Wells Fargo, the country’s fourth-largest bank, plans to impose a cap on auto loans for customers with bad credit — a move that comes amid a new boom in subprime lending.
The bank confirmed Monday that it will put in place a new cap to keep the volume of its subprime auto loans at or below 10% of its overall auto loan originations, which reached $30 billion in 2014. The news was first reported by The New York Times.
“We are firmly committed to responsibly offering access to credit to a wide spectrum of customers during all economic cycles,” a Wells Fargo spokeswoman said in a statement. “The percentage of originations we consider subprime based on our customised scorecard has remained generally stable at around 10% for more than a decade. In the fourth quarter, we formalised our existing risk management philosophy to manage overall subprime auto originations at 10%. This continues to ensure we’re responsibly managing risk while also tailoring our approach by local market.”
The Times added that Wells Fargo (WFC), which has a reputation in the banking industry for prudent risk management, could serve as a bellwether in an industry currently experiencing a boom in subprime lending that has been driven, in part, by an increase in subprime auto loans. The current boom comes less than a decade after the implosion of the subprime mortgage lending market in the lead up to the 2008 financial crisis, though the subprime auto lending market still represents a fraction of the size of the market for subprime mortgages.
There has been increasing concern of late over the potential for another subprime bubble. Last week, the nation’s acting Deputy Attorney General, Sally Quillian Yates, promised “to be on the lookout for, and head off, any potential threat” for fraud in the subprime auto lending market.
(CORRECTION: This article has been corrected to reflect the fact that the 10% cap is on Wells Fargo’s overall auto loan originations, which reached $30 billion in 2014. The article has also been update to include a statement from the bank.)