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Speaker 1: Last week, we talked about US military veterans who've had

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Speaker 1: to fight with mortgage lenders that move to foreclose on

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Speaker 1: their houses. Today a look at a different corner of

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Speaker 1: the lending market, where ordinary people are also struggling with payments,

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Speaker 1: not on their homes but their cars. Many used car

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Speaker 1: dealers offer high priced loans to hard up customers who

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Speaker 1: have poor credit, sometimes leaving them with big monthly payments

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Speaker 1: and more debt than they can afford. Large financial institutions

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Speaker 1: are then packaging together thousands of these higher risk subprime

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Speaker 1: car loans and selling them as bonds to investors. Bloomberg's

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Speaker 1: Page Smith and Scott Carpenter report that a lot of

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Speaker 1: these car loans can go sour when customers fall behind.

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Speaker 1: They can lose their vehicles and even end up in bankruptcy.

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Speaker 1: But the banks build in rock solid protection for the

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Speaker 1: investors who profit from this system.

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Speaker 2: If some thing were to happen and a large portion

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Speaker 2: of those loans were to go sour, the investors would

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Speaker 2: still be fine.

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Speaker 1: If all this sounds a little like the practices of

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Speaker 1: the subprime mortgage lenders back in two thousand and eight, well.

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Speaker 3: When I go around the newsroom and I've been telling

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Speaker 3: colleagues with them working on a story about subprime motel

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Speaker 3: loans being packaged into bonds. Invariably, one of the first

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Speaker 3: things people say to me is, g that reminds me

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Speaker 3: a lot of the subprime housing crisis. And yet we're

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Speaker 3: not experiencing the next great financial crisis. In fact, experts

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Speaker 3: in this area don't think that there's systemic risk.

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Speaker 1: I'm Westksova today on the Big Take Wall Street takes

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Speaker 1: used cars for a ride page. Your story starts in

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Speaker 1: twenty nineteen with a married couple named James and Janis Siler.

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Speaker 1: Can you tell us about them?

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Speaker 2: So, mister Syler lives in Dixie, Georgia. It's a very small,

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Speaker 2: unincorporated town on the Florida Georgia line, and he is

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Speaker 2: a church custodian and host. And the story sort of

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Speaker 2: starts with him needing a new car. He was driving

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Speaker 2: a really old Pontiac and he bought that in cash

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Speaker 2: and kept breaking down and he wanted a new truck.

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Speaker 2: He stepped onto this dealership in South Georgia and looked

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Speaker 2: at a Ford F one fifty truck, which is one

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Speaker 2: of the country's best selling vehicles. Was just over a

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Speaker 2: year old, so mister Syler's wife Janis, signed up for

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Speaker 2: a thirty thousand dollars car loan. They went with Janis's

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Speaker 2: name on the loan because her credit score was a

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Speaker 2: bit higher than his was a little bit stronger. These

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Speaker 2: were really high risk borrowers because James and Janis had

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Speaker 2: filed for bankruptcy just six years before.

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Speaker 1: And the rate on that loan was pretty high.

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Speaker 2: Santander Consumer USA, a unit of the Spanish bank Manco

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Speaker 2: Santander Finance the loan, and Santander Consumer USA is one

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Speaker 2: of the largest subprime lenders in the US. They financed

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Speaker 2: the loan for a rate of twenty two point five percent,

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Speaker 2: and at that point in time, that was just about

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Speaker 2: more than three times the rate of a used car

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Speaker 2: for someone with a prime credit score or sort of

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Speaker 2: a credit score on the higher end of the credit spectrum.

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Speaker 2: So yeah, twenty two point oh five percent is a

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Speaker 2: pretty expensive car loan.

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Speaker 1: And page how much was his monthly payment for that loan?

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Speaker 2: The Sidlers drove away with a car loan that called

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Speaker 2: for a seven hundred and fifty dollars monthly payment. I

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Speaker 2: don't know about you, but for me that would be

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Speaker 2: really expensive, Scott.

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Speaker 1: That is a lot of money to pay each month,

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Speaker 1: and was he able to afford that loan?

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Speaker 3: This was a big payment and soon after taking out

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Speaker 3: the loan, the Silers had trouble making the payments.

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Speaker 1: Paige, Why did he tell you he took out such

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Speaker 1: an expensive loan that he possibly would have a hard

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Speaker 1: time taking the payments on.

