We’re trying to raise $200,000 by midnight! Help us reach our goal.
GM Financial, the unit of General Motors in charge of auto financing, has received a subpoena in a federal investigation of subprime car loans.
The company disclosed the request in a recent regulatory filing. GM said it’s complying and that it believes the request is focused on the subprime auto-finance industry in general, not GM in particular.
While some of these auto loans can look similar to the subprime mortgages that led to the financial crisis, the scale is different, says Lawrence White, an economics professor at New York University’s Stern School of Business.
“The magnitudes are nowhere near in subprime auto what they were in subprime mortgage lending,” he says. “So it’s highly unlikely that there will be any significant macro-economic consequences.”
But that doesn’t mean lenders and investors won’t feel some pain if the loans go wrong, White says. The set of borrowers who were impacted most by the mortgage crisis are the ones at risk again, says Chris Kukla, senior vice president at the Center for Responsible Lending.
“It’s also the same practices,” he says. “Loans that were being made at higher interest rates, generally to people who had lower credit scores [with] terms and conditions to them that just made them unaffordable.”
Just like a foreclosure, having a car repossessed can devastate a household.
“Access to an automobile is extraordinarily critical to low-income families and working families,” says Stuart Rossman, director of litigation at the National Consumer Law Center. “They are reliant on it for their job, they’re reliant upon it for their education.”
Take away access to a car for enough people, he says, and you could have a serious economic problem on your hands.
On July 28, 2014, General Motors Financial Company, Inc. (the “Company”) was served with a subpoena by the U.S. Department of Justice directing it to produce certain documents relating to its and its subsidiaries’ and affiliates’ origination and securitization of subprime automobile loan contracts since 2007 in connection with an investigation by the U.S. Department of Justice in contemplation of a civil proceeding for potential violations of Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Among other matters, the subpoena requests information relating to the underwriting criteria used to originate these automobile loan contracts and the representations and warranties relating to those underwriting criteria that were made in connection with the securitization of the automobile loan contracts.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.