Phones paid off before car loans

Consumer payments show priorities shifting away from automobiles

NEW YORK— U.S. consumers are more devoted to their mobile phones than their automobiles.

The sea change has taken place over the last few years as mobile devices become an integral tool not just for communication with loved ones or employers, but also everything from banking to dating to watching TV. As cars grow relatively less important, borrowers struggling to pay back their loans on time are increasingly prioritizing payments on the latest iPhone instead of making sure they hold on to their pickup or coupe.

The shift is increasing the attractiveness of bonds generated from mobile-phone loans, a small but growing portion of the asset-backed securities (ABS) market.

While just $7.7 billion (U.S.) of bonds backed by phone purchases have been issued since 2016 — and all by Verizon Communications Inc. — the number may increase in coming years.

“Payment priority of cellphones is higher than personal and auto loans and similar to or slightly lower than that of mortgage,” Ram Ahluwalia, the chief executive officer of PeerIQ, a New York-based provider of data and analytics for the consumer lending sector, said in an interview. “Now with Lyft and Uber, you can access transportation via cellphone. The car no longer is a central asset.”

There isn’t much breakout data available for mobile-phone loans because it’s a newer segment. But data from credit reporting agency TransUnion shows how the broader categories have shifted over the last five years.

“Back in 2008, cellphones probably weren’t as present as they are now and have moved up the scale,” said Ken Purnell, the head of ABS portfolio management at Invesco Advisers Inc., based in Louisville, Ky. “In the ABS market, it gives investors another very high-quality type of security to invest in that didn’t exist two years ago.”

While the market is set for growth, so far there have only been six sales by Verizon, the largest U.S. mobile-phone carrier. Its bonds are backed by customers’ monthly device payments, which are usually bundled with their service bills. The spreads on the securities have tightened and are generally in line with prime auto debt.

While AT&T Inc. and others have done short-term financing through phone loans, fullblown ABS haven’t yet materialized from Verizon’s smaller rivals. Purnell said mergers in the industry may have delayed the deals.