By Justin Moore
- Wells Fargo will stop making loans to independent car dealerships after it originated $6.5 billion in loans in Q1 2020
- Black car consumers left unprotected by revoked legislation, could feel the pain of less auto loans
Wells Fargo (WFC +4.40%), one of the largest lenders for new and used car loans in the United States, has notified hundreds of independent car dealerships that the bank will no longer accept loan applications from them. The decision by the bank, which originated $6.5 billion in loans in the first quarter of 2020, has caused broader concerns as a potential canary in the coal mine, signaling that the subprime auto loan industry, which disproportionately impacts low-income consumers is a bubble ready to burst.
Why This Matters: According to the Washington Post, a record seven million Americans are now three months behind on their car payments. When white folks catch a cold, Black folks get pneumonia. Decades of data show that Black car consumers are routinely charged higher prices and given less favorable terms.
A record 7 million Americans are now three months behind on their car payments
The coronavirus pandemic won’t make the situation better and could leave many more of those borrowers unable to keep up with payments on car loans which could have broad implications for the greater economy. Car loan debt has grown approximately 75% since 2009 to the tune of about $1.26 trillion or roughly 5.5% of America’s gross domestic product.
Situational Awareness: In 2018, Trump signed a resolution into law getting rid of an Obama era consumer protection policy meant to stop car dealers from charging more for car loans based on race. Scarcity of loans at independent car dealers could have an outsized effect on the availability and rates on loans for Black consumers.
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