WASHINGTON/NEW YORK
(Reuters) - The U.S. government is investigating General
Motors Co's auto financing arm over subprime auto loans
it made and securitized since 2007, the company
disclosed on Monday.
General Motors Financial Co Inc said it was served with a subpoena
from the Department of Justice directing it to turn over documents
related to underwriting criteria.
The subpoena, which the company said was in connection with an
investigation into possible violations of the civil fraud law FIRREA,
also asked for information on the representations GM made about the
criteria when the loans were pooled into securities.
Financial services firms have paid billions of dollars to resolve
investigations under FIRREA into questionable mortgages pooled into
securities in the run-up to the financial crisis. The new subpoena
could be one of the first public acknowledgements that investigators
are also looking at the securitization of subprime auto loans.
FIRREA, the Financial Institutions Reform, Recovery and Enforcement
Act, allows the Justice Department to sue over fraud affecting a
federally insured financial institution.
GM Financial was known as AmeriCredit Corp until the carmaker
acquired it in October 2010. It issued $2.15 billion in securities
backed by subprime auto loans in the first six months of 2014,
making it the second-largest issuer of such securities for the
period.
INCREASED SCRUTINY
The disclosure of the subpoena accompanies increased regulatory
scrutiny of subprime auto loans.
The Office of the Comptroller of the Currency, which regulates
national banks, warned in a June report that “signs of risk in auto
lending are beginning to emerge.”
Its assessment was based on lenders’ willingness to lengthen terms,
chase borrowers with lower credit scores, and offer loans to buy
cars that exceeded the value of the vehicle.
The disclosure also comes as the auto industry increasingly relies
on subprime auto loans for growth.
New auto loans to borrowers with the lowest credit scores were up 51
percent in the first quarter compared to the same period in 2013,
according to Experian Automotive.
Meanwhile, new auto loans to borrowers with the highest credit
scores were down 7 percent over the same time frame.
Separately, regulators have brought some recent cases against auto
lenders over allegations of discrimination.
In December, GM's former financing arm, Ally Financial Inc, agreed
to pay $98 million to resolve claims by the Justice Department and
the U.S. Consumer Financial Protection Bureau that it charged
minority borrowers higher interest rates than white borrowers.
A Justice Department spokeswoman had no immediate comment on the new
GM subpoena. A spokesman for the consumer financial bureau declined
to comment on whether the agency was examining potential fraud by
auto lenders in the origination or securitization of subprime loans.
(Reporting by Aruna Viswanatha in Washington and Peter Rudegeair in
New York, additional reporting by Sagarika Jaisinghani in Bangalore;
Editing by Sriraj Kalluvila and Andrew Hay)
