Overall delinquency rates ticked up slightly to 4.9 percent of outstanding balances.
The Report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymised Equifax credit data.
Delinquency rates have been creeping higher for certain loans in a sign some Americans are under growing financial stress as the total debt held by USA households continues to hit new highs. Specifically, credit card flows into delinquency have increased over the past year, while auto loan flows into delinquency have been steadily increasing for several years.
In the third quarter, credit card balances grew by 3.8 percent to $810 billion, while auto loan debt rose by 1.7 percent to $1.21 trillion and student loan debt totals grew by 1.5 percent to $1.36 trillion.
Outstanding subprime auto debt (classified in the chart below as debt held by borrowers with origination credit scores under 620) now stands at about $300 billion. Subprime loans are disproportionately originated by auto finance companies, and their share has almost doubled since 2011 and now stands at over $200 billion-represented in dark blue on the left panel of the chart below. Lending to borrowers with lower credit scores has not increased as rapidly in the past year as it had in the preceding years, while lending to borrowers with higher credit scores has continued apace.
"Although the impact on the larger financial sector may be muted, there are over 23 million consumers who hold subprime auto loans", the report said. The overall delinquency rate for auto loans-published in our Quarterly Report-shows only a very slow increase masking the sharp rise in subprime delinquency, which is diluted by the increase in prime loans with better performance. In contrast, the delinquency rate for auto finance companies has been sharply increasing since 2014, by more than 2 percentage points.
"Deteriorating credit performance will be more acute in the subprime segment, driven to some extent by the expansion of less-tenured independent auto finance companies that have demonstrated higher-risk appetites and less underwriting discipline", it said. "These consumers may find their credit reports further damaged after a default or encounter further financial difficulties after experiencing a vehicle repossession".
The New York Federal Reserve is flagging some concerns about a $200 billion auto loan market.
Andrew Haughwout is a senior vice president in the Federal Reserve Bank of New York's Research and Statistics Group.