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Speaker 2: So he really was eyeing a truck to be able

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Speaker 2: to do a number of the odd jobs that he

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Speaker 2: was doing at that time. He was mowing lawns, he

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Speaker 2: was working as a church custodian and host, but you know,

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Speaker 2: he was also doing jobs on the side like many

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Speaker 2: other you know, Americans do to kind of make ends

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Speaker 2: meet every month. You know, I think it's important to

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Speaker 2: point out that, you know, yes, consumers in the US

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Speaker 2: could pay for a car in cash, but a lot,

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Speaker 2: a lot a lot of US consumers opt to finance

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Speaker 2: their loans instead of paying for things in cash. And

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Speaker 2: mister Siler made that choice just like a lot of

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Speaker 2: other US consumers.

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Speaker 1: And did he know that his monthly payment was going

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Speaker 1: to be that much when he signed those documents?

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Speaker 2: So mister Syler knew that the monthly payment was going

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Speaker 2: to be seven hundred and fifty dollars, but he told

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Speaker 2: us he really was not aware that the interest rate

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Speaker 2: would be that high twenty two point zero five percent,

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Speaker 2: And he did say that when reviewing the documents after

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Speaker 2: he had already signed that he saw the interest rate

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Speaker 2: and said that he'd wished he could have negotiated it

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Speaker 2: down a bit more. He said it seemed pretty high

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Speaker 2: to him.

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Speaker 3: Loans like Silers are considered to be subprime. They are

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Speaker 3: loans made to borrowers with credit scores generally below about

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Speaker 3: six twenty and people who have a history of not

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Speaker 3: paying their debts back or who are inconsistent with some

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Speaker 3: of their payments, who've defaulted in the past. In fact,

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Speaker 3: the Silers had previously gone through a bankruptcy, which is

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Speaker 3: a great example of something that would have reduced their

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Speaker 3: credit score. I think what was happening with the Silers

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Speaker 3: loan was actually very common. When you're looking at people

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Speaker 3: with low credit scores, they need to get a car

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Speaker 3: to go to the dealership, and they end up walking

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Speaker 3: away with a loan that is very expensive. So overall,

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Speaker 3: what you have is dealers and auto lenders lending money

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Speaker 3: for expensive loans that consumers aren't taking the time to

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Speaker 3: properly understand because there are very few guardrails in this process.

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Speaker 3: It's a kind of conveyor belt of loans that's designed

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Speaker 3: to give you financing as quickly as possible, and that's

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Speaker 3: the goal.

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Speaker 2: It's interesting comparing sort of a buying a house with

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Speaker 2: buying a car. Those are sort of two of the largest,

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Speaker 2: you know, maybe the biggest purchases you might make as

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Speaker 2: a US consumer in your life. And while it's not

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Speaker 2: in apples to apples comparison, you know, you think of

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Speaker 2: how much time and process and due diligence you might

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Speaker 2: do if you're a consumer and you're buying a house,

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Speaker 2: and then you contrast that with buying a car and

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Speaker 2: going onto a dealer and maybe driving it away that

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Speaker 2: same day as mister Syler did. It's a very different process.

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Speaker 2: One is very fast, very expedient, and that's sort of

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Speaker 2: for a reason. So as a consumer, when you're at

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Speaker 2: the dealership, you're signing that loan or what's known as

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Speaker 2: a retail installment contract, you're committing to a really costly debt.

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Speaker 2: By the time many consumers are done paying off their debts,

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Speaker 2: if they make every single monthly payment. Some of them

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Speaker 2: pay as much as twice the value of the cars

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Speaker 2: that they.

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Speaker 1: Bought and Paige. In the US, where a lot of

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Speaker 1: people rely on cars, Santander and other lenders say they're

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Speaker 1: throwing a lifeline to those with poor credit and not

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Speaker 1: a lot of other options. What did Santander say to

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Speaker 1: you about this reporting?

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Speaker 2: Son Tander says that the benefits of car ownership are

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Speaker 2: really substantial. When we asked the lender sort of what

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Speaker 2: they thought of the gist of the story and the

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Speaker 2: overall situation, the lender essentially said that consumers who own

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Speaker 2: a car more likely to have higher income, live in

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Speaker 2: safer neighborhoods, and more likely to exit income support programs.

