CFPB highlights potential impact of high vehicle costs on consumers with high subprime credit scores
In a September 28, 2022 blog post, the CFPB examined the potential impact of rising vehicle prices on consumers with high subprime credit scores, concluding that they are particularly likely to be financially vulnerable.
This is the second CFPB blog post in a matter of weeks examining the impact of rising vehicle costs on consumers. The first, published on September 19, 2022 and discussed here, focused on the impact of cost increases on consumers using information from consumer credit reports. The new blog post is based on data from Velocity Risk℠, a statistical database containing anonymized vehicle and vehicle loan information drawn from vehicle titles and registrations, auto lenders and auto manufacturers. Both messages come to a similar conclusion – that rising vehicle prices may have a financial impact on consumers with lower credit levels.
The blog post divides borrowers into one of four credit tiers: (1) “deep subprime” (with credit scores below 540), (2) “subprime” (with credit scores between 540 and 619), (3) “non-prime” (with credit scores between 620 and 679) and (4) “prime” (with credit scores of 680 or higher). Analyzing subprime deep buying, the authors conclude:
- Vehicle prices appear to have risen fastest for consumers with high subprime credit scores. The authors point out that consumers with deep subprime credit scores, who have less of a financial cushion to absorb higher vehicle prices, might have reacted by buying cheaper vehicles. This likely means that these consumers would buy used cars instead of new ones. Referencing the CFPB’s first blog post on rising auto prices, the authors point out that between July 2020 and July 2022, new car prices increased by around 20%, but new car prices used cars increased by around 40%, meaning that rising used car prices would more likely impact deep subprime mortgages. borrowers. Consistent with this thesis, the data analyzed by the authors shows that the median value of vehicles purchased by consumers with deep subprime credit scores has increased by approximately 60% since 2019, roughly double the 30% increase. the median value of vehicles purchased by borrowers with prime credit ratings.
- Large subprime consumers seem to have been pushed out of the market, at least temporarily. While other studies have shown no decline in vehicle purchases since 2019 in response to rising prices, the authors conclude that sales to deep subprime borrowers have been 10-40% below 2019 levels in over the past two years. The authors note that they had no data available to shed light on what these consumers were doing as an alternative to purchasing a vehicle, such as keeping their existing vehicle longer or using public transportation.
The American Financial Services Association (“AFSA”) responded to the CFPB blog post saying, “It is reassuring to see policymakers in Washington share the same concerns as AFSA regarding potentially unreachable subprime consumers. credit, in this case for vehicle financing. The CFPB message is also a timely and helpful reminder that there are policies, such as interest rate caps on small dollar consumer loans, that also severely impede access to credit for many consumers. of subprime mortgages in difficult times like these, and that policymakers can guarantee. not harm consumers.
We note that the blog post includes a disclaimer stating that the opinions are those of the authors (Jonathan Hawkins-Pierot and David Low), and not those of the CFPB. However, the two recent blogs focusing on subprime and deep subprime auto loans, and the main conclusion of the authors of the last article – that “the rapid increase in vehicle prices has had the greatest impacts on the most vulnerable consumers – should signal to auto finance companies that the CFPB will review the marketing, lending, servicing and collection of auto loans, particularly in lower credit tiers.