Consumer Financial Protection Bureau Draws Attention to Auto Loans

The Consumer Financial Protection Bureau will keep tabs on subprime auto loans and study competition from subprime auto loans, the agency announced last week.

The agency said it was “concerned” about loan-to-value ratios, which compare the amount owed on a vehicle to its actual value.

“While LTV ratios have fallen over the past year for consumers who already owned cars due to high used vehicle prices, LTVs were rising before the global vehicle shortage,” the bureau wrote in a blog post from February 24. “We expect this trend to resume once price pressures ease.”

The loan-to-value ratio for new vehicles stood at 118% in the fourth quarter of 2021, compared to 110% of the list price a year earlier, Experian said the same day. But loan to used vehicle ratios had fallen from 123% to 113%.

The bureau followed up its blog post with a Feb. 28 compliance bulletin warning lenders against improper repossession practices. The agency said in an accompanying press release that it had observed “illegal seizure of cars, sloppy record keeping, unreliable pay statements and ransom for personal property” and feared the Rising auto prices only encourage “risky” repo behavior.

The price of new cars and trucks in January rose 12% over the past year, according to the Bureau of Labor Statistics’ consumer price index. Used cars and trucks increased by 41% over the same period.

“Given the increase in loan amounts, the increasing duration of loan terms and the uncertainty surrounding the ongoing economic recovery, we will be closely monitoring lender practices and consumer outcomes,” wrote the Consumer Financial Protection Bureau on February 24. continue to evaluate loan structures where lenders seem to rely on high interest rates and fees to profit even when consumers fail. »

Although the bureau does not regulate dealerships, the agency’s focus on auto loans could still have ramifications for retailers. This could include scrutiny by other regulators who do, such as the Federal Trade Commission, or new practices by dealer partner lenders.

The bureau’s blog post referenced a collaboration with the FTC while discussing an interest rate differential observed by the agency among subprime borrowers with similar default risk.

“We seek to better understand the potential barriers to competition in the subprime automatic loan market that could drive these and other related results,” the Consumer Financial Protection Bureau wrote. “We will continue to seek out auto-lending policies and practices that may impede a fair, transparent, and competitive marketplace. And we will work with our counterparts at the Federal Trade Commission and Federal Reserve Bank Board of Governors to use our collective powers to solve market problems.