Banking giant Wells Fargo will no longer lend to many independent car dealerships due to financial risk resulting from the coronavirus pandemic.
A Wells Fargo spokesperson confirmed in an email to FOX Business on Monday that it will only continue to work with independent dealers with whom it has “deep and longstanding relationships.”
“Like lenders across the country, we are doing everything we can to help customers weather the economic impacts of this health crisis, including offering loan deferrals to customers who need it if they have been impacted by COVID-19,” the spokesperson said. “As a responsible lender, we also have an obligation to review our business practices in light of the economic uncertainty presented by COVID-19 and have advised the majority of our independent reseller customers that we will be suspending acceptance of their demands.”
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Wells Fargo is known as one of the nation’s leading auto lenders for new and used cars. It provides indirect financing through its partner dealers, which means that to apply for a loan, you must work with one of these partners.
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The news was first reported by CNBC. People familiar with the matter told the outlet that Wells Fargo notified customers of its decision in May.
The coronavirus crisis has taken a toll on the finances of many Americans — and car loans are often one of the biggest payment obligations for households.
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Even before the effects of the pandemic set in, delinquencies on auto loans were high. The rate at which loans turned into serious delinquencies, meaning payments were at least 90 days late, was 2.36% in the fourth quarter of 2019, according to data from the Federal Reserve Bank of New York. The bank, however, noted that in the first quarter of 2020, loan underwriting standards had been tightened, with the median credit rating at origin increasing by 3 points.
After the pandemic began, credit reporting agency TransUnion said the percentage of accounts entering “financial difficulty” status increased “dramatically” for credit products – including auto loans. . The percentage of auto loan accounts in financial difficulty rose to 3.54% in April, from 0.64% in March.
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Wells Fargo’s auto unit came under fire in 2018 after it was accused of forcing a car loan insurance program on hundreds of thousands of consumers who didn’t need it and mischarging consumers for it. certain mortgage interest rate lock-in extension products. He paid $1 billion to settle those charges with the Consumer Financial Protection Bureau.
The bank has come under scrutiny after it was revealed that employees were creating fraudulent accounts for customers without their approval.
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