Santander at centre of US car debt fear
As crisis looms over huge loans for motorists . . .
a EurOPEan banking giant is at the centre of a storm brewing over uS car finance debt which it is feared could crash the global economy.
Spanish lender Santander is the biggest player in the riskiest parts of america’s £930bn vehicle loan industry, which is facing a potential disaster as borrowers struggle to repay that mountain of cash.
and experts warned that a shock collapse would reverberate around the world and ultimately hit the uK.
Banks saw car borrowing as a relatively safe bet as consumer spending recovered after the financial crisis, but there are now signs that the market is cooling as families reach the limit of what they can afford.
uS banks are beginning to back away, with statistics from the Federal deposit Insurance Corporation showing a drop in car finance for the first time in six years. The total cash outstanding at commercial banks dropped by £1.2bn to £342bn in the first three months of 2017 when compared to the previous quarter.
In a disconcerting echo of the financial crisis, lenders have piled into the ‘sub-prime’ end of the market – customers with poor credit history who could struggle to repay their debts. Santander Consumer uSa is the largest player in this high-risk field, with £30bn of assets on its books.
Santander’s uK banking arm has 14m customers, but is ringfenced from the company’s operations elsewhere in the world – protecting it from any problems with the american arm which has seen shares plummet more than a fifth since the beginning of March. There are fears of a further slump in coming months.
In March, Santander Consumer paid £20.2m to uS authorities to settle claims it had lent cash to borrowers at high interest rates despite knowing they could not afford repayments. The bank was accused of sharp practices, including ‘power booking’ – falsely stating a car had extra features to inflate its value so more money could be lent against it. Bosses investigated 11 loans at one centre in 2013 to test their salesmen. Just one accurately stated the borrower’s income. The payout covered from 2009 to 2014, and bosses say the bank is now clean.
Britain’s market is smaller than the uS, but uK buyers still spent a record £3.6bn on car finance in March alone. However, a slump in the uS could have far-reaching repercussions. ‘It feels like we’re biding time until financial crisis part two at the moment,’ said James daley of consumer group Fairer Finance. ‘It’s worrying as the uS has been a little bit ahead of us in the past decade in terms of its economic cycles. Maybe it’s showing some signs of what’s yet to come here in the uK.’