BHCs in the Cleveland Fed’s region have maintained a stable volume of subprime auto loan originations, according to Fed examiners

Auto lending by banking institutions, automobile financing companies, and auto dealers has climbed since 2011—and with it, so has subprime auto lending—but bank examiners at the Federal Reserve Bank of Cleveland say that bank holding companies (BHCs) in their region have not grown their subprime auto lending portfolios as much as others, particularly nonbanks.

The share of total auto loan originations that is subprime has exceeded 20 percent since the third quarter of 2011, according to data from the Federal Reserve Bank of New York Consumer Credit Panel, Equifax, and Haver Analytics. However, none of the banks and BHCs that participate heavily in the subprime space is based in the Fourth District, says Cleveland Fed examiner Michael R. Metalonis, who notes that a lot of the subprime originations are occurring outside of banks, in auto finance companies.

Metalonis says examiners are seeing increasing risk in auto lending because of layering in risk: a combination of lower FICO scores, longer terms, and higher advance rates. “The combination of these tends to lead to higher default rates and higher losses over time,” says Metalonis.

Driven by demand for new and used vehicles, total auto loans and leases have topped $1 trillion. Cleveland Fed examiners see signs that the multi-year acceleration in auto lending will abate in coming years.

To find out more, see Auto Loans Reach Trillion-Dollar Heights, but is Deceleration in Sight?

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.455.4479