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Auto Lenders Tighten Underwriting Criteria

May 5, 2003

Lenders tightened underwriting standards on automobile loans in 2002, and reported lower delinquencies and loan losses for the year, according to the Consumer Bankers Association's 2003 Automobile Finance Study.

According to the study, the influence of credit tightening was evident in a 7 percent increased average credit score for booked loans. Average new and used booked loan bureau credit scores were reported at 716 this year versus 668 last year. Leases had only a 1 percent (711 this year vs. 704 last year) credit score increase year-over-year.

All 53 respondents reported an overall average decline in originations of 5 percent year-over-year, although 2002 did represent the 4th highest sales year ever Despite these factors, the consumer is currently "in the driver's seat." Ted Brown, automotive finance practice manager for BenchMark Consulting International, which conducted the survey, states "the battle for market share along with incentive deals and low interest rates have provided consumers with great deals. It's a great time to get a new vehicle."

In spite of zero percent financing, the survey indicates that consumers preferred cash rebates for loans longer than three years. The survey found that rates charged on these loans were higher at captive finance companies (those owned by or under the control of carmakers) than at banks.

According to the survey, this change to expectation was perhaps based on the more restrictive credit requirements with zero percent financing. Additionally, loan application approval rate trends declined year-over-year on a 'weighted average' basis, reflecting a tightening of credit standards.

Dollar delinquencies retreated from the previous levels for both new and used vehicles reported in 2002. Surprisingly, gross and net credit losses were also reported as lower for new vehicles. However, used vehicles, as expected, reported higher charge-off levels.

The average new loan size increased from $20,656 to $21,779 or about a 5 percent increase, while the mean used vehicle loan size increased 12 percent from $14,707 to $16,542 in 2002.

New and used vehicle loans continue to be trending toward longer maturities. New vehicle loans 49 months or longer accounted for almost 84 percent of respondents' originations this year. Used vehicle loans 49 months or longer accounted for 78 percent of respondents' originations, an increase of 4 percent over 2002.

New vehicle delinquencies (greater than 30 days past due) decreased in 2003 reversing a prior three-year upward trend. New vehicle loan dollar delinquencies decreased to 1.58 percent in 2003 compared to 2.18 percent in 2002. New vehicle account delinquencies followed the same pattern with a declining trend of 1.73 percent from a previous year's reported high of 2.5 percent.

Complimentary copies are available to the press for review. The price of the study is $300 for CBA members and $495 for non-members, and information on ordering is available at

The Consumer Bankers Association says it is the recognized voice on retail banking issues in the nation's capital. Member institutions are the leaders in consumer financial services, including auto finance, home equity lending, card products, education loans, small business services, community development, investments, deposits and delivery.

CBA was founded in 1919 and says it provides leadership, education, research and federal representation on retail banking issues such as privacy, fair lending, and consumer protection legislation/regulation. CBA members include most of the nation's largest bank holding companies as well as regional and super community banks that collectively hold two-thirds of the industry's total assets.

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