At the end of the first quarter, U.S. consumer debt was at $10.9 trillion, down more than 11 percent from its peak of $12.4 trillion in October 2008. Additionally, credit write-offs are 50 percent lower than in March 2009, when banks wrote off a total of $39.7 billion. In March 2012, the number stood at $20 billion, reflecting stronger consumer finances.

“During the recession, the average size of delinquencies rapidly increased as dollar rates were outpacing total number of delinquent accounts, a trend that has since reversed in auto, bankcard, consumer finance, and retail card categories,” the report read, in part.

More than 72 percent of total delinquencies are still tied to loans originated between 2005 and 2007, which account for 36 percent of balances outstanding. Loans opened in 2009 and later have performed much better, the report said. Only 12.6 percent of delinquent accounts are from credit lines or loans opened in or after 2009.

New non-mortgage credit balances continue to increase, while new auto, bank and retail cards, consumer finance, home equity and student loan credit rose to $61 billion in January 2012, an 11 percent increase over the same time a year ago when new accounts totaled $55 billion.

“Lower delinquency rates and fewer write-offs coupled with the growth of new credit across multiple sectors clearly outlines the increased activity of consumers and their renewed faith in the marketplace heading into the second quarter,” said Equifax Chief Economist Amy Crews Cutts. “Aside from Home finance, which will require a longer recovery time due to long foreclosure process, the data reflects the improving U.S. economy as consumers explore new financial options and exercise due diligence in repaying their existing debts.”

The following are key from the Equifax report:

Auto

• Auto loan and lease balances rose to a post-recession high of $727.5 billion in March 2012.
• Auto finance loans totaled more than $380 billion — the highest since the third quarter 2009. Delinquency rates among all auto loans are at their lowest point in five years.
• Auto sales are rising fast and new auto loans to pay for them are also growing. New auto loans obtained from banks in January 2012 rose to 728,000 accounts, up from 630,000 a year ago, while new auto loans from finance companies grew to 753,000 accounts from last January’s 735,500.

Bankcard and Consumer Finance

• Outstanding bankcard balances in March 2012 stood at $532.8 billion, an $8 billion decrease from the previous year; however, this is a modest drop compared to the decrease of more than $54 billion seen from 2010-2011.
• In March 2012, delinquencies and write-offs among existing bankcards were well below pre-recession levels and the lowest in five years.
• Available credit, the difference between credit limits and balances, is climbing and in March 2010 reached nearly $1.9 trillion, the highest since September 2009.
• New consumer finance loan volume totaled 1.4 million new accounts in January, an increase of 8 percent from the same month a year ago.
• Consumer finance loans taken out in January totaled $4.3 billion, a 12.1 percent increase over January 2011 volumes.

Student Loans

• While still elevated from previous years, write-offs decreased from the March 2011 and March 2012 period, the first reverse in the trend in six years.
• The average amount per new loan is currently $4,548, down nearly 20 percent from Jan. 2011 ($5,572). This was the first decline in three years.
• Similarly, loan amount per student dropped 12 percent to $6,917 vs. the same time last year.
• Borrowers between the ages of 30 and 29 took out 17 percent of the number of new student loans in January, equating to nearly 15 million loans. However, their loans represent 24 percent of the total dollar amount of new student loans opened in January (approximately $157 billion).
• Conversely, the 23-and-under age range took out nearly twice as many loans (just over 30 million), yet account for nearly the same total dollar amount.

The agency alleges that the defendants did not make any attempts to modify auto loans after collecting up-front fees and didn’t pay promised refunds for failing to do so. These companies also told consumers to pay them and, in turn, stop paying their auto lenders, reported F&I and Showroom magazine.

Auto Debt Consulting, for example, promised to reduce consumers’ monthly auto loan payments by 25 to 40 percent, but required up-front fees of between $350 and $799. On its Website, the company stated: “If you have engaged the services of Auto Debt Consulting for negotiating with your lender or bank on your behalf, and if for any reason you are dissatisfied with our services or we are unsuccessful in the negotiation process, we will provide a 100 percent money-back guarantee.”

In addition, the agency said one group of defendants told consumers to “hide [their] car[s] to avoid repossession.” The agency added that the promotional slogans used by the loan modification companies included “Join the thousands who have already saved,” “Consumer stimulus and bailout assistance,” and “Stop overpaying for a depreciating liability.” The defendants also gave toll-free numbers to consumers so telemarketers could sign them up for auto loan modifications, the FTC alleged.

