Alarm bells are ringing because one of the largest subprime auto lenders in the nation — Santander Consumer USA — only checked the incomes of 8% of its applicants, according to a new report from Moody’s Investors Service. Subprime refers to loans made to people with poor credit.
“A lack of income verification…creates more uncertainty around whether borrowers will be able to afford their monthly payments,” Moody’s wrote. By comparison, Santander’s main competitor in the subprime auto lender space — AmeriCredit — verified 64% of applicant incomes.
Santander’s behavior is reminiscent of the practices that led to the home loan crisis where people were getting home mortgages who clearly should not have. The difference is that car loans are for smaller amounts and make up a far tinier portion of the overall economy.