Is Auto Lending Becoming a Dangerous Game?

As regulators worry, losses pile up and rivals pull back Bank of America is revving up their auto loan business, but why? 

Since last May the bank has steadily increased their presence in the sector, hiring dozens of loan officers and salespeople according to Reuters.

However some competitors believe BoA’s moves don’t make sense at this point because auto sales may be on the verge of peaking.

“I’m not actively hiring or growing our operations across the platform. That’s for sure,” said Andrew Stuart, head of TD Auto Finance, which is slightly smaller than Bank of America’s auto business.

Even JPMorgan’s Jamie Dimon said the sector was “stretched”.

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Across the industry banks have deemed $1.1 billion worth of auto loans as uncollectable, up 15 percent from 2015 and up 39 percent since 2011.

Eventually bad debts turn into losses for the banks. Couple that with a decline on used car values and recovery rates fall even further. The longer the loan, the greater the risk and as the average length of new car loans pushes out to 67 months the risks will continue to escalate.

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