On September 19, the Consumer Financial Protection Bureau (CFPB) released a blog post, exploring the potential relationship between rising car prices and changes in auto loan performance. The CFPB found that the rate of delinquency, especially for low-income borrowers, has risen over the past year. For example, auto loans for consumers with deep subprime credit scores were 2.4% delinquent two quarters after origination, which is a 33% increase from the previous five-year high set in 2020. While the CFPB could not fully attribute the rising cost of cars to the rise in delinquency rates, “we cannot ignore the relationship between larger loan amounts and increasing interest rates to consumer’s monthly budgets and some consumers’ struggle to stay current on their loans.”
Among other findings from the blog, the CFPB reported:
- The average price for new vehicles reached a record high of $48,182 in July, while the average price of used vehicles is $28,219, just below the record high set in April.
- Researchers at the Federal Reserve Bank of New York found that higher vehicle prices are a significant factor driving larger loan amounts.
- There continues to be a gradual increase in loan term lengths as compared to pre-pandemic growth rates.
- The combination of comparatively gradual loan term length growth, a relatively sharper increase in vehicle prices, and higher interest rates appears to have led to an increase in average monthly payments.
The post concluded that when looking at delinquency in the first two years after purchase, loans originated in 2021 and 2022 are starting to show higher delinquency rates relative to loans originated in previous years. For example, auto loans originated in 2021 have a delinquency rate of 0.67% in the sixth quarter after origination, which is 13% higher than the delinquency rate of auto loans originated in 2018. This trend is even more pronounced for consumers with subprime and deep subprime credit scores.
The CFPB’s most recent blog post follows a February post, which we reported about here, outlining regulatory priorities in the auto finance market, including steps that the CFPB planned to take to make the market, in its view, more fair, transparent, and competitive.
Additionally, as we previously posted here and here, on June 23, the Federal Trade Commission (FTC) released a proposed Motor Vehicle Dealers Trade Regulation Rule. The new rule could allow the FTC to regulate dealers exempt from CFPB jurisdiction under Section 1029(a) of the Dodd-Frank Act and would impose significant limits on how dealers advertise, impose up-front price disclosure requirements, require new paperwork for any optional “add-on” products, and prohibit a laundry list of specific kinds of misrepresentations in the sales process.
These actions show that auto finance is still very much on the radar of the top federal regulators.