Wrong David Paul Morris? Bloomberg | Photos of Getty
Wells Fargo is tapping the brakes on the auto loan business, CNBC learned exclusively.
The bank, one of the largest lenders for new and used car purchases in the US, sent letters to hundreds of independent auto dealerships last month telling them the San Francisco-based company was dropping them as a customer, according to people with knowledge of the situation.
A Wells Fargo spokesperson confirmed that the bank, which only makes auto loans through car dealerships, will no longer accept loan applications from most independent stores. Independent entrepreneurs typically sell used cars, unlike franchisees who specialize in new vehicles from specific manufacturers.
The bank is “an obligation to evaluate our business practices in light of the economic uncertainty presented by COVID-19 and inform most of our independent business customers that we will suspend receipt of applications from. them, ”Natalie Brown, the spokeswoman, said in an email. “Independent entrepreneurs will continue to do business with those who have deep and lasting relationships with Wells Fargo.”
The move follows Wells Fargo’s retrenchment from parts of the mortgage market as the coronavirus pandemic is being held in the US The bank operates under a dozen bankruptcy agreements tied to its 2016 fake scandals, and one of Those orders, from the Federal Reserve, limit the bank’s ability to grow its balance sheet until it removes compliance deficiencies.
This limitation has been wiped out at Wells Fargo after the pandemic pushed commercial clients to take billions of dollars across lines of credit and loans, moving the company’s regulatory asset asset cap. CEO Charlie Scharf, a former acolyte of JPMorgan Chase CEO Jamie Dimon who joined in October to clean up the mess, noted last week in a conference call that insisting that it “had not been easy” at the bank.
“We have to take great action to get under the cover,” Scharf said. “We’re not obviously not growing. We’ve been there to serve long-time customers who have made our facilities available. But there’s a bunch of things we haven’t done since the asset cap.”
Michael Nagle | Bloomberg | Photos of Getty
However, the move is more related to concern about the credit quality of loans made by independent merchants rather than the asset cap, according to a person with knowledge of bank operations.
Even before the pandemic hit, Wells Fargo was actually growing its auto lending business. The company renovated the unit in 2018 after paying $ 1 billion to the Consumer Financial Protection Bureau for selling unnecessary auto insurance.
Since then, the company has continued to expand its auto loans to $ 48.6 billion at the end of March, the bank’s second largest category of consumer loans after loans. Auto loan growth rose 19% in the first quarter to $ 6.5 billion, “reflecting our renewed emphasis on growing auto loans following the restructuring” of the business, the bank said in April.
Independent stores make up less than 10% of Wells Fargo’s 11,000 sellers use to sell auto loans, according to a person with knowledge of bank operations.
Wells Fargo has been withdrawing from parts of the mortgage market since the pandemic began this year. The bank told mortgage staff it was “temporarily” stopping all new home equity lines after April 30, CNBC first reported.
When analysts asked CFO John Shrewsberry in April why the bank was pulling back from the market, he said it was “one of the levers we use to manage living under the asset cap” instead of worrying about of debt shortages.