The FTC asked the court to order the defendants to stop the alleged illegal conduct while the agency moves forward with the cases against the defendants.

The investigation comes on the heels of the FTC holding roundtable workshops to gather information about potential consumer protection issues that could arise during the sale, financing, or lease of vehicles. F&I contacted the FTC to find out what the agency is focusing on with regard to compliance in general, but Mark Eichorn, assistant director for the FTC’s Bureau of Consumer Protection’s Division of Privacy and Identity Protection, declined to provide specific details about any enforcement actions.

“Speaking generally, when we do compliance sweeps, investigations, etc., we use authorities granted the Commission,” Eichorn wrote in an e-mail. “Under Commission rules of practice, these actions are nonpublic until, for example, the commission votes to approve the issuance of a complaint or a complaint and consent agreement. As a matter of policy we neither confirm nor deny the existence of non-public law enforcement actions.”

To put this in context, Spinella writes that in 2007, consumers financed 11.8 percent of all new-car acquisitions with home equity loans. Even though the industry saw a huge drop in the number of consumers using this form of financing, down to a low of 4.4 percent in 2010, Spinella said he expects this number to hit a national average of 5 percent sometime this year, based on the first two months of 2012.

The U.S. states with the largest number of consumers using home equity loans to finance auto purchases were California and Florida. In California, 29.83 percent of consumers used this type of financing in 2007. Although that number dropped to 11.82 percent in 2011, CNW said it expects the use of home equity loans to rise to 12.5 percent sometime in 2012. Florida hit 19.72 percent in 2007, but saw the use of home equity loans drop to a low of 7.48 percent in 2009. Spinella said he expects it to rise to 11 percent this year.

Even with the increase in the number of home equity loans used for auto financing, Spinella said he doubts the industry will see record pre-recession sales again. “All of the stars were aligned when the industry hit 17 million units. One star was HE loans,” he wrote. “That’s a long way from returning to its peak, and until it does, 17 million-plus is currently only a dream.”

In the fourth quarter 2011, average credit scores for new- and used-vehicle loans dropped, the percentage of loans to customers with nonprime, subprime or deep subprime credit scores increased, and lenders increased their willingness to make loans between six and seven years long, according to Experian.

“The improved automotive lending market is good news for consumers in the market to buy a vehicle,” said Melinda Zabritski, director of automotive lending at Experian Automotive. “The confluence of low interest rates, longer loan terms and an increase in loans outside of prime provide a great opportunity for more people to find a vehicle that suits their needs.”

Consumers continued to do a better job of repaying loans in the end-of-year quarter as loan delinquencies fell. The 30-day delinquency rate fell 6.57 percent from the year-ago quarter to 2.79 percent. The 60-day delinquency rate also fell by 9.51 percent from 0.79 percent in the fourth quarter 2010 to 0.72 percent in the last quarter of 2011.

Another positive sign for the lending market is that the overall dollar volume of loans at risk dropped to $18.5 billion, a $1.862 billion drop from the fourth quarter 2010. Meanwhile, the total volume of open loans rose by $23.9 billion in the fourth quarter last year to $658 billion.

“Lenders are clearly on much more solid ground than they were two or three years ago,” Zabritski said. “With delinquencies and total dollar volume at risk down, lenders have been able to adopt more aggressive strategies. This tends to benefit everyone, from lenders to automotive retailers to the end consumer. With more lenders aggressively competing for business, it’s a great time for consumers to buy or finance a vehicle.”

Average interest rates for new-vehicle loans fell to 4.52 percent from the year-ago quarter. Average interest rates for used vehicle loans fell also to 8.68 percent from 8.71 percent in the fourth quarter 2010.

Average credit scores for new-vehicle loans dropped six points to 761, while average credit scores for used-vehicle loans dropped nine points to 670. New-vehicle loans to nonprime, subprime and deep subprime customers increased by 13.8 percent from a year ago.

Loans of 73 to 84 months accounted for 14.1 percent of all new-vehicle loans and 9.04 percent of all used-vehicle loans, up 47.1 percent and 41.1 percent from the fourth quarter 2010, respectively.

U.S. banks continue to struggle with sluggish loan growth, but there are expansion prospects in the auto loan sector driven by high demand, according to Fitch. Last month, sales of new cars and trucks recorded their fastest monthly pace since 2009, and demand for used cars also has been on the rise, highlighted by an increase in used-car sales and overall demand in 2011, as well as a subsequent 3 percent rise in prices in 2011.

