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AFSA NYT Letter to the Editor Regarding Subprime Auto
By Chris Stinebert 

Contrary to what Jessica Silver-Greenberg and Michael Corkery might have you believe in their July 19 article, In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates, there is no bubble forming in subprime auto. The auto market, like other sectors, is cyclical. Looking at trends over a 12-month period without considering historical data does not provide an accurate picture.
 
According to data from Experian Automotive, in the first quarter of 2014, the share of used subprime loans was lower than in the first quarters of 2013 and 2012, but a little higher than in the first quarters of 2011, 2010 and 2009. Likewise, the volume of outstanding auto loans that are non-prime has seen a gradual uptick in the past few years.
 
The S&P/Experian Consumer Credit Default Indices showed that the auto loan default rate hit a historic low in April 2014, at 0.92 percent. Thirty-day delinquencies are at their lowest level since 2007, while 60-day delinquencies show a slight variance both up and down over the last four years, based on a first quarter trendline from Experian.
 
“Sky-high rates” are the exception, not the rule. According to Experian, the average rate for an auto loan across all risk levels in the first quarter was 7.18 percent, 4.54 percent for new, and 9.01 for used. The overall rate ticked up from 6.92 percent in the first quarter 2013, but had been trending downward since 2008.
 
Auto-backed securities performed well during the recession, because there is no such thing as an exotic auto loan. And as the article pointed out, the collateral on an auto loan can be recovered a lot more quickly than on a mortgage loan. Unlike houses, autos are a depreciating asset and lenders calculate this loss of value into their loans.
 
Even by the authors’ own admission, repossessions are relatively low. The number of repossessions has increased in the last two years, but had decreased the two years before that.
 
When put in historical context, the numbers do not indicate a bubble in the auto sector.
 
Autos are essential for many people, whether for transportation to work or medical appointments. Consumers from all walks of life and parts of the credit spectrum need access to affordable credit to be able to meet their needs. An increase in subprime loans means that more working class Americans have transportation when that could be the difference between having a job or not.
 
AFSA and its members believe that all fraud is inexcusable. The examples of fraud highlighted in the article underscore the need for lenders to maintain strong compliance management systems to weed out bad actors and promptly address any instances of illegal behavior. Many lenders already have these systems in place.
 
Chris Stinebert is the president & CEO of the American Financial Services Association (AFSA), the national trade association for the consumer credit industry, protecting access to credit and consumer choice. AFSA represents the majority of vehicle finance sources in the U.S.


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