Equifax Inc. has released its monthly Economic Trends Commentary taking a deeper look at the highly publicized notion that subprime auto lending is creating the next bubble.

By examining data aggregated from the credit reports of more than 210 million consumers in the Equifax credit database, the study evaluates whether certain traditional characteristics of a bubble are evident. 

Amy Crews Cutts, chief economist at Equifax, co-authored the report with Dennis Carlson, deputy chief economist at Equifax. Crews Cutts is scheduled as one of the keynote speakers for October's 22nd Annual Financial Services Collections & Operational Risk Conference in Las Vegas.

The report is available here. It concludes: "We believe that while the subprime lending segment needs to be monitored carefully, the evidence does not support that there is a bubble forming in the auto lending space. It is also beneficial to consider than an unmet need is being satisfied. Assuming originations and loan performance in the space remain as they are today, this may benefit the overall economy, as well as the individual participants, in the long run."

Subprime lending in the auto sector has been fairly stable since 2012, the report shows. It further reveals that originations have been shifting toward the higher end of the subprime credit score spectrum and that recently opened subprime loans have been performing well year-to-date.

"Many are chastising lenders and investors for 'subprime shenanigans,' suggesting that, similar to the mortgage issues that precipitated the financial crisis, there is a bubble being created that is ready to burst. Others criticize the often high-interest rates that borrowers with subprime credit must pay to obtain financing and feel that the practice is unfair and that rates should be capped. Many of the arguments have been rhetorical, based on the following premise: Subprime lending caused the financial crisis, ergo subprime lending is dangerous. This generalization, however, does not always account for actual subprime loan data," according to the report.


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