A full year since Wells Fargo Dealer Services began tightening its auto underwriting standards, delinquencies and charge-offs continue to rise by double-digit percentages, the company disclosed in fourth-quarter earnings today.
Wells Fargo began tightening its underwriting standards and shrinking its portfolio in 4Q16, and the lender anticipates those portfolio declines to continue through 2018. However, the tightening has not stemmed the loss and delinquency rate.
Loans 30 days or more past due grew to $1.9 billion, a 12% increase year over year. Likewise, charge-offs rose by 13% to $188 million.
The company’s auto portfolio declined 14% to $53.4 billion, which has contributed to the lender’s rise in delinquencies and charge-offs as a percentage of the overall portfolio.
Delinquencies of 30 days or more past due rose to 3.5% of the overall portfolio, compared with 2.7% during the same quarter the year prior. Meanwhile, charge-offs rose nine basis points to 0.35% of the portfolio.
The severity of the charge-offs are largely due to “seasoning of 2016 originated loans” as well as a moratorium on “certain repossessions” for consumers affected by the force-placed insurance scandal that broke last year. The company improperly charged consumers for insurance they did not need, which sent many into delinquency and eventually repossession. Wells Fargo has proactively paid $80 million in remediation to a pool of affected consumers, however, the Office of the Comptroller of the Currency is investigating whether or not that is a sufficient amount to cover all the borrowers impacted by the policy.
Wells Fargo also owns the largest auto lending arm in Puerto Rico, Reliable Financial, which holds a $1.9 billion portfolio. Due to the damage from Hurricane Maria, the bank offered to defer payments for up to 90 days. Those who took advantage of the offer in September will have to begin making payments again despite continued recovery efforts in the U.S. territory.
The bank’s originations continue to decline amid the pull-back strategy. Wells Fargo originated $4.3 billion of auto loans in the fourth quarter, down 33% year over year and flat compared to the previous quarter.
