SAN FRANCISCO—Wells Fargo, which is one of the largest subprime auto lenders in the U.S., said it is dialing back its lending to the market.
Wells Fargo is limiting to 10% of its overall auto loan portfolio the dollar volume of subprime auto originations it will make. The bank made $29.9 billion in auto loans during 2014, according to The New York Times.
The Times reported that Wells Fargo is concerned that the subprime auto loan market is overheating, and that it’s time to manage risk by slowing loan volume to borrowers who typically have credit scores at or below 640. The decision by Wells Fargo is also impacting other lenders that may follow its lead, according to the Times.
One sign of how hot the market has gotten: in Q2 2014 some $20.6 billion in subprime auto loans were made, almost two times more than the same quarter in 2010, -according to the Times. Among Wells Fargo’s concerns is looser lending practices that have included longer terms and increased balances. A secondary concern: a plunge in the value of used vehicles.
The Times noted that losses on investments backed by subprime auto loans in January reached their highest level since 2009, according to a report last week by Fitch Ratings, with the percentage of loans that were delinquent by 60 days or more rose to 4.7% in January, up 24% from the same period in 2014.