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Speaker 2: And Sonnder did say that it adheres to all regulatory

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Speaker 2: requirements and industry best practices. Bradley Cobb, the president of

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Speaker 2: Bower's Automotive Group, is the co owner of Langdale Hondai

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Speaker 2: of South Georgia, where the Sailors bought the Ford F

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Speaker 2: one fifty, and he said that the high interest rate

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Speaker 2: reflected the risk of the loan due to the siler's

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Speaker 2: recent bankruptcy. The lender was essentially giving her a second

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Speaker 2: chance he said, and Cobb said that Santander made an

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Speaker 2: ethical and sound decision in granting Missus Syler alone based

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Speaker 2: on the information provided.

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Speaker 3: I should also say that Jim Bass, who's the chairman

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Speaker 3: of the National Automotive Finance Association, says that the Prime

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Speaker 3: Ministry makes it possible to extend credit to people who

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Speaker 3: need to recover after a setback such as a divorce

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Speaker 3: or job loss. And he says, if it wasn't for

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Speaker 3: the finance companies that were willing to finance these individuals,

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Speaker 3: it would have such a negative impact on the day

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Speaker 3: to day life in most of the country.

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Speaker 1: And Scott, this loan the Silers took out was really

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Speaker 1: just the first step in your story. What happens next,

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Speaker 1: That's right.

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Speaker 3: So James gets the car, he pays for it with

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Speaker 3: the loan, he drives away. What does Santander do with

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Speaker 3: that loan? Though James now owes monthly payments for the

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Speaker 3: next several years, Santander takes that stream of money that

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Speaker 3: is now owed to it and puts it into a

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Speaker 3: bond or called an asset backed security. In this case,

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Speaker 3: it takes about seventy five thousand other loans that it's

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Speaker 3: made to borrowers similar to Siler across the country, puts

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Speaker 3: them into the asset backed security and sells this asset

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Speaker 3: beech security to dozens, perhaps one hundred or more investors,

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Speaker 3: mutual funds, insurance companies, asset managers. It's actually considered a

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Speaker 3: very plain, vanilla thing. And that asset bach security had

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Speaker 3: a name. It was called Drive twenty nineteen Dash three Scott.

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Speaker 1: Let's take a moment and really pull this apart. Why

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Speaker 1: would a financial institution want to bundle together lots and

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Speaker 1: lots of high risk subprime loans and sell them.

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Speaker 3: Think about it from Santander's point of view. So it's

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Speaker 3: just given Siler this loan. It's just given seventy five

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Speaker 3: thousand other people across the country lots of loans. Now

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Speaker 3: it's got two options here. One it could keep the

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Speaker 3: loans for itself and wait the five, six, seven years

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Speaker 3: however long it will take for everybody to repay their loans.

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Speaker 3: Or it could take those loans, package them together, sell

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Speaker 3: it in the form of a bond. The benefit of

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Speaker 3: that second option is actually pretty big, because now Santander

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Speaker 3: doesn't have to wait around for five years however long

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Speaker 3: it will take. It can get cash immediately from the investors.

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Speaker 3: The investors are happy to wait around. Santander would rather

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Speaker 3: have the cash today so it can make more loans today.

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Speaker 3: That is the business model that it's in. Santander is

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Speaker 3: not the only auto finance company that does this, There's

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Speaker 3: plenty of others.

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Speaker 1: So that explains really well why Santander would want to

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Speaker 1: do this. But why would a pension fund or another

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Speaker 1: place want to buy loans that are higher risk than

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Speaker 1: other kinds of loans.

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Speaker 3: One word, and that word is returns. It's considered to

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Speaker 3: be a very good return for the amount of risk

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Speaker 3: that it has. That had to be repaid first, got

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Speaker 3: top credit ratings, you know, triple A, and those that

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Speaker 3: were at the bottom and they took the losses first

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Speaker 3: and were repaid last, they were you know, rated lower

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Speaker 3: triple B in this case triple B. They were still

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Speaker 3: considered very safe. They're investment grade, but they're riskier altogether.

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Speaker 3: The bonds paid interest rates ranging from two point five

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Speaker 3: to three point two percent. Meanwhile, on the underlying car loans,

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Speaker 3: which are supplying the cash flows for the bonds, they

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Speaker 3: have a much higher interest rate, on average nineteen percent

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Speaker 3: in some cases, though going up to twenty nine point

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Speaker 3: nine to nine percent. If you're a pension fund, you're

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Speaker 3: not worried that top part of the bond is going

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Speaker 3: to default, and meanwhile you're getting a decent return. So

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Speaker 3: it's actually considered to be very safe, and for the

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Speaker 3: amount of safety that it offers, it's a good investment.

