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Wells Fargo: Subprime Cap Part of ‘Ongoing Risk Management’

March 10, 2015

By Gregory Arroyo

IRVINE, Calif. — A statement released by Wells Fargo Dealer Services didn’t deny the bank has placed a cap on subprime auto loans for this year, but it stopped short of saying the move was the bank’s response to media claims of an overheating auto finance market.

Citing unnamed executives from Wells Fargo, The New York Times reported on March 1 that the bank was limiting the dollar volume of its subprime auto originations to 10% of its overall auto loan originations. For all of 2014, Wells Fargo originated $29.9 billion in auto loans, up 8% from the previous year.

A spokesperson for Wells Fargo Dealer Services said the bank remains committed to the auto finance market and that it remains “firmly committed to responsibly offering access to credit to a wide spectrum of customers during all economic cycles.”

“The percentage of originations we consider subprime, based on our customized scorecard, has remained generally stable over the last decade,” the spokesperson said. “In the fourth quarter, we formalized our existing risk management philosophy. This is part of our ongoing risk management structure and helps us to continue to responsibly manage risk while also tailoring our approach by local market.”

The news comes at a time when several media outlets, including The New York Times, have warned that auto finance may go the way of subprime mortgage in the years leading up to the 2008 financial crisis. Some news outlets have even called on regulators to step in and stop what they called a forming subprime auto finance bubble.

Despite total outstanding loan balance on auto loans reaching an all-time high of $886 billion in the year-end 2014 quarter, finance executives at the 2015 Vehicle Finance Conference in January maintained that the market is operating smartly. They described competition as fierce but disciplined, with one executive noting that finance sources seem focused on smart structures.

Whether motivated by the media or not, state and federal regulators have keyed in on subprime originations and securitizations. Since the summer, regulators have issued subpoenas to several subprime finance sources, including Consumer Portfolio Services, Ally, Capital One, GM Financial, Credit Acceptance Corp, and Santander Consumer USA, requesting documents related to their subprime auto finance businesses.

Speaking to F&I and Showroom at the National Automobile Dealers Association’s 2015 convention, Dawn Martin Harp, who heads up dealer services for Wells Fargo, said regulators have not impacted the bank’s auto origination strategy. She did note, however, that the bank has been working to improve the information it provides to consumers regarding their loans, adding that the bank has more transparency initiatives planned for 2015.


  1. 1. William V. Fowler [ March 10, 2015 @ 01:46PM ]

    What you are witnessing is the early steps all sort’s of financing institutions will take because of their fear of the CFPB. The actions of this institutions is only the first of many other financing institutions that will likewise respond to the market by cutting down on accepting one type of loan or another trying to reduce their risk. You will see more financing Institutions take this type of action also, erring on the side of caution.

    Remember Dodd-Frank recently authorizes state regulators to bring UDAAP claims (and claims under CFPB-issued regulations) against any entity that is state-chartered, incorporated, licensed, or otherwise authorized to do business under state law. The remedies available under the CFPA are significantly more robust than the remedies otherwise available to many state regulators. A series of recent settlement activity suggests there will be an increase in state enforcement under Dodd-Frank’s state action provisions.

    Also remember that on December 19, 2014, the New York Department of Financial Services (“DFS”) became the first state regulator to settle an enforcement action under its CFPA authority.

    Using the loan origination system I developed will cut down on financing institutions exposure to this type of action during the origination process.

  2. 2. howell clark [ March 11, 2015 @ 07:48AM ]

    never fails that rules and regulations brought on by the do gooder set of public employees to right wrongs they envision are being perpetrated against their subjects has just the opposite effect of their intentions of slaying the dragon so to speak. all they will accomplish at tax payers expense is to lessen oppurtunity to a class of customer that already has trouble securing financing that rebuilds or starts up credit. this terrible ripple effect has already started in the prime market , they nail a few more major subprimes and its game over for several years till the market settles it out. the bullies will then have to go after the buy here pay here guys and gals as thats where they will drive alot of customers that became used to taking their damaged credit and going to stand alone third party finance dealers ,new and used, for newer lower milage vehicles.


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