At the end of 2018, an all-time high of 7 million people were 90 days or more behind on their car payments — 1 million more than had fallen that far behind in 2010, when the country was recovering from the Great Recession — researchers with the Federal Reserve Bank of New York said Tuesday. That’s particularly concerning because the U.S. unemployment rate is around 4 percent, the job market is generally quite strong, people are taking out auto loans at record levels, and the “overall auto loan stock is the highest quality” since the Fed started keeping the data in 2000.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market and warrants continued monitoring and analysis of this sector,” researchers with the Fed wrote in a blog post Tuesday.
The data may also indicate that predatory lenders are pushing loans on vulnerable people with more debt than they can afford.
Many American auto loan borrowers have high credit scores and are able to borrow from stable lenders like credit unions — and there are more people taking out these loans, according to the Fed. But those “prime” borrowers entering the market may be obscuring the fact that more Americans are taking out subprime loans as well. The bulk of the past-due car payments is among younger people with lower credit scores.
Those borrowers might be more likely to turn to sketchy auto finance companies or payday lenders than to banks or credit unions. According to the Fed researchers, 6.5 percent of auto finance loans are 90 days or more past due, compared to 0.7 percent of loans originated by credit unions. The auto finance loans are more likely to carry high interest rates.
A December analysis from the Urban Institute, a nonpartisan think tank based in D.C., found that Americans of color carry less auto debt than their white peers but are more likely to be delinquent on those loans. The loan delinquency rate among people of color who borrowed money for a car is 7 percent; among white Americans, it’s 3 percent.
The Trump administration’s Consumer Financial Protection Bureau recently announced it wants to scale back an Obama-era regulation on vehicle title and payday loans that holds the lender responsible for figuring out whether borrowers can afford to repay their high-interest loans. The bureau argued in its proposal that those regulations could’ve restricted Americans’ access to credit.
“Predatory lending practices and a lack of real transportation options leave many households trapped in debt with few ways out,” Faye Park, president U.S. Public Interest Research Group, told the Washington Post.
Cover: In this March 12, 2018, file photo a long row of 2018 Countryman models is shown at a Mini Cooper dealership. (AP Photo/David Zalubowski, File)