In a September 28, 2022 blog post, the CFPB examined the potential impact of rising vehicle prices on consumers with deep subprime credit scores, concluding that they are particularly likely to be financially vulnerable. 

This is the CFPB’s second blog post in a matter of weeks examining the impact of rising vehicle costs on consumers.  The first, published on September 19, 2022 and discussed here, focused on the impact of cost increases on consumers using information in consumer credit reports.  The new blog post is based on data from Velocity Risk℠, a statistical database with deidentified information on vehicles and vehicle loans drawn from vehicle titles and registrations, auto lenders, and auto manufacturers.  The two posts reach a similar conclusion – that rising vehicle prices may have a financial impact on consumers in lower credit tiers.

The blog post divides borrowers into one of four credit tiers: (1) “deep subprime” (with credit scores below 540), (2) “subprime” (with credit scores between 540 and 619), (3) “nonprime” (with credit scores between 620 and 679), and (4) “prime” (with credit scores of 680 or above).  In analyzing deep subprime purchases, the authors conclude:

• Vehicle prices seem to have grown fastest for consumers with deep subprime credit scores.  The authors point out that consumers with deep subprime credit scores, who have less financial cushion to absorb higher vehicle prices, might have responded by buying less expensive vehicles.  That likely means these consumers would buy used cars instead of new ones.  Referencing the first CFPB blog post on rising auto prices, the authors point out that between July 2020 and July 2022 new car prices increased about 20 percent but used car prices increased by about 40 percent, meaning rising used car prices would more likely impact deep subprime borrowers. Consistent with this thesis, the data analyzed by the authors shows that the median value of vehicles purchased by consumers with deep subprime credit scores increased by about 60 percent since 2019, approximately double the 30 percent increase in the median value of vehicles purchased by borrowers with prime credit scores.
• Deep subprime consumers seem to have been priced out of the market, at least temporarily. While other studies have not shown a decrease in vehicle purchases since 2019 in response to rising prices, the authors conclude that sales to deep subprime borrowers have been between 10 and 40 percent below 2019 levels for the past two years.  The authors note that they did not have available data shedding light on what those consumers were doing as an alternative to purchasing a vehicle, such as holding onto their existing vehicle longer or using public transportation.

The American Financial Services Association (“AFSA”) responded to the CFPB’s blog post, stating “It’s assuring to see Washington policymakers share the same concerns as AFSA regarding subprime consumers being potentially priced out of access to credit, in this case for vehicle financing. The CFPB’s post is also a timely and helpful reminder that there are policies, such as interest-rate caps on small dollar consumer loans, that also severely hinder access to credit for many subprime consumers in tough times like these, and which policymakers can ensure will not harm consumers.”

We note that the blog post includes a disclaimer that the views are those of the authors (Jonathan Hawkins-Pierot and David Low), and not the CFPB.  However, the two recent blogs focusing on subprime and deep subprime auto lending, and the main conclusion of the authors of the most recent post – that “the rapid increase in vehicle prices has had the largest impacts on the most vulnerable consumers” – should signal to auto finance companies that the CFPB will be scrutinizing auto loan marketing, lending, servicing, and collections, particularly in the lower credit tiers. 

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