Wells Fargo is putting a cap on potentially risky auto loans, The New York Times’ Michael Corkery and Jessica Silver-Greenberg reported.
The move could help to cool down what’s currently a red hot market.
One of the largest auto lenders in the country, Wells Fargo is also known for its good risk management — especially after avoiding most of the damage other banks faced from risky mortgage loans during the financial crisis.
Now, executives have decided to cap subprime auto loans — made to borrowers with poor credit ratings, often at unfavorable interest rates — at 10 per cent of total car loans.
Though the subprime car loan market is tiny compared to the size of the subprime mortgage market before the financial crisis, the number of these loans has more than doubled since then, the Times reported. Repayment periods have ballooned to 84 months, and the loans have grown larger than the actual values of the cars.
Now let’s see who follows Wells Fargo’s lead.