Consumer Credit Outstanding: What’s Driving Auto Loan Growth?

Consumer credit outstanding expanded by a seasonally adjusted annual rate of 5.8% over the month of July 2016, 1.0 percentage point faster than its growth rate in June. According to the report, released by the Federal Reserve Board, there is now $3.66 trillion in outstanding consumer credit.

Growth in revolving credit, which is largely composed of credit card debt, contributed to the expansion in total consumer credit. Revolving credit outstanding grew by 3.4% on a seasonally adjusted annual rate over the month of July, 8.1 percentage points slower than its pace in June. There is now $969 billion in revolving credit outstanding.

Due to the month-over-month acceleration in growth and its overall size, non-revolving credit had a larger impact on the growth in headline consumer credit. Non-revolving credit includes student loans and auto loans. Over the month of June, non-revolving credit grew by 6.7%, 4.3 percentage points faster than its rate of growth in June. There is now $2.69 trillion in non-revolving consumer credit outstanding.

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Recently, the expansion in auto loans, a component of non-revolving credit, has drawn the attention of financial regulators. In its Spring 2016 release of the Semiannual Risk Perspective, the Office of the Comptroller of the Currency (OCC), asserted that “auto lending risk is increasing because of notable and unprecedented growth across all types of lenders”. As illustrated by Figure 1 above, which uses auto loan debt outstanding from the Federal Reserve Board’s Consumer Credit Report and replicates Figure 20 from the OCC’s Risk report, auto loans have soared since their recession-induced low in 2010. Between 2010 and the second quarter of 2016 auto loans have grown from a cycle low of $713 billion to $1.07 trillion, an increase of 50%.

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In the Federal Reserve Board’s Consumer Credit Report, the vast majority of non-revolving debt, 97%, is held by the federal government, depository institutions, finance companies, and credit unions. However, as the Federal Reserve Board explains, the non-revolving consumer debt held by the federal government represents originations solely in the form of student loans through the Department of Education. As a result, the majority of auto loans debt is held by depository institutions (large ones in particular), finance companies, and credit unions.

Figure 2 shows the outstanding amount of auto loans held by these three major holders. Combined, auto loans held by depository institutions, finance companies, and credit unions totaled $724 billion in 2011. By the second quarter of 2016, auto loans at these three holders rose to about $1.05 trillion, an increase of 44%. Overall, according to the dollar values shown in Figure 1, auto loans rose by 42% over this same period.

In 2011, the first year that the Federal Deposit Insurance Corporation (FDIC) provided a break-out of “auto loans to individuals”, auto loans at depository institutions and at finance companies were similar, $283 billion and $277 billion respectively, and were the largest of the 3 major holders. However, by the second quarter of 2016, the outstanding amount of auto loans at depository institutions grew to $429 billion, a growth rate of 52%, while finance companies saw growth of 21% over the same period.

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Despite the strong growth in auto loans at depository institutions, expansion at credit unions was even faster. In 2011, auto loans held by credit unions totaled $165 billion, but by June 2016, credit unions carried $280 billion in auto loans, a growth rate of 70% over this time period. As Figure 3 illustrates, between 2011 and 2013, growth in auto loans at depository institutions was greatest, but since then and over the entire 2011 to 2016 time period, the increase in auto loans at credit unions has been faster.



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