The coronavirus has idled a variety of lending, as banks and other financial services firms eye consumers with wariness. Unemployment, in the end, has skyrocketed, indicating that household cash flow is dicey, and remaining current on debt may not be surface of mind.
To that end, Wells Fargo is putting the brakes on much of its lending to independent car dealerships. The loans can be purchased to end customers who in turn finance their vehicle purchases.
In an e-mail to Fox Business, an unnamed spokesperson said the financial institution would only continue lending activity with dealers where \”deep, longstanding relationships\” have established yourself.
\”As an accountable lender, we also have a duty to review our business practices considering the economic uncertainty presented by COVID-19, and also have allow the majority of our independent dealer customers realize that we will suspend accepting applications from their store,\” the statement said.
For Wells, the hit, at least short-term, could be felt across a loan book that stood at more than $48 billion in the close of the first quarter of 2022. Car loan origination was up 19 percent year on year to $6.5 billion. Independent dealers are about 10 % of the 11,000 dealer roster that Wells uses to sell those loans. Roughly speaking (very roughly), all else being equal, assuming the independent dealers are associated with a commensurate number of loan activity, what this means is a $650 million hit to loan originations.
Beyond the Wells-specific impact looms a bigger, more ominous signal: Individuals are having problems carrying these payments, which in a good economy can be significant.
As estimated through the Federal Reserve Bank of New York, total household debt increased by 1.1 percent within the first quarter of 2022, up by $155 billion to $14.3 trillion. Digging a bit deeper in to the numbers, auto loans were up by $15 billion within the quarter. And in this subset of lending, serious delinquency rates for automotive loans recently stood at 2.4 percent. The Fed noted in its recent are convinced that there has been a little bit of credit tightening, as there has been a three-point rise in the median originating credit score.
\”The volume of subprime auto originations was $28 billion, an amount on par with the last several years,\” said the Fed.
Separately, TransUnion reported the number of auto loan accounts in hardship as of April stood at 3.5 percent, up from about 50 basis points a year ago and up 64 basis points from March of this year.
In addition, as PYMNTS has reported, 60 % of consumers live payday to payday – indicating that when the paychecks stop (which, of course, is becoming an all-too-common experience), paying down those loans becomes a juggling act, when the loans get paid at all.
