FTC Subprime Auto Lending Investigation Could Be Early Sign Of A Deteriorating Market

Credit Acceptance Corp. CACC shares are down more than 5.1 percent on Friday after Bloomberg reported that the Federal Trade Commission has requested information from the company regarding its use of ignition kill switches and GPS systems in debt collection.

Kill switches in vehicles allow lenders to turn off vehicles when borrowers fall behind on payments, and GPS tracking allows lenders to easily locate vehicles for repossession. The FTC is apparently concerned that Credit Acceptance Corp, DriveTime Automotive Group and other auto lenders are threatening to use this technology as a means to pressure borrowers into repaying debts.

Just A Small Portion Of Something Larger

The Bloomberg report notes that the Credit Acceptance Corp information request is part of a larger investigation into subprime auto lender practices.

The Better Business Bureau of Detroit has given Credit Acceptance Corp an “F” rating for customer interaction. The company hasn’t responded to 11 complaints filed complaints filed with the BBB.

When Benzinga reached out to Credit Acceptance Corp for comment on the report, a representative said, “We are aware of the FTC’s information request and have no comment at this time.”

There have recently been an increasing number of analyst and media concerns about abuses in the subprime auto market potentially mirroring those that occurred in the subprime housing market prior to the financial crisis.

Related Link: 9 Headlines That Suggest Subprime Auto Loans Are Becoming A Big Deal

In 2016, Fitch reported that the number of seriously delinquent subprime auto loans had reached its highest level since 1996. The total amount of outstanding U.S. auto loan debt is now above $1 trillion.

Height Financial Services analyst Edwin Groshans believes Credit Acceptance Corp, Santander Consumer USA Holdings Inc SC, Ally Financial Inc ALLY and Capital One Financial Corp. COF.

"The continuation of declines in used car price into 2016 combined with higher 90-days past due subprime delinquencies is likely to create challenges for CACC, SC, ALLY and COF," Groshans said in a new note.

Credit Acceptance Corp shares are down 5.3 percent in the past six months.