Wall Street pumps the brakes on auto lending

Jon Marino
Alex Coopel | Herald Sun | Getty Images

Wall Street is hitting the brakes on car loans.

The CEO of JPMorgan Chase (JPM)'s consumer and community banking segment, Gordon Smith, said this week at an industry conference in New York that his company is backing away from the longest types of auto loans, because they could face greater stress in an economic downturn.

"We decided to do a lot less lending" in the 84-month term loan category, he said Monday at the Barclays (London Stock Exchange: BARC-GB) 2016 Global Financial Services Conference. "Should we see a downturn in the economy ... that will be an area that is more stressed," he added.

At Wells Fargo (WFC), which also appeared at the event, the bank added $150 million to reserves in the second quarter, "primarily driven by loan growth in the commercial, auto and credit card portfolios." However, during its presentation Tuesday, much of its Q&A session was dedicated not to auto lending, but to the Consumer Financial Protection Bureau action against the bank after thousands of staffers pushed consumers into accounts for which they did not sign up.

Some highlights from the JPMorgan Chase presentation suggested that, for now, auto lending could continue at a robust pace. The bank noted in its presentation that auto loan delinquencies are not on the rise.

This isn't the first time this year a leader at JPMorgan has sounded the alarm on growing debt for car purchases. In June, JPMorgan CEO Jamie Dimon said " someone is going to get hurt " on auto loans, which are hitting all-time highs. Earlier this year, the total amount of auto loans for consumers hit the $1 trillion mark for the first time.

Others have taken note of the wide range of credit in the auto loan space. Speaking Tuesday at the Barclays event, Capital One (COF) CEO Richard Fairbank told attendees that the amount of capital "has backed off" recently, and that he has witnessed competitors taking on excessive risk with borrowers. He added that, after making fewer auto loans in the fourth quarter of 2015, the bank has done more lending to car buyers this year.