GM Financial subpeonad as Justice Department probes subprime auto loans

08/04/2014 12:27 PM

08/04/2014 12:28 PM

GM Financial, the Fort Worth-based lending unit of General Motors Co., says the Justice Department of Justice has subpoenaed documents related to its subprime lending practices.

The July 28 subpoena covers documents related to origination and securitization of subprime loans since 2007, GM Financial said in a filing today with the Securities and Exchange Commission. The Justice Department also is seeking information on underwriting criteria and warranties.

“Our understanding is that the request is focused on the subprime auto finance space in general,” Chrissy Heinke, a spokeswoman for GM Financial, said in an e-mailed statement. “There are no allegations set forth in the subpoena and GM Financial is cooperating with the request.”

The inquiry by federal prosecutors adds another challenge for GM Chief Executive Officer Mary Barra, who is already grappling with a separate Justice Department investigation over the automaker’s slow handling of potentially fatal defects in millions of its small cars. While that crisis has roiled for six months, GM’s U.S. sales have kept increasing with new products such as the Chevrolet Tahoe and Buick Encore.

Easy credit has helped fuel industrywide U.S. auto sales, which are on pace for the best year since 2006. GM and Ford Motor Co. each reported jumps of more than 9 percent in auto deliveries for July as drivers continued to snap up sport-utility vehicles.

Chrysler spokesman Ralph Kisiel said the automaker hasn’t been contacted or subpoenaed by the Justice Department on the topic of subprime auto loans. Ford Motor Credit also hasn’t been subpoenaed, said spokeswoman Margaret Mellott.

Gina Proia, a spokeswoman for Ally Financial Inc., declined to comment.

“There’s just so much capacity being added and so much more room for easy auto credit to keep pushing ultra-low monthly payment loans on a lower and lower quality of consumer,” Adam Jonas, an industry analyst with Morgan Stanley, wrote in a note to investors. “As one dealer recently told us: ‘You have to be a loser to not get 0 percent for 72 months on your car loan.’”

GM Financial said the subpoena was part of an investigation by the Justice Department in the “contemplation of a civil proceeding for potential violations” of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA.

GM Financial represents the automaker’s efforts to rebuild its ability to finance cars in-house after selling off 51 percent of then-GMAC to Cerberus Capital Management in 2006. Last week, the company said it had purchased a 240,000-square-foot building in Arlington to expand its operations and add up to 900 jobs, reflecting the lender’s growth.

Following a bankruptcy reorganization in 2009, the automaker in 2010 purchased Fort Worth-based AmeriCredit for $3.5 billion to write loans for subprime consumers and boost car sales. In late 2012, GM announced a deal to purchase Ally Financial’s international operations to help expand GM Financial’s efforts overseas.

The Justice Department has been looking closely at the auto lending industry. In December, Ally agreed to pay a record $98 million to settle Justice Department and regulatory claims that the firm helped car dealers inflate the cost of auto loans to black and Hispanic borrowers.

The Justice Department and CFPB are investigating other lenders for similar practices, Eric Halperin, acting deputy assistant attorney general, said in December.

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