Exclusive: U.S. regulators press banks for more on auto loan exposure to assess risks

Sun Oct 12, 2014 2:58pm EDT
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By Peter Rudegeair

NEW YORK (Reuters) - U.S. regulators are asking banks for more detail on their autos financing exposure, as rapid growth in the lending has prompted officials to seek to better assess the risks, according to a person familiar with the matter. 

Balances remaining on auto loans have risen by about a third since April 2011, reaching an all-time high of $924.2 billion in August, according to credit reporting bureau Equifax. About a fifth of the loans are subprime.

Banking regulators fear that reckless lending may be at least helping to fuel that growth, and there are early signs that delinquencies are increasing in the sector.

The Consumer Financial Protection Bureau said in September that it is taking steps to oversee auto lenders that have previously been less regulated, and companies like GM Financial and Santander Consumer USA Holdings Inc disclosed earlier this year that the Department of Justice is looking into their auto finance practices,

The person familiar with the matter said regulators are asking banks for information about not just loans they made, but financing they have provided to other lenders in the sector, such as credit lines to finance companies. At least one regulatory agency is looking at this area, according to the person, and it was unclear if other agencies were also looking. The Federal Reserve, Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp, and state agencies all regulate U.S. banks.

Getting a handle on this information is difficult for regulators, but is also vital. During the financial crisis, banks often publicly disclosed the total mortgages they held and how many of those were subprime, only to reveal months later that they had tens of billions of additional exposure from secured loans to subprime mortgage finance companies, subprime mortgage bonds that were packaged into new bonds, and so on. These extra exposures turned what seemed like manageable problems into catastrophes that threatened the entire financial system.



A potential customer looks at a 2009 Chevrolet Impala sedan at a car dealership in Dearborn, Michigan December 29, 2008. REUTERS/Rebecca Cook