Is auto lending the new subprime?
by. Henry Meier
That’s the question posed by the New York Times in an article yesterday in which it seeks to sound the alarm: in a nutshell it argues that, just like the mortgage meltdown, major banks are loosening lending standards in an effort to ensure they have enough automobiles to meet Wall Street’s growing demand for securities comprised of auto loan pools. This is one of those times where I am glad that credit unions aren’t mentioned alongside the banks.
This is the type of article that gets regulators thinking that more needs to be done, so you may want to take a quick look to see how appropriate your underwriting standards are for auto lending. Here are some things to keep in mind.
The NCUA deserves credit for raising concerns about indirect auto lending long before it was trendy. The banks highlighted in the article are accused of hiding behind dealer practices when asked about questionable sales techniques and underwriting standards. But remember “the dealer made me do it” is no defense. This is particularly true for credit unions that have the added requirement of ensuring that any person taking out a car loan is a qualified member. As summarized succinctly in this indirect lending guidance from the NCUA from 2011:
continue reading »Indirect lending standards should be consistent with the credit union’s direct (internal) loan underwriting standards. The standards should be reviewed at least annually or more often if risk levels increase or if negative trends begin to surface. Exceptions to the indirect loan policy should be infrequent. All exceptions should be approved by credit union personnel responsible for administering the indirect lending program and reported to the board of directors for their review.