Bank of America revs up auto loans business despite warning signs

Thu Mar 3, 2016 1:00am EST
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By Dan Freed

March 3 (Reuters) - Bank of America is making a big push into auto lending just as regulators are sending warning signals, losses from auto loans are rising, and rivals are growing more cautious after years of strong returns.

The bank tapped mortgage executives Matt Vernon and John Schleck to lead the auto lending business last May, saying they would be able to sell auto loans alongside other products such as checking accounts and home equity loans.

In interviews, the executives and their boss, D. Steve Boland, who oversees a broad swath of consumer lending, said they still see room for growth from borrowers who have good credit. They have hired extensively in recent months, adding dozens of loan officers and salespeople.

But some competitors and bank analysts said hiring doesn't make sense at this stage, because auto sales may be close to peaking, and consumer credit is showing signs of weakness.

Industry-wide, banks classified $1.1 billion worth of auto loans as uncollectible in the fourth quarter, according to the Federal Deposit Insurance Corp. That is up 15 percent from the year-ago period, and up 39 percent since the fourth quarter of 2011. Ultimately, much of that bad debt turns into losses for the banks.

For a graphic showing auto loans that are 30-89 days past due and an auto sales projection, see

"I'm not actively hiring or growing our operations across the platform. That's for sure," said Andrew Stuart, head of TD Auto Finance, which is slightly smaller than Bank of America's auto business.

At a Feb. 10 conference, Capital One Financial Corp CEO Richard Fairbank said that while auto loans provided "once in a lifetime type returns" after the financial crisis, the business has begun to lose strength. In a January interview on CNBC, JPMorgan CEO Jamie Dimon called the market "stretched."   Continued...