Capital one cautious on sub-prime

Capital One Financial Corporation reported a 10% year-over-year growth in auto originations in the quarter ending March 31, but volume was down 4% from the fourth quarter of 2014, according to the lender’s latest earnings release.

Chief executive Richard Fairbank indicated that the decline in the opening months of the year may be down to the company’s concerns about the sub-prime market, where it has detected some signs of worsening credit performance. Its sub-prime originations have been largely flat for the past two years.

“Auto originations increased about 10% year-over-year, driven by strong auto sales and deepening relationships with our existing dealers,” Fairbank said. “In the first quarter, we observed increasingly aggressive underwriting practices by some competitors, particularly in subprime. We are losing some contracts to competitors who are making more aggressive underwriting choices.”

Fairbank said the company was looking to increase share in the prime market and was working to build up its relationships with dealers. Earlier this year Capital One revealed in a with the Securities and Exchange Commission, that it had received subpoenas from the New York District Attorney’s Office and the US Department of Justice (DOJ), requesting information related to its sub-prime auto finance business. The filing stated that the lender is co-operating with both investigations, and noted that the company expected to be subject to “heightened regulatory interest” for some time.

Capital One is the ninth-largest auto lender in the US with about $32 billion in total outstandings, according to the Big Wheels Auto Finance Data Report.