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Speaker 2: As long as no more than fifty nine percent of

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Speaker 2: all of the money owed by these car loan borrowers defaulted,

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Speaker 2: all of those investors and all of those bondholders would

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Speaker 2: get repaid. According to some SMP Global ratings data. We

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Speaker 2: had one investor even tell us that you could sort

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Speaker 2: of think of these bonds as structured like a bomb

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Speaker 2: shelter against a nuclear blast and paige.

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Speaker 1: You also write that if some of these loans go bad,

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Speaker 1: there's another way that the financial institution is able to

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Speaker 1: recoup the losses.

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Speaker 2: Yes, the repossession market is alive and well. The repelman

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Speaker 2: is alive and gone are the days of driving around

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Speaker 2: trying to find a car that's out for repossession. There

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Speaker 2: are much more advanced technologies to help the repossession agents

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Speaker 2: find and repossess vehicles of US consumers that are way

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Speaker 2: behind on their loans. Essentially, it's much easier to find

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Speaker 2: and repossess a car today than it was in the past.

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Speaker 2: GPS tracking devices which aren't in as many subprime cars

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Speaker 2: as you would think, but things like license plate scanners

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Speaker 2: really help the repilman these days.

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Speaker 1: And so if someone buys a car and then they

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Speaker 1: default because they can't afford the payments, then the financial

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Speaker 1: institution can repossess it, sell it and recoup some or

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Speaker 1: even all of their losses.

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Speaker 2: Essentially, today it's gotten much easier, especially because used car

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Speaker 2: prices are still quite elevated, they are able to recoup

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Speaker 2: a good amount of that investment.

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Speaker 1: When we come back, how big is this market for

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Speaker 1: subprime car loans? So is it accurate to say that

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Speaker 1: because these package security these are very profitable for financial

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Speaker 1: institutions and there's a big market of people who want

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Speaker 1: to buy them, that there's a big incentive to give

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Speaker 1: people these very expensive subprime loans and to get as

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Speaker 1: many of them as possible.

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Speaker 3: There is a strong incentive. It's very profitable. You know,

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Speaker 3: if you give somebody a loan with an interest rate

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Speaker 3: that's very high, and if they don't default and they

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Speaker 3: pay instead all the way to the time that they're

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Speaker 3: finished paying the loan, you're going to make a lot

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Speaker 3: of money. And the problem is when people default, and

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Speaker 3: the default rates are very high. For all subprime auto loans,

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Speaker 3: about thirty percent of them default. As far as we

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Speaker 3: can tell. That data is not perfect. We tried really

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Speaker 3: hard to get that data, but that's as far as

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Speaker 3: we can tell, about thirty percent of all loans to fault.

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Speaker 3: And defaults are not good for anybody. They're not good

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Speaker 3: for the borrower, They're not good for the lender. I

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Speaker 3: mean to be sure the lender has an interest in

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Speaker 3: the borrower paying. Because of the very high interest rates,

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Speaker 3: because of the ability to repo cars. When somebody does default,

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Speaker 3: the penalty from the lenders point of view of the

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Speaker 3: person defaulting is not an insurmountable obstacle to making profits.

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Speaker 3: A lot of profits on lending to subprime borrowers.

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Speaker 1: Scott, How large is the subprime auto loan market? How

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Speaker 1: many people have these subprime loans?

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Speaker 3: As of June, subprime debt made up twenty one percent

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Speaker 3: of the roughly one point six trillion in outstanding auto loans,

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Speaker 3: so it's essentially tied with student debt as the second

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Speaker 3: largest kind of consumer debt after mortgages, and that's according

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Speaker 3: to the Federal Reserve Bank of New York. And this

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Speaker 3: is interesting because overall car lending is booming, but the

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Speaker 3: share going to subprime borrowers has actually declined. The major

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Speaker 3: banks have been shifting their focus to more credit worthy

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Speaker 3: borrowers who are taking out larger and larger loans. Meanwhile,

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Speaker 3: lenders that focus on the subprime market, they tend to

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Speaker 3: securitize their loans, meaning they put them into bonds, sell them,

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Speaker 3: and overall they do this because it gives them access

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Speaker 3: to more funding.

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Speaker 1: In page we've been talking about James Seiler in the

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Speaker 1: truck that he bought. But you spoke to a lot

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Speaker 1: of people who are in a similar situation. Is that right, Yeah.

