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CFPB expresses concern about the potential credit impact of high vehicle costs for consumers

In a blog post on Monday, the CFPB advised that it is concerned about the impact of rising car prices on consumer’s financial health, particularly consumers with sub-prime or near prime credit scores.  The most recent Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York concluded that the total dollar value of outstanding auto loans rose to $1.5 trillion last quarter, an increase of $33 billion from Q1 to Q2 this year.  Citing to a Q2 report from Experian on the State of the Automotive Finance Market, the CFPB reported the average price for new vehicles reached a record high of $48,182 this past July with the average used car sales price also hitting a near-record high of $28,219, approximately 15% and 35% higher than pre-pandemic levels, respectively. 

While acknowledging that specific economic trends cannot be isolated from this data, the Bureau notes the correlation between the increase in auto prices and the increase in size of newly originated auto loans.  Loan term lengths have also steadily increased, but not at the same rate as the total dollar amount of the average loan, resulting in higher average monthly payments across all credit tiers.

And while not controlling for other inflationary factors, the CFPB concludes that the increase in loan size and monthly payments are a factor in rising delinquency rates, which are especially high among consumers with sub-prime and deep sub-prime credit scores. 

We can expect the CFPB to continue to actively monitor the auto finance market, as the new data reinforces concerns it has expressed in the past regarding rising loan-to-value ratios for auto purchases.  In particular, rising delinquency rates could portend greater CFPB scrutiny of auto loan servicing and collections.

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