Regulators are expressing their concerns for the financial health of consumers as lenders continue to offer payment relief options for borrowers negatively impacted by the coronavirus.
This week U.S. Senators Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio), who are ranking members of the Senate Banking Committee, wrote a letter to Consumer Financial Protection Bureau Director Kathy Kraninger addressing concerns about the auto loan market and citing “troubling trends” in high levels of debt, record delinquencies, and “abusive practices by lenders in the market,” the senators wrote.
Auto loans are the third-largest category of consumer debt, behind only mortgages and student debt, the lawmakers noted in their letter. Further, by yearend 2019, there were more than 115 million auto loan accounts open, and the total outstanding auto loan debt associated with these accounts totaled $1.33 trillion.
“More troubling, the percentage of that debt that is severely delinquent has returned to levels not seen since the financial crisis,” the senators explained. The lawmakers have requested responses to their letter by March 26.
Despite concerns from Warren and Brown, the consumer watchdog has its eyes on the payment relief options several auto lenders have announced this week.
In fact, the bureau’s Auto Finance Program Manager Damion English shared his thoughts, via his personal LinkedIn account. In a post, English said, “four months of interest accrued on a payment extension, especially on a long-term loan, will cost the customer in the long term, and that interest also accrues interest. Consumers should understand and receive proper disclosures that there is a cost to an extension.”
No interest deferments are more beneficial to the customer, English continued, adding, “I understand this may help, but ‘no interest’ deferments will help consumers today and in the future. It would be interesting to see how much interest earnings are made during this pandemic.”
This week banks Capital One and Ally Financial have released payment relief options for consumers. Meanwhile, captive financiers GM Financial, Ford Motor Credit, NMAC, Hyundai Capital America, and Toyota Financial Services have announced support for dealers and borrowers impacted by the pandemic.