Since 2010, there has been a rapid growth in the U.S. car loan industry. A new report from Bloomberg indicates borrower fraud is soaring, and we may soon near a bursting bubble, similar to what we saw with the housing crisis.
It’s estimated as many as 1 percent of car loan applications in the U.S. contain some type of material misrepresentation, according to Point Predictive, a data analytics company cited by Bloomberg. That’s close to the just-over-1-percent of fraud we saw in U.S. mortgages back in 2009, when the housing market financial crisis was in full swing.
The good news is the economic fallout is likely to be much less earth-shattering (for most of us) because there is simply less outstanding debt on automobiles as there are on houses. Still, there are some uncanny parallels between the mortgage and auto industries in terms of the growth of this type of fraud. While we don’t know just how widespread the problem was prior to 2009 (lenders weren’t reporting information to each other and often weren’t investigating such incidents on their own), it does seem as if we may be on a similar track.
Although some of this fraud can be perpetuated by consumers (i.e., lying about jobs or income, falsifying paystubs, etc.), it’s also been known to be perpetuated by car dealers. In some cases, dealerships may be fudging this information. In other cases, where there is an application for a loan, they may be lying about the value of the vehicle or the type of car being financed in order to simply secure the loan.
Point Predictive noted that just 3 percent of auto dealers could potentially be responsible for all of a single lender’s fraudulent loan applications, an issue that is expected to result in up to $6 billion in losses this year – double what it was in 2015.
That too is very similar to the situation with the housing market, when approximately 3 percent of mortgage brokers were responsible for all or most of the fraud that was reported.
Part of the issue is that loans for cars don’t require much if at all verification on certain elements, such as one’s salary, employment or other financial health. In one case, a borrower indicated she made nearly $7,000 a month when in reality, she only mad about $3,3,00 a month.
Our Miami debt defense attorneys can see where this is headed. As it now stands, the aggregate amount of outstanding auto loan debt has climbed more than 50 percent in the last seven years. Among subprime auto loan borrowers, delinquencies are soaring, reaching more than $1 billion at the end of last year.
Loan terms have been getting longer – in some cases up to 7 years. Because we know the value of new cars drop sharply just in the first few years, the car doesn’t maintain its value through the life of the loan, leaving car buyers underwater.
The Federal Reserve indicated recently it would be tightening its underwriting standards for auto loans, so that may help stem some of the problem. Cities that reportedly are known to be problem areas included Miami and Fort Myers.
If you’re battling debt collection in Miami or the surrounding areas contact Jacobs|Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs and Court Keeley,” discussing foreclosure topics that matter to YOU.
Auto loans are experiencing a toxic trifecta, June 14, 2017, By Wolf Richter, Wolf Street, Business Insider
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