The Office of the Comptroller of the Currency, a government entity that regulates and supervises banks, is sounding the alarm regarding risks related to auto loans.
In its semi-annual report released earlier this week, the OCC warned about the usual factors that TTAC has been discussing for some time: rising loan terms, an increased focus on monthly payments and deteriorating underwriting standards
Across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates,
and originating loans to borrowers with lower credit scores. Loan marketing has become increasingly
monthly-payment driven, with loan terms and LTV advance rates easing to make financing more
broadly available. The results have yet to show large-scale deterioration at the portfolio level, but signs
of increasing risk are evident. Average LTV rates for both new and used vehicles are above
100 percent for all major lender categories, reflecting rising car prices and a greater bundling of add-on
products such as extended warranties, credit life insurance, and aftermarket accessories into the
The average loss per vehicle has risen substantially in the past two years, an indication of how longer
terms and higher LTVs can increase exposure. Average charge-off amounts are higher across all lender
types over the last year. These early signs of easing terms and increasing risk are
noteworthy, and the OCC will continue to monitor product terms and risk layering practices to ensure
that banks manage growth and exposure prudently.
The OCC report did not single out subprime loans specifically, but instead focused on the entire auto loan sector. The full report is available here.