Consumer Car Buying Advice Blog

On May 5th, the Federal Reserve Board released the findings of their April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices. Part of the report focused on consumer lending practices.

Consumer lending changes in April 2008

In their first quarterly report for 2008, the Federal Reserve polled senior loan officers at 56 domestic banks and 21 U.S. branches and agencies of foreign banks. At Auto Credit Express, we want you to know the results of these findings as they apply to consumer lending.

Lending Standards

In the April survey, both domestic and foreign banks reported having further tightened their lending standards and terms on a broad range of loan types over the previous three months. The number of domestic banks reporting tighter lending standards were either close to, or above, historical highs for nearly all loan categories in the survey.

Compared to the January survey, which covered the fourth quarter of 2007, the percentage of banks that tightened lending standards increased significantly for consumer loans. The demand for loans was weaker in the first quarter of 2008 than the fourth quarter of 2007, but this difference was less than the drop in demand from the third quarter of 2007 to the fourth quarter of 2007.

Real Estate Loans

60% of the responding domestic banks reported that they had tightened their lending standards on prime mortgages – a slightly smaller fraction than the 4th quarter of 2007. 7 of the 9 banks that originated subprime mortgage loans – a somewhat higher amount than the 4th quarter report – indicated that they had tightened their standards.

Credit Card Loans

30% of domestic banks – up from 10% in the January survey – reported that they had tightened their lending standards on credit card loans during the first quarter of 2008.

Consumer Loans (including auto loans)

About 45% of U.S. domestic banks – up from 30% in the fourth quarter of 2007 – reported tightening their lending requirements (including FICO scores) on consumer loans other than credit card loans. They also reduced the extent to which such loans were granted to customers who did not meet FICO score requirements. Although 20% of the banks reported weaker demand for loans, this was less than the 35% that was reported in the 4th quarter of 2007.

The Bottom Line

In a continuation of lending practices from the end of 2007, banks continue to tighten their lending parameters and to be less lenient when it comes to bending their lending standards.

The real estate segment continues to be the area where banks are backing off the most, although all areas, including credit cards and auto loans, are seeing an increased tightening of lending requirements – even though the demand for loans was stronger in the first quarter of 2008 than in the fourth quarter of 2007.

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