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Speaker 2: We spoke with around forty borrowers, all of whom were

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Speaker 2: struggling across I think more than a dozen states, and

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Speaker 2: a lot of them just expressed that they had taken

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Speaker 2: on this really expensive debt and some of them just

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Speaker 2: couldn't keep up their payments. Others had life events that

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Speaker 2: came up and they couldn't keep up their payments. But

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Speaker 2: the vast majority of them at the time that we

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Speaker 2: spoke with them had already had their cars repossessed, and

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Speaker 2: we're sort of trying to figure out what to do next.

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Speaker 1: I suppose there are some people listening to this podcast saying,

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Speaker 1: you know, that's a really bad situation to be in,

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Speaker 1: but they decided to put themselves in this situation. They

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Speaker 1: signed these loans. They knew what they could afford, and

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Speaker 1: they knew what they signed up.

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Speaker 2: For definitely, And I think that consumers do. At the

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Speaker 2: end of the day, it is their name that is

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Speaker 2: signed on the dotted line before they drive that car

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Speaker 2: off of the lot. But that being said, I think

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Speaker 2: that often times consumers don't necessarily understand the full gravity

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Speaker 2: of what they're signing. They don't understand that they'll be

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Speaker 2: having to continue to make these payments for years and years,

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Speaker 2: and for many of those payments, if they make every

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Speaker 2: single payment and their loan, they will have paid twice

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Speaker 2: the value of their car. And that's a pretty shocking figure.

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Speaker 1: After the break, helping car buyers to avoid taking on

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Speaker 1: more debt than they can afford. Scott, you right that

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Speaker 1: what's happening in the subprime auto loan market has a

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Speaker 1: pretty strong echo to two thousand and eight.

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Speaker 3: It certainly does. When I go around the newsroom and

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Speaker 3: I've been telling colleagues with them working on a story

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Speaker 3: about subprime auto loans being packaged in the bonds, invariably

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Speaker 3: one of the first things people say to me is

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Speaker 3: ge that reminds me a lot of the subprime housing

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Speaker 3: crisis back in two thousand and eight. So let's talk

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Speaker 3: about what's similar was different here. Back in two thousand

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Speaker 3: and eight, subprime mortgages were this hot new product being

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Speaker 3: made to people with low credit scores. Subprime mortgages made

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Speaker 3: in two thousand and six went on over their life

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Speaker 3: to have a default rate of thirty five percent. That

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Speaker 3: was the highest it ever got for subprime mortgages, according

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Speaker 3: to an economist, is now at mit thirty five percent.

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Speaker 3: That's as bad as got and that caused essentially the

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Speaker 3: world financial markets to explode and helps lead to the

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Speaker 3: Great Financial Crisis. Today with subprime auto loans, the default rate,

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Speaker 3: as best we can tell, is chronically nearly that high

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Speaker 3: or higher. That is, thirty percent or higher, and yet

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Speaker 3: we're not experiencing the next great financial crisis. In fact,

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Speaker 3: experts in this area don't think that there's systemic risk

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Speaker 3: the bonds are extraordinarily safe. They can survive extremely high

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Speaker 3: default rates, and part of the reason why we're not

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Speaker 3: facing systemic risk even with very high default rates. A

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Speaker 3: few reasons. One, subprime auto loans are much smaller than

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Speaker 3: the subprime mortgage market was. That's one thing. Number two.

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Speaker 3: Back in two thousand and seven two thousand and eight,

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Speaker 3: those subprime mortgage bonds was just part of the story.

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Speaker 3: They were actually getting synthetically secured, this whole other complicated thing,

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Speaker 3: synthetically securitized and threading their way throughout the rest of

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Speaker 3: the economy that way. That added just whole other levels

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Speaker 3: of risk that's not happening today. And also you could

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Speaker 3: say that the interests of lenders are more closely aligned

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Speaker 3: with borrowers today, and that's because of something in dot frank,

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Speaker 3: which was a law that was passed after two thousand

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Speaker 3: and eight to make sure that something similar wouldn't happen again.

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Speaker 3: That requires lenders like Santander and others when they're issuing

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Speaker 3: these bonds to hold some of the risk themselves. They

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Speaker 3: can't get rid of all of it. They have to

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Speaker 3: keep at least five percent. The idea that here is

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Speaker 3: you have skin in the game. So that your incentives.

