ATLANTA -

When Equifax auto finance leader Lou Loquasto went into a gathering of state and federal regulators hosted by the American Financial Services Association this week, he arrived with the freshest data the credit reporting agency released just a couple of hours before a panel session.

Armed with information about steady but not fire-alarming-triggering trends, Loquasto went beyond the pure metrics — discussing more than just the 980,000 vehicle installment contracts that have been originated year-to-date with consumers holding an Equifax Risk Score below 620, which are generally considered subprime.

“Now that employment is better and people are in a better financial position, it’s just time for them to go back and get a new car or a 2- to 3-year-old car. I think it’s just natural,” Loquasto told SubPrime Auto Finance News during a phone conversation on Thursday afternoon following his appearance at AFSA’s State Government Affairs & Legal Issues Joint Forum.

“It’s not like lenders are causing an increase in subprime lending. It’s a matter of more subprime customers have decided to go in and get a car. Now that they have a job and are back on their feet, they qualify for one,” he continued.

Equifax reported that subprime originations year-to-date are 8.1-percent higher than through the same span last year as these newly issued vehicle installment contracts have a corresponding total balance of $17 billion.

The average subprime loan amount was $17,363 in February. This amount is a 4.4-percent increase compared to February of last year. While he left the conference chores to Loquasto, Equifax deputy chief economist Dennis Carlson also joined the call to elaborate about what that loan amount movement means.

“I don’t find it particularly alarming in that cars are becoming more and more expensive in general. Moreover, they also last longer so you have this two-factor dynamic. People are effectively getting more for their money,” Carlson said.

“I would say that subprime auto loans have been increasing at roughly the same rate as all auto loans in general,” he continued. “We’re not seeing tremendous spikes in the subprime space, which might be a cause for concern if we did. But in fact if you look back over the last year, the average loan amount across the entire space has increased more than just in subprime.”

More About AFSA Event

Loquasto appeared on a panel session titled, “Issues in Subprime Auto Finance,” which also included an official from Center for Responsible Lending, an organization with strong opinions about how this slice of the market operates.

In front of what Loquasto estimated to be more than 100 regulators from a variety of state and federal agencies, he recapped that the panel dialogue and subsequent questions generally came from a constructive, information-seeking perspective, a view Loquasto described as, “We’re trying to understand the space better.”

Loquasto continued by saying, “With all of those regulators, I thought they might have an agenda going in or that they might have a bias that a bubble might be forming in auto. I just didn’t get the sense with this group that this was the thinking.

“We talked about making good loans by having good information by getting correct income when they make the loan. I was happy that came up,” he added.

Carlson touched on a point that many subprime auto finance companies maintain when detractors might appear.

“It can’t be understated the importance in many American cities of having an automobile in being able to maintain quality employment,” Carlson said. “Obviously cities like New York or San Francisco are ones where you probably don’t need a car. But I think about Atlanta, trying to get to work if you didn’t have a car available is really going to limit a lot of your possibilities from an employment perspective.

“Overall I think we’re at a very healthy place right now,” he went on to say.

Another View on Interest Rate Move

SubPrime Auto Finance News also asked the Equifax experts about what Loquasto acknowledged is not the “most exciting story.” Carlson stated that the “smart money” is on the Federal Reserve, possibly making a move regarding interest rates sometime between September and December.

Should the Fed make an adjustment during that span, Loquasto said, “What we keep hearing from lenders is it’s steady as it goes.

“If you look at lending this year compared to the last three years, it’s been pretty much the same pace of originations, pretty much the same loan performance, pretty much the same credit mix,” Loquasto went on to say. “Sure there will be some minor macro factors, but in terms of how lending is going to be done in the next 12 to 18 months, it’s going to be pretty similar to how it’s being done now.”

Carlson offered a little different take on what an interest rate adjustment — over even the possibility of one — might impact auto financing.

“If you look historically, auto finance rates lag whatever metric you want, the federal funds rate, the prime rate, the one-year Treasury, anywhere from three to six months depending on what you’re comparing it to,” Carlson said. “When rates go up, auto rates stay constant for a little while then they eventually move up. There’s a strong correlation but there’s a lag there.

“What I haven’t seen talked about much however is the impact from a psychological perspective the idea that rates going up could have on consumers who are maybe on the fence about purchasing a car,” he continued. “The way I think of it is there are so many cars out there between 11 and 20 years old. These cars are getting to the point where they may need major repairs if they haven’t been already. I’m sort of in that situation myself. We have a nearly 10-year-old car. It’s been driven hard and now I’m thinking is now the good time to pull the trigger with interest rates so low?

“I think you’re going to find a lot of people who could probably keep their car for another year then decide to make a purchase they simply fear rates going up and what that means. It’s the case where the idea of it is enough to change their minds and get them to make a purchase,” Carlson went on to say.