Would you buy a subprime-loan crisis from this man? A new New York Times investigation reveals that used car dealers are doling out giant loans to millions of poor Americans with bad credit. Many of these dealers are using the same negligent lending tactics that subprime mortgage lenders used before the 2008 financial crisis, including ignoring or fabricating information about borrowers income, employment, and ability to repay. Even though this new subprime market is a fraction of the size of the mortgage market, the used-car loan bubble poses substantial risks to banks still recovering from the recession. Delinquent loans are piling up. Banks had to write off an average of $8,541 on each delinquent auto loan in the first three months of 2014, the Times reports. The Office of the Comptroller of the Currency, a federal Wall Street regulator, has warned that banks are taking on too many low-quality auto loans. And its not just banks that would be affected if too many used car loans go sour. Auto lenders are pooling bad loans just as subprime mortgage lenders did, and then slicing them up and selling them to investors including hedge funds and pension funds. One of the main reasons car dealers are courting another subprime meltdown is that congressional Republicans pushed to amend the 2010 Dodd-Frank financial reform bill in order to exempt auto dealers from oversight by the Consumer Financial Protection Bureau (CFPB). Granted, lawmakers from both parties were under lots of pressure from dealers as the massive legislation was being drafted. Between 2009 and 2010, the industry spent nearly $8.5 million on lobbying. The industry argued that because it was part of Main Street, not Wall Street, car dealers didnt need to be included in the Dodd-Frank bill, which was designed to prevent the kinds of high-finance shenanigans that caused the 2008 financial crisis. The dealer exemption ultimately made it into the House bill because Democrats jumped on board, says one consumer advocate who opposed the provision, but Republicans were certainly the main driver behind the exclusion. -Erika
Posted on: Tue, 22 Jul 2014 18:00:00 +0000
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