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Are Dealership Financial Products ‘Unfair?’ | DrivingSales News

Are Dealership Financial Products ‘Unfair?’

January 16, 2015 0 Comments

The Center for Responsible Lending has a new report out that digs into some of the statistics related to subprime auto lending. Some of the findings of the report include that subprime auto loan balances reached a record $870 billion for the 3rd quarter of 2014, an increase of 24.5 percent from the same quarter in 2012. Also 38.7 percent of all open auto loan accounts were to borrowers with below prime scores, totaling $336 billion. Subprime auto lending appears to be rising.

A Federal Reserve report from August of 2014 said in part, “The dollar value of Originations to people with credit scores below 660 has roughly doubled since 2009, while originations for the other credit score groups increased by only about half.” While some may not be concerned that subprime auto loan rates are up, they may care that repossession are in some cases, skyrocketing. The CRL report says that in every quarter since the third quarter of 2013, repossession rates have gone up over the previous year.

The report also points to Q2 of 2014, which at a 70 percent higher repossession rate than the same quarter in 2013. The report also pointed out that subprime auto loan delinquency rates of 30 or 60 days didn’t change very much while the repossession rate shot up. This graph shows those 30 and 60-day delinquency rates stayed the same or increased slightly, while repos shot up. The report speculates delinquency rates have remained artificially low due to quick vehicle repossessions.

The report also raised concerns about dealer profit made in financing. The CRL report points to financial add-on products as a negative that could impact the subprime auto lending market. The report reads in part, “The practice of dealer interest rate markups has shown to promote significant unfairness in the market.” The report also went on to also posit that the financial side of a dealership should be more closely regulated. The report reads, “Dealers already receive compensation in forms other than interest rate markup, and those other forms have far less risk of discrimination and unfairness than interest rate markup.”

The report also spoke about alleged cases of racial lending discrimination at a dealership level. What are your thoughts about further financial regulation at dealerships? What do you make of the rising repossession rate? Is a subprime auto lending bubble both in existence and primed to burst?

About the Author:

The DrivingSales News team is dedicated to breaking the relevant and the tough stories affecting car dealers. Have questions for DrivingSales News? Reach the team at news@drivingsales.com.

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