A fair, transparent, and competitive auto lending market – particularly as car prices, for especially used models, rise – will be a focus of the federal consumer financial protection agency, it said in a blog post Thursday.
The Consumer Financial Protection Bureau (CFPB) said, more specifically, that its efforts would be to ensure affordable credit for auto loans, monitor practices in auto loan servicing and collections, and foster competition among subprime lenders.
The agency said that increasing cost of automobiles is a major component of inflation, with manufacturers facing difficulties procuring chips that are a key component in cars. Therefore, the bureau said, manufacturers are producing fewer new cars. Used-car prices have risen even more, the bureau asserted. With those price increases, the CFPB said, come rising loan amounts and loan lengths, which combine “to make those larger loans seem affordable.”
“As a result, we expect that both the total amount of debt and the average loan size will continue to increase and that larger car loans will put increased pressure on some consumers’ budgets for much of the next decade,” the agency said. It also said it is concerned that high auto prices, especially for used cars, “might create incentives for lenders to repossess cars more quickly than would have occurred before.”
With those areas of focus, the agency said it will seek to:
- Ensure affordable credit for auto loans: The agency said it would continue to evaluate lending structures where lenders seem to rely on high interest rates and fees to profit even when consumers fail. The agency said it was also concerned about loan-to-value (LTV) ratios in the auto loan market, which were climbing prior to the global vehicle shortage. “We expect that trend to resume once price pressures abate. We will continue to monitor the market as pricing issues persist,” the agency said.
- Monitor practices in auto loan servicing and collections: The agency said it wants to ensure that incentives are aligned between servicers and consumers, that servicers are making accommodations available to all consumers, that servicer practices treat consumers fairly, and the special protections offered to servicemembers are followed and enforced. “Technology continues to shape auto loan servicing and collections, but with that comes questions about the effect on consumers. It is now less costly to repossess a car because many lenders require the use of some of these technologies,” the agency added. “We are concerned that the use of these technologies may disproportionally impact certain communities, and we are taking steps to better and fully understand their impact, including privacy concerns associated with them.”
- Foster competition among subprime lenders: The agency asserted that consumers with subprime credit scores often get loans indirectly through a smaller pool of lenders that operate exclusively through dealers or from buy-here-pay-here (BHPH) dealers that specialize in subprime lending. The result, the agency said, is less comparison shopping, fewer options, and less leverage to negotiate the interest rate. “We are looking to better understand potential barriers to competition in the subprime auto lending market that may drive these and related outcomes,” the bureau said. “We will continue to research auto lending policies and practices that may hinder a fair, transparent, and competitive market. And, we will work with our counterparts at the Federal Trade Commission and the Federal Reserve Bank Board of Governors to use our collective authorities to address issues in the market.”