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Auto Loan Delinquencies rise, Signaling Broader Economic Concerns

WASHINGTON – ‌A growing number‌ of Americans are falling behind on their auto loan ⁤payments, a ‍trend ‌experts warn could foreshadow wider economic difficulties. Delinquency rates ​are climbing, ⁢raising concerns about consumer financial health and potential ‌ripple effects across the economy.

Recent data indicates a notable increase in borrowers 30-60 days past due on their auto loans. ​According to the⁢ New York Federal Reserve, auto loan delinquency rates reached 2.2% in the first quarter of 2024,the highest level since 2011. While still below pre-pandemic levels, the upward trajectory ⁢is alarming to economists.

“We’re seeing a clear signal ‌that financial stress is building among consumers, and auto loans are ofen ⁣one of the first places it shows up,” said ⁢Mark Zandi, chief⁣ economist at moody’s Analytics. “As other debts become ⁣more burdensome, ⁣people tend⁤ to prioritize necessities ⁣like housing ‍and food, and auto payments can fall⁢ behind.”

The rise in delinquencies is ⁢especially pronounced among younger borrowers and those with lower credit scores, who are frequently enough saddled‍ with higher ⁤interest rates. Erinn Compton, a substitute teacher,⁣ experienced this firsthand. she lost her car and later her apartment and job after falling behind on‌ payments due ‍to a high-interest auto loan in 2023