Subprime Loans: GM Financial Under Investigation

Subprime auto loans from GM Financial are being investigated in Florida. Pam Bondi, the Florida Attorney General, is investigating the loan underwriting practices of the lending arm of General Motors. A spokesperson for Bondi noted that, the AG’s office is, “reviewing the matter to determine whether any of the alleged conduct falls within our enforcement jurisdiction.” According to Bloomberg, GM Financial has confirmed that multiple state attorney generals and government officials are also requesting documents related to their loan practices.

This comes during a year when subprime auto lending has consistently made headlines. Chris Hentemann, who runs a hedge fund, told MSNBC, “when you lower your credit standards, eventually the bonds will default and they’ll fail.” Those bonds are the source of increasing scrutiny. Reports indicate Wall Street has sold $18.9 billion subprime auto loan bonded securities. If the current pace continues, it will be the most sold since 2006, before the subprime housing collapse.

The current concern isn’t that subprime auto loans are happening, but that there is a rise in payment defaults. A Standard & Poor’s report from October 22 referred to, “payments at least 60 days late rose to 3.99 percent of outstanding debt in August, up from 3.63 percent a year earlier.”

What does this continual narrative about subprime loans mean to dealerships? How much of your business involves these types of loans? Does it concern you that the Florida Attorney General is investigating the lending practices of a major auto lender?