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Speaker 3: All right, you don't want to sell a bond that's

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Speaker 3: going to go bad because you own some of it,

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Speaker 3: you're going to experience the effects of that. And I

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Speaker 3: think you can see that this it's called risk retens,

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Speaker 3: this skin in the game role is actually working. And

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Speaker 3: this brings me to the last thing that's different is

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Speaker 3: with subprime mortgages, the amount the volumes year after year

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Speaker 3: from two thousands to two thousand and eight just went

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Speaker 3: up every year, skyrocketing. That's not happening with subprime model lending.

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Speaker 3: It's actually been relatively stable. You know. One of the

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Speaker 3: reasons probably is because lenders are experiencing some of these

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Speaker 3: high default rates on their own balance sheets, and that's

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Speaker 3: constraining them. It's caused them to pull back when conditions

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Speaker 3: aren't great.

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Speaker 2: These are sort of controlled explosions. They're expected. The high

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Speaker 2: rates of default are expected. The lenders expect this all

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Speaker 2: to happen, and they've sort of planned accordingly. It's not

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Speaker 2: like the subprime housing crisis where things really went off

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Speaker 2: the rails and as Scott said, really just kind of

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Speaker 2: wove through every part of the US economy. That is

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Speaker 2: not happening here.

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Speaker 1: So paige. If the system is safer in that it

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Speaker 1: protects the investors, it protects the financial institutions, and even

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Speaker 1: protects the larger economy from shocks. But what about the

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Speaker 1: individual consumers. What's protecting them from lenders who want to

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Speaker 1: issue these loans so that they have something to package

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Speaker 1: up into these profitable bonds.

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Speaker 2: The individual consumers are really the ones who are facing

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Speaker 2: the brunt of this. After a car is repossessed very

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Speaker 2: soon after you see a hit to your credit score,

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Speaker 2: it's much harder to take on additional debts and also

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Speaker 2: to bring it back to the silers. I mean, they

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Speaker 2: had already filed for bankruptcy once before they took on

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Speaker 2: this expensive debt, but then they ultimately filed for bankruptcy

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Speaker 2: again in twenty twenty three earlier this year to be

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Speaker 2: able to reach shuffle their debts. So we spoke with

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Speaker 2: more than forty barwers kind of struggling to pick up

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Speaker 2: the pieces after their cars had been repossessed. And it

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Speaker 2: is really really hard for people to go without a

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Speaker 2: car in the US.

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Speaker 1: And are any federal or state agencies thinking about these

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Speaker 1: buyers trying to put protections in place so that they

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Speaker 1: have a better sense of the terms of these loans

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Speaker 1: for people who just aren't as financially savvy.

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Speaker 2: So in the wake of the Great Financial Crisis, the

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Speaker 2: subprime housing crisis in two thousand and eight, there was

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Speaker 2: an agency created called the Consumer Financial Protection Bureau the CFPB.

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Speaker 2: But they do not oversee car dealers themselves. They only

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Speaker 2: oversee the big lenders. And that's a tricky carve out

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Speaker 2: because if you think of the actual car buying process,

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Speaker 2: you drive onto a car lot to look for a

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Speaker 2: used car, you sign all of the paperwork in the

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Speaker 2: car dealership, but really you are dealing with a lender

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Speaker 2: who might be hundreds of miles away approving this transaction.

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Speaker 2: So to have that sort of carve out, that was

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Speaker 2: a very intentional lobbying effort in Washington, DC, while Dodd

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Speaker 2: Frank was being creative and it was successful.

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Speaker 1: Scott. When the CFPD was started, one of the first

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Speaker 1: big things they did was to make sure that there

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Speaker 1: was no more tiny type when describing the terms of

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Speaker 1: say a credit card application. Is there any push to say, okay, buyer,

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Speaker 1: if you take a loan at this amount, the actual

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Speaker 1: amount you're going to pay for the car is twice,

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Speaker 1: but the sticker is or something like that, to just

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Speaker 1: make it very plain to people what they're getting into.

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Speaker 3: I think they certainly have tried. You are required on

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Speaker 3: your auto finance contract to very clearly disclose what the

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Speaker 3: APR or the interest rate is, the amount finance that's

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Speaker 3: the amount that's being lent, and the finance charge, which

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Speaker 3: is the amount that that money will cost you an interest.

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Speaker 3: So it's clear in one sense, you can see it

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Speaker 3: right there at the top of the contract. On the

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Speaker 3: other hand, I think, based on our reporting, having talked

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Speaker 3: to many of these borrowers, it's still a confusing system

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Speaker 3: to a lot of borrowers.

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Speaker 1: And Page what about On the state level, there.