An ease in lending criteria to more normalized levels also has opened the door to borrowers that had been cut off to credit due to rigid lending standards. Fitch, however, said the loosening standards is driven by higher demand rather than riskier lending strategies. And while low interest rates continue to inhibit meaningful loan growth for banks, they also can precipitate consumer borrowing and beef up their portfolios.

Banks may be able to maneuver their auto loan portfolios with less difficulty vs. other sectors, given the typically short dated assets that run off relatively fast, leaving them with limited risk exposure. But unlike comparable loan sectors, Fitch added, the auto loan space is a dealer-based business. Banks that have not cultivated longer term relationships with dealers might find it difficult to enter or re-enter the auto loan business without facing barriers of access into dealer networks.

Captives have an advantage over banks in their ability to attract customers via manufacturer incentives and their intricate understanding of the underlying product and close dealer relations, according to Fitch. Since auto loan performance was the first of the consumer assets to turn the corner following the financial crisis, lending increased in 2011 over 2010, particularly in the below-prime sector.

The company said it also believes heavy demand could spur loan competition and drive down yields, putting pressure on margins. This could result in lenders loosening underwriting standards and overall credit.

Auto loan delinquencies have made a significant decline since peaking during the recession at 0.86 percent in the fourth quarter of 2008, according to TransUnion. Since that time, the rate has dropped to 0.81 percent in 2009 0.59 percent in 2010, and is now expected be at 0.51percent by the end of this year, reported F&I and Showroom magazine.

“Auto loans have performed quite well since the beginning of 2010 and we expect delinquencies to remain relatively low throughout 2012 as the gradual recovery in the economy will benefit both lenders and consumers,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “With auto loan originations increasing dramatically in the last few years, one cause for concern is that any dramatic economic pressures — like we experienced during the last recession — could elevate delinquency levels since missed payments often occur early on in the life of the loan.”

Turek also noted that auto loan originations have greatly increased since the end of the recession, jumping nearly 28 percent as of the second quarter of 2011. Quarterly originations are nearly 41 percent higher than the lowest levels observed during the recession in the fourth quarter of 2008, and have risen approximately 8.4 percent in the last year.

Twenty-one states are expected to see delinquencies drop by the end of 2012, while 29 states should experience increases, according to TransUnion. The largest yearly percentage auto delinquency declines are expected in Michigan (-14.54 percent), Rhode Island (-14.22 percent) and North Carolina (-14.54 percent). The largest percentage increases are expected in North Dakota (72.47 percent), Alaska (25.43 percent) and Iowa (21.06 percent). Despite the large percentage increase in North Dakota’s auto delinquency rate, the state is still expected to have the lowest level in the nation at 0.16 percent.

60-Day Auto Loan Delinquency Projections for 2012

2010-2012    Q4 2010   Q4 2011    Q4 2012             

Highest Auto Loan Delinquency States         Q4 2012

Lowest Auto Loan Delinquency States          Q4 2012

The report indicated that there were 854,800 auto finance company-originated loans in July 2011 vs. 581,300 for July 2009. Auto loans made to subprime borrowers now account for 38.5 percent of all auto loan originations for auto finance companies and 17.6 percent for banks and credit unions — numbers that are quickly approaching pre-recession levels, reported F&I and Showroom magazine.

By contrast, 820,200 loans were originated by banks and credit unions for the same period in July 2011 vs. 832,000 for July 2009, a decrease of less than 2 percent, according to Equifax.

Delinquency rates continue to improve for outstanding auto loans currently 60 or more days past due, which have fallen to 1.63 percent of loans. The improvement reflects a continuation of sustained credit retraction that the auto lending industry has experienced earlier than other lending segments, said Michael Koukounas, senior vice president of Special Client Services for Equifax.

“With unemployment rates remaining elevated for a prolonged period, auto lenders have proactively adopted more comprehensive data and verification tools for greater loan-level transparency in evaluating a wider band of consumers, which has helped enable the auto lending industry to recover more quickly than others,” he noted.

In July 2011, 1.7 million auto loans worth $32 billion collectively were originated, according to Equifax. From January to July 2011, 11.3 million new auto loans worth a collective $213.9billion (a 14.8 percent increase vs. the same six-month period last year) had been originated, a 13.2 percent increase over January-July 2010 totals.

The report also revealed that average monthly payment has remained relatively unchanged over the last year, signaling that the growth the industry is experiencing is tied to increases in number of loans rather than an increase in average loan amount, Koukounas added.

