Chase CEO explains why there's been a major spike in people defaulting on their auto loans

The Chase CEO Jamie Dimon has just explained why there’s been a major spike in defaults on auto loans.

The bank CEO has just offered a stark warning.

It comes in relation to the world of loans, specifically for buying a car.

And he explained why there’s been a spike emerging of defaults of auto loans.

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Chase CEO offers stark outlook on auto loans

The auto industry is undergoing a disturbing trend as of late.

And that trend concerns the sub-world of auto loans.

Auto loans are skyrocketing in the US – and one creditor has already gone bankrupt.

Tricolor Holdings recently filed for bankruptcy, and auto parts supplier First Brands followed suit.

It has led the Chase CEO to issue a stark warning in recent days.

During JP Morgan Chase’s quarterly earnings call, CEO Jamie Dimon issued a warning.

The CEO said that ‘everyone should be forewarned’ by these bankruptcies.

To many, it might seem like Chase’s attempt to shrug off its relationship with those two firms.

But the words of a leading Wall Street finance firm serve as a stark warning.

Jamie Dimon recently spoke to Chase analysts and had this to say.

“My antenna goes up when things like that happen. I probably shouldn’t say this, but when you see one cockroach, there are probably more.”

Dimon noted that Chase is now reviewing all of its underwriting processes and procedures.

“There clearly was, in my opinion, fraud involved in a bunch of these things. But that doesn’t mean we can’t improve our procedures.”

Should loaners be worried?

At this point, the question you probably have in your head is this:

Should you be worried by this statement from the Chase CEO?

Well, the answer is a mixture of both yes and no.

Banks and institutions such as Chase back companies like Tricolor and First Brands heavily.

However, Chase’s Chief Financial Officer is confident about the situation.

Jeremy Barnum said its lending to non-bank financial institutions (NBFI) is secured. 

“I’m not sure that our lending to the NBFI community is an area of risk that we see as more elevated than other areas of risk,” Barnum says.

Tricolor was a subprime auto loans lender, meaning that its customer base was very risky.

It often dealt with those with a limited credit history or poor credit scores.

Its bankruptcy trustee also said that there was ‘extraordinary’ fraud at the company.

First Brands was essentially the same story – complex lending relationships and hidden loans.

A variety of factors tend to contribute to rising defaults on auto loans.

Inflation generally leads to higher interest rates, making loans more expensive.

When an economy endures turbulence, these loans often become more difficult to pay back.

This, coupled with higher vehicle prices, often can lead to people directly defaulting.

On a big enough scale, loans defaulting can have disastrous effects on a wider economy.

A healthier overall economy might well have hidden the effects of these companies.

But the industry is in a much less stable position than it should be.