Auto lenders should review their borrower accounts more often to offset the risk of rising delinquencies as consumers face inflationary pressures.
Account reviews can yield data that lenders can use to identify consumers who are falling behind on their debt, Tom Aliff, risk consulting leader at Equifax, said during the company’s market pulse webinar Dec. 7.
“Focus on helping find those pockets of consumers in your portfolio who are struggling,” he said. “A shift in any form of delinquency will help drive downstream impacts. If a credit card moves into delinquency status, that will impact [the consumer’s] ability to pay other bills downstream. Those things are accessible through a more frequent [account] review.”
Data is available to help financiers track where delinquencies may see an uptick, Aliff said.
“We can run stats today and see what the average monthly auto payment is and where delinquencies occur,” he said. “Knowing that in the market, over 15% of consumers that have an auto loan have had a payday loan at one time in their life … is a remarkable stat.”
Financiers also need to “remove the blind spots” and get notifications of any changes in consumer credit as a whole, Aliff said.
“All of those things … are ways that you can reduce your risk within the portfolio,” he said.
Subprime share falls, DQs rise
Auto lenders must review accounts as delinquencies are rising, especially in the subprime space, Aliff said.
“The subprime population is experiencing harder financial stress,” he said. “That population has shrunk, but we’ve seen delinquencies rise.”
Subprime share of auto loan balances has fallen to about 12.6% year-to-date, marking the lowest subprime market share in over a decade, Jesse Hardin, senior risk adviser at Equifax, said.
Auto loan and lease originations climbed to $505 billion YTD, up 8.5% compared with the same period a year ago, Hardin said. Auto 60-day delinquencies reached “a peak” of 1.46% of balances in October, he said, adding that rates remain below all-time highs seen during the Great Recession.
“Increasing interest rates and the result of the Fed policy on consumers has decreased the willingness of consumers to originate new mortgage and auto trades,” Hardin said.