Representing the seventh largest auto finance segment through August 2011, CUDL credit unions have financed more than 321,000 loans year to date, a 13.4 increase, reported F&I and Showroom magazine.

The segment’s auto loan penetration rate did decline to 16.1 percent in the second quarter from 16.6 percent in the year-ago quarter. However, credit unions were able to increase their unit loan volume by 13.4 percent through August.

“Although the total number of loans was flat since the first quarter of this year, the number of credit union members continues to grow,” said Andrea Salgado, a CUDL market research analyst who led the Sept. 28 Webinar.

Citing data provided by Callahan & Associates, Salgado added that auto loans represented 29 percent of the average credit union loan portfolio, based on dollar volume.

Salgado also noted that auto dealers continue to be a major driver of new business for CUDL credit unions, with 67 percent of consumer financed at the dealership being new members. Thirty-three percent of loans originated at the dealerships were made to existing members.

“These values have stayed the same for the last several months,” said Salgado, who noted that indirect loans were down 5 percent. “A year ago this was at 67 percent for new and 34 percent for existing.”

Prime new-vehicle originations made on the CUDL platform represented 76.4 percent of auto loans originated, down two percentage points from a year ago. Prime used-vehicle originations dropped 2.9 percentage points to 67.3 percent. Average FICO score for CUDL credit unions stood at 729 vs. 733 a year ago. The industry’s average FICO score, according to J.D. Power and Associates, is 728.

Average amount finance for used vehicles among CUDL credit unions was $17,939, while the industry average through July stood at $17,385. Average amount financed for new was up from $25,680 a year ago to 27,880 through August, according to CUDL data.

As for loan performance, delinquencies and charge-offs for the segment continued to track below the 1 percent mark for auto loans outstanding. Credit unions also claimed the lowest 60-day delinquency rate among other lending segments, including banks, at 0.33 percent, with dollar volumes of at-risk loans dropping by $1 billion.

The Webinar also provided an update on the overall industry, with Salgado reporting that auto loan volumes have increased for all lenders except for Chase and Toyota. Ally, she noted, continues to lead the way, growing its loan volume by 51.9 percent year to date.

Salgado also noted a rise in new-vehicle sales vs. used-vehicle sales, the two segments crossing paths between June and August. In August, new-vehicle sales increased 7.5 percent from a year ago, while used-vehicle sales declined 3.3 percent. Through August, new-vehicle sales have climbed 11 percent from last year, while used increased 4 percent. Combined, vehicle sales grew by 6 percent during the first eight months of the year.

Sales right now are tracking at a 12.1 million-unit rate, an increase from the 11.4 seasonally adjusted annual rate recorded through August 2010. Currently, market analysts predict that the industry will end the year between 12.5 and 12.9 million units sold. Salgado said she believes the industry will end the year at the lower end of that range.

“We believe this is the lowest rate being offered by any bank or credit union in the nation today,” said Tony Gallardy, vice president of consumer and credit card lending.

Navy Federal reported strong auto lending growth in the past several months, driven by its 1.99 percent new auto rate for loans up to 60 months, according to the company. The credit union plans to maintain this rate, along with the new 1.79 percent APR rate for 36 months, reported F&I and Showroom magazine.

Navy Federal also announced that it will continue to offer a $100 bonus for members who choose to refinance their new-car loans from other financial institutions with Navy Federal.

“We are very excited to offer this unprecedented low rate to members at the start of the fall car-buying season,” Gallardy said. “With a lot of good deals in the market, this is a great time to get a new car or truck.”

The 2011 Shared National Credits (SNC) Review revealed that the total analyzed loans declined more than 28 percent to $321 billion in 2011, although the percentage of criticized assets remained high compared to pre-financial crisis levels. Loans rated as doubtful or loss — the two weakest categories—fell 50 percent to $24 billion in 2011, reported F&I and Showroom magazine.

The review cited operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets as reasons for the improvement. Industries leading the improvement in credit quality were finance and insurance, real estate, construction, media and telecommunications.

Despite the improvements, the SNC noted that poorly underwritten loans originated in 2006 and 2007 continued to negatively affect the SNC portfolio, as nearly 60 percent of criticized assets were originated in these years. Refinancing risk remained elevated as nearly $2 trillion, or 78 percent of the SNC portfolio, matures by the end of 2014, according to the SNC. Of this maturing amount, $204 billion was criticized.

Despite nonbank entities owning the smallest share of loan commitments, they owned the largest share of classified credits at 58 percent.