Capital One Financial Corp.’s auto charge-off rate rose 42 basis points year over year — to 1.25% — in the second quarter due to an accelerated policy for charging off bankrupt accounts, Chief Executive Richard Fairbank said on an earnings call.
In the fourth quarter of 2016, Capital One adjusted charge-off timing to charge down a loan to the estimated collateral value within 60 days of a bankruptcy notification receipt — regardless of whether the consumer is current on loan payments. Previously, Capital One avoided charging off a loan if the consumer was making payments.
“Continuing throughout 2018, we expect these accounting changes to increase annualized charge-off rates by 15 to 20 basis points, after which the effect begins to reverse over time,” Fairbank said.
Capital One originated $7.5 billion in auto loans in 2Q17, up from $6.5 billion in the prior-year quarter.
“Competitive intensity in auto finance remains a bit muted, which continues to contribute to our growth,” he said. However, the bank’s underwriting “assumes a decline in used-car prices, and we’ve dialed back on some less resilient programs, even as our overall originations have grown,” he said. “As the cycle plays out, we continue to expect the charge-off rate will increase gradually and that growth will moderate.”