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Speaker 2: Have been efforts on the state level to rein in

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Speaker 2: some of these subprime lending practices, and to some effect

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Speaker 2: they have been successful. The Massachusetts Attorney General now Governor Morihally,

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Speaker 2: for example, sued a few of these lenders, and there

435
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Speaker 2: have been other efforts as well. The CFPB, which is

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Speaker 2: the agency that oversees protections for US consumers, and state

437
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Speaker 2: regulators have been cracking down the sales practices of subprime lenders,

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00:26:52,640 --> 00:26:57,359
Speaker 2: including Santa There in twenty twenty actually Santander reached a

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00:26:57,560 --> 00:27:02,360
Speaker 2: five hundred and fifty million dollalitler's settlement to resolve abusive

440
00:27:02,440 --> 00:27:06,000
Speaker 2: lending allegations made by sort of a salew of state

441
00:27:06,040 --> 00:27:10,399
Speaker 2: attorneys general, and one of the allegations was that the

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00:27:10,520 --> 00:27:13,720
Speaker 2: company knew it made loans that were likely to default.

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00:27:14,359 --> 00:27:18,520
Speaker 2: As part of that settlement, Santander neither admitted nor denied wrongdoing,

444
00:27:19,040 --> 00:27:22,240
Speaker 2: but it agreed to waive some customers balances and in

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00:27:22,280 --> 00:27:26,240
Speaker 2: the future to decline to extend credit to customers who

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00:27:26,240 --> 00:27:29,720
Speaker 2: had no income left after other debt and required spending.

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00:27:30,160 --> 00:27:34,640
Speaker 2: At the time, Santander called the matter a legacy underwriting issue.

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00:27:35,440 --> 00:27:38,080
Speaker 1: Scotty, as you continue to report on this story, what

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00:27:38,080 --> 00:27:38,800
Speaker 1: are you looking for?

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00:27:39,359 --> 00:27:42,040
Speaker 3: I'd like to know more of what the default rates

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00:27:42,040 --> 00:27:44,960
Speaker 3: are going to wind up being for a lot of

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00:27:44,960 --> 00:27:48,639
Speaker 3: people who are getting loans today. I'd like to see

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00:27:48,640 --> 00:27:53,000
Speaker 3: how some of these recently issued subprime auto securities are

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00:27:53,040 --> 00:27:56,040
Speaker 3: going to perform. There are some signs that they're not

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00:27:56,200 --> 00:28:01,480
Speaker 3: performing perfectly. Some of them are actually on track to

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00:28:01,600 --> 00:28:04,920
Speaker 3: deliver losses to their investors, the bond holders, which is

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00:28:05,080 --> 00:28:08,639
Speaker 3: very unusual for the most part. I think lending to

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00:28:09,200 --> 00:28:12,560
Speaker 3: issuance of these bonds is going to continue about roughly

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00:28:12,600 --> 00:28:15,359
Speaker 3: what it is now. Twenty twenty two saw issuants of

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00:28:15,440 --> 00:28:19,800
Speaker 3: thirty seven billion of these per year will probably see

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00:28:20,320 --> 00:28:24,240
Speaker 3: roughly similar amounts going forward. But I think essentially everybody

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00:28:24,240 --> 00:28:26,840
Speaker 3: wants to know how many people are going to default

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00:28:26,880 --> 00:28:31,359
Speaker 3: on their auto loans, and nobody quite knows. One thing's

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00:28:31,400 --> 00:28:34,560
Speaker 3: for sure. Though, the investors who buy the top of

465
00:28:34,600 --> 00:28:36,720
Speaker 3: these bonds, the triple A, the Double A, et cetera,

466
00:28:37,240 --> 00:28:39,960
Speaker 3: they are not too worried and they'll still be understood

467
00:28:39,960 --> 00:28:40,680
Speaker 3: in buying more of them.

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00:28:41,120 --> 00:28:46,800
Speaker 2: The CFPB also does not currently collect information on how

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00:28:46,800 --> 00:28:50,720
Speaker 2: many US consumers have their cars repossessed every year, and

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00:28:50,840 --> 00:28:52,920
Speaker 2: it was really hard for us in the reporting of

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00:28:52,960 --> 00:28:56,760
Speaker 2: the story to nail down an approximation of that figure

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00:28:57,120 --> 00:28:59,920
Speaker 2: based on default data. We had to go to an

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00:29:00,080 --> 00:29:03,480
Speaker 2: number of different sources just to find out that around

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00:29:03,520 --> 00:29:07,080
Speaker 2: thirty percent of American's default on their car loans, which

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00:29:07,480 --> 00:29:12,280
Speaker 2: effectively translates to them having their cars repossessed. And that

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00:29:12,400 --> 00:29:16,239
Speaker 2: makes it tough to figure out how consumers fare in

477
00:29:16,280 --> 00:29:16,880
Speaker 2: this country.

