Lenders Should Tighten Credit Ahead of Looming Recession, Economist Warns

FORT WORTH, Texas — With a 60% chance that a mild recession will occur by 2020, lenders should start preparing for a downturn, said Cox Automotive Chief Economist Jonathan Smoke.

In a thriving economy, lenders tend to take more risk with loans, which can lead to problems if they don’t tighten underwriting standards in advance of a recession. Planning ahead and calculating for risk when pricing loans will reduce a lender’s chance of going out of business in a recession, Sonia Steinway, president of Outside Financial, an online platform that helps consumers arrange financing, told Auto Finance News.

However, factors such as whether the recession is tied to a specific lending product, for example, or what credit spectrum the lender is in can play a role in how a lender performs during a recession, Steinway said.

“One thing the past recession showed us is you have to always be looking for it,” said Chris Mitcham, vice president of servicing at Security National Automotive Acceptance Co. “Look at what’s happening to us today that can impact us — whether good or bad — and make sure you’re positioned appropriately, because the people who do that are successful.”