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What subprime crisis?

by Greg Moser of The Moser Group  

Loans to consumers with low credit scores have reached the highest level since the start of the financial crisis, driven by a boom in car lending and a new crop of companies extending credit.

Almost four of every 10 loans for autos, credit cards and personal borrowing in the U.S. went to subprime customers during the first 11 months of 2014, according to data compiled for The Wall Street Journal by credit-reporting firm Equifax.

That amounted to more than 50 million consumer loans and cards totaling more than $189 billion, the highest levels since 2007, when subprime loans represented 41% of consumer lending outside of home mortgages. Equifax defines subprime borrowers as those with a credit score below 640 on a scale that tops out at 850.

Lenders' interest in customers who were the hardest hit by the financial crisis reflects both the relative health of the U.S. economy and firms' desires to take more risks at a time when ultralow interest rates are depressing profits.

It also shows Americans are willing to take on more debt, which was reinforced by a Federal Reserve Bank of New York report released Tuesday that showed total household debt increased $306 billion, or 2.7%, in the fourth quarter of 2014 from the year-ago period, to the highest level since the third quarter of 2010.

The push into subprime loans could have broad implications for the U.S. economy. Easy financing has already helped fuel U.S. auto sales, which totaled 16.5 million cars and trucks last year, an increase of 5.9% from 2013 and up 59% from 2009, according to automotive website

Some observers said the availability of subprime credit is a positive for borrowers and the economy. “This is helping people on a real level, helping them move forward, said Dennis Carlson, deputy chief economist at Equifax.

Others are more concerned. “It's good while the party lasts, but it's exposing exactly the kinds of people to a negative economic shock that you don't want to expose, said Amir Sufi, a University of Chicago finance professor. Subprime borrowers, who pay much higher interest rates on loans than customers with good credit scores, are more prone to missing payments in periods of economic distress, said Mr. Sufi.

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