An increasing number of Americans are falling behind on their car payments, mimicking a trend commonly seen at the start of major economic downturns.
Last year, 1.73 million vehicles were repossessed, which is the highest number since the year following the 2008 financial crisis, according to a report by the CFA seen by the Wall Street Journal.
“Delinquencies, defaults, and repossessions have shot up in recent years and look alarmingly similar to trends that were apparent before the Great Recession,” said the report.
Delinquency, which refers to being late on loan repayments, can devastate investor confidence and lead to an economic crash.
According to data analysts at J.D. Power, almost one in seven car buyers has a credit score below 650. That is the highest level of people with lower credit scores taking out car loans since 2016.
Meanwhile, the CFA analysis says that the number of subprime auto loans that are at least 60 days late has hit a record of 6 percent.
“These are borrowers who may have stretched their budgets to afford a higher price of the asset, as well as a higher payment because of the interest rate,” said Joelle Scally, an economic policy adviser at the Federal Reserve Bank of New York, to The Wall Street Journal.
In addition, car prices are higher than ever, with the average vehicle selling for nearly $50,000, according to another CFA report. The spike in prices often means that car payments are among the highest bills that households have to pay.
That has led to one in five new car buyers having a loan that lasts for up to seven years.
The report was sent to members of Congress on September 10, as the amount of money owed by Americans in auto debt reaches $1.66 trillion, per the document.
It said that the “nation’s federal watchdogs – the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) – have taken significant steps back from oversight and enforcement of predatory practices in the auto market.”
White House Spokesman Kush Desai dismissed concerns over a crash in the auto industry, telling USA Today that “President Trump’s economic agenda of tax cuts, deregulation, tariffs, and energy abundance” will make voters more financially secure.
The CFA report also claimed that the FTC “has not brought a single case against a car dealer since Trump installed new leadership, and the Commission refused to appeal the Fifth Circuit Court of Appeals decision striking down the overwhelmingly popular, cost-saving CARS Rule.”
The CARS Rule would have banned bait-and-switch tactics by dealerships and, according to the FTC’s own data, could have saved consumers $3.4 billion per year.
Just this week, the majority of members of the Federal Reserve’s interest-rate setting committee supported additional reductions to its key interest rate in 2025, according to an Associated Press report.
A majority of Fed officials felt that the risk of unemployment rising had worsened since their previous meeting in July, while the risk of rising inflation “had either diminished or not increased,” the minutes said. As a result, the central bank decided at its Sept. 16-17 meeting to reduce its key rate by a quarter-point to about 4.1%, its first cut this year.
Rate cuts by the Fed can gradually lower borrowing costs for things like mortgages, auto loans, and business loans, encouraging more spending and hiring.
Still, the minutes underscored the deep division on the 19-person committee between those who feel that the Fed’s short-term rate is too high and weighing on the economy, and those who point to persistent inflation that remains above the central bank’s 2% target as evidence that the Fed needs to be cautious about reducing rates.
The Independent has contacted the FTC for comment.
