Auto debt is at a record $1.35 trillion with the 90+ day delinquency rate currently at 5.1 percent
COVID-19 regulatory guidance
In response to the COVID-19 pandemic, federal and state banking regulators have taken steps to mitigate the risk. Regulators have encouraged lenders to work constructively with borrowers to help slow the rising default rates and to reduce the negative effects on the auto lending industry overall.
What this guidance seems to indicate is that expectations for managing loan portfolios will remain largely unchanged. Any declines in collateral values will be considered, but a borrower’s ability to repay the loan remains key. The joint guidance also states that due to the “unique, evolving, and potentially long-term nature of the issues confronting institutions” from the pandemic, examiners will “exercise appropriate flexibility in their supervisory response.”
Credit risk is the primary financial risk in the banking system, and the ability of a lender to manage that credit risk is critically important. Under federal law, a financial institution can face criminal charges for engaging in “unsafe and unsound banking practices.” Enforcement agencies have typically viewed such practices as any action that exposes a financial institution, its customers, or its shareholders to the risk of loss that can qualify as a violation under federal law.