The New York Times reported that the US Department of Justice has issued a subpoena to General Motor's finance subsidiary. The DOJ subpoena specifically asks for information about auto loan underwriting criteria and how loans are securitized and sold to investors.
The same NYT article noted that the office of US Attorney for the Southern District of New York is also investigating the subprime auto lending market. US attorney Preet Bharara is reviewing the soundness of auto loan securities and whether the credit-worthiness of borrowers was accurately conveyed to investors.
In response to this news, CRL senior vice president Chris Kukla said:
We are immensely gratified by the actions of the Department of Justice and the US attorney in New York – we have an opportunity to take strong, decisive action to curb the abuses in subprime auto lending.
CRL has long documented the risks of subprime auto lending that echo similar practices in the run-up to the mortgage crisis; inappropriate dealer compensation that provides an incentive to increase the interest rate, the lack of underwriting criteria, and the lack of transparency to both borrowers and investors. With prompt regulatory actions, we can avoid economic turmoil in this market caused by irresponsible and predatory lending.
Some of CRL's keys recommendations include:
- Eliminate dealers' ability to manipulate interest rates (often called "dealer markup")
- Investigate whether loans were made with due regard to the borrower's ability to repay, and take action with dealers and lenders who did not, and,
- Take action on other abusive practices, like yo-yo scams and issues with the sale of add-on insurance products.
For more information on auto loan financing and predatory auto loan practices, please contact Catherine An at 202-349-1878 or catherine.an@responsiblelending.org. Recent CRL reports on auto loan financing include:
The State of Lending: Auto Loans
Deal or No Deal: How Yo-Yo Scams Rig the Game against Car Buyers
Under the Hood: Auto Loan Interest Rate Hikes Inflate Consumer Cost and Loan Losses