Santander Consumer USA disclosed on Thursday that it had received a Justice Department subpoena related to its subprime auto lending business, the latest company to be touched by a federal investigation into the booming industry.
The subpoena, the company said in a security filing, requests “documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2007.”
The disclosure comes as federal prosecutors, led by the office of Preet Bharara, the United States attorney in Manhattan, are examining how lenders package and sell loans to investors, according to two people briefed on the matter. On Monday, General Motors‘ finance subsidiary disclosed it had received a similar subpoena.
At the center of the inquiry is whether lenders, clamoring for a lucrative piece of the subprime auto loan market, are hastily packaging the loans without reviewing their quality. In an echo of the subprime mortgage crisis, some regulators and prosecutors are concerned that loans with falsified information about borrowers’ income and employment are being included in investments sold to pension funds and insurance companies, the people said.
No Credit? No Problem
Banks and private equity firms searching for high-yield investments have fueled a boom in subprime auto loans to buyers who can’t afford them, including those who recently filed for bankruptcy.
By Axel Gerdau and John Woo on Publish Date July 19, 2014.Those concerns — and signs that some borrowers’ loan applications had false information about both income and employment — were the subject of a front-page article in The New York Times last month. The boom in subprime lending has been fueled, in part, by an influx of money from private-equity firms. Santander has benefited from the cash infusion.
Earlier this year, private equity firms, including Kohlberg Kravis Roberts and Centerbridge Partners, sold most of their stake in the subprime auto lender when the lender went public. Since that initial public offering, the stock has fallen about 27 percent.