and the similarities easily drawn, at least on the surface, to subprime mortgage lending...

United StatesFinance and Banking
Joseph Cioffi
Joseph Cioffi
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A Federal Reserve blog post in November 2016 attracted widespread attention to subprime auto lending and the similarities easily drawn, at least on the surface, to subprime mortgage lending leading up to the financial crisis of 2008.  The warnings of commentators who have sounded the alarm in the past six months have been rebutted at every turn, due mainly to the small footprint of the auto loan and related ABS market relative to subprime mortgages and RMBS at their peak.  However, crises come in all sizes. The auto lending industry could be thrown into a tailspin, if sales and lending practices to subprime borrowers — including fraudulent sales activities that inflate vehicle values — extended terms on used vehicles and lax underwriting, collide with any shock to the economy.

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