Capital One Financial Corp. has accelerated its process for charging off auto loans for consumers who file for bankruptcy protection, as the bank moves to a “more conservative practice,” Chief Financial Officer Scott Blackley said on the bank’s fourth quarter earnings call. Specifically, Capital One will charge down a loan to the estimated collateral value within 60 days of receipt of the bankruptcy notification — regardless of whether the consumer is current on loan payments, Blackley explained.
Previously, Capital One avoided charging off a loan if the consumer was making payments. “Our past practice has been pretty much where others have been in the industry,” Blackley said, adding that the more conservative stance is “consistent with how regulators prefer big banks like us to manage things.” As Capital One processes its existing portfolio of bankrupt accounts, it expects to see a “one-time larger impact” in the first half of the year, he said. “So, you will see a bubble in 2017, and then you’ll see that start to settle down,” he added.
To that end, Capital One has set aside $62 million to cover the anticipated spike in charge-offs. In the fourth quarter, charge-offs fell to 2.07%, down 3 basis points from the same time a year prior, but up 22 basis points from the third quarter. Capital One originated $6.5 billion of auto loans last quarter, up 31% year over year.