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00:29:17,760 --> 00:29:21,880
Speaker 1: Drive twenty nineteen to three wound down in October. The

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00:29:21,920 --> 00:29:24,560
Speaker 1: customers who had taken out all those auto loans that

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00:29:24,560 --> 00:29:28,320
Speaker 1: were packaged together paid back three quarters of the money

481
00:29:28,320 --> 00:29:31,680
Speaker 1: they'd borrowed. That was way more than necessary to repay

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00:29:31,760 --> 00:29:35,560
Speaker 1: the bond holders, and it worked out very well for

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00:29:35,720 --> 00:29:39,760
Speaker 1: Santander too. Remember Scott said earlier that Santander had to

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00:29:39,800 --> 00:29:43,040
Speaker 1: have some skin in the game. It was required to

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00:29:43,200 --> 00:29:47,440
Speaker 1: hold at least a five percent interest in its securitizations.

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00:29:47,440 --> 00:29:50,760
Speaker 1: In this case, it put seventy one million dollars of

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00:29:50,800 --> 00:29:54,080
Speaker 1: its own money at risk. In the event of any shortfall,

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00:29:54,320 --> 00:29:57,000
Speaker 1: it would be the last to get repaid and the

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00:29:57,040 --> 00:30:00,400
Speaker 1: first to lose money. But it also gets to keep

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00:30:00,440 --> 00:30:04,280
Speaker 1: a share of any excess money after everyone else is paid,

491
00:30:04,760 --> 00:30:08,560
Speaker 1: and there was a lot left over. According to sec filings,

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00:30:08,840 --> 00:30:11,719
Speaker 1: Santander got to keep at least one hundred and fifty

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00:30:11,760 --> 00:30:14,840
Speaker 1: five million dollars as a kind of bonus, and that

494
00:30:14,960 --> 00:30:17,880
Speaker 1: was on top of its servicing fees, which totaled one

495
00:30:17,960 --> 00:30:23,400
Speaker 1: hundred and twenty one million dollars. And Paige, what happened

496
00:30:23,560 --> 00:30:26,840
Speaker 1: with the Silers. You write that ultimately they couldn't afford

497
00:30:26,880 --> 00:30:29,520
Speaker 1: to keep that f one to fifty pickup truck, and

498
00:30:29,560 --> 00:30:33,160
Speaker 1: in twenty twenty it was taken back and sold it auction.

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00:30:33,480 --> 00:30:35,760
Speaker 2: For mister Syler, it got to a point where he

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00:30:35,920 --> 00:30:39,080
Speaker 2: just could no longer keep up with payments. COVID was

501
00:30:39,080 --> 00:30:42,200
Speaker 2: also a really challenging time for him. The COVID pandemic

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00:30:42,320 --> 00:30:44,960
Speaker 2: was tough because the church where he was working cut

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00:30:45,000 --> 00:30:48,000
Speaker 2: his hours. He finally just sort of threw in the

504
00:30:48,040 --> 00:30:50,160
Speaker 2: towel and said, if you want to come and get

505
00:30:50,160 --> 00:30:51,320
Speaker 2: the truck, come and get it.

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Speaker 1: Page Scott, thanks so much for sharing your reporting on

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Speaker 1: this story.

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Speaker 2: Thanks for having us.

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Speaker 1: Thanks for listening to us here at The Big Take.

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Speaker 1: It's a daily podcast from Bloomberg and iHeartRadio. For more

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Speaker 1: shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or

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00:31:11,560 --> 00:31:14,760
Speaker 1: Email us questions or comments to Big Take at Bloomberg

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Speaker 1: dot net. The supervising producer of The Big Take is

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00:31:18,040 --> 00:31:22,520
Speaker 1: Vicky Burgolina. Our senior producer is Catherine Fink. Sam Gabauer

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00:31:22,640 --> 00:31:27,120
Speaker 1: produced this episode. Field Garcia is our engineer. Our original

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Speaker 1: music was composed by Leo Sidrin. I'm West Kasova. We'll

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Speaker 1: be back tomorrow with another Big Take