As the growth of the auto loan market continues at an accelerated rate, regulators are stepping up their scrutiny, according to a recent Reuters report. Credit bureau Equifax says that auto loan balances were at $924.2 billion in August, up more than 30 percent since April 2011, but the real concern is the fact that a fifth of those loans are subprime.
While these numbers are nowhere near those of the subprime mortgage market prior to the housing crisis, regulators want to make sure that financial institutions aren't being too reckless and risking creating a new bubble. As this blog reported last month, the Consumer Financial Protection Bureau has begun looking more closely at loans from automakers' own lending branches, and now agencies are expanding that scrutiny to include financing provided by banks to other lending institutions.
This was a key factor during the housing bubble, when agencies kept tabs on subprime mortgages but not on indirect lines of credit. The auto loan market is about one ninth the size of the mortgage market, but regulators are taking fewer chances this time around.
"The subprime auto sector appears too small to present a systemic risk," said Bank of America Merrill Lynch economist Michael Hanson in a recent report. "It does not appear to be in bubble territory, but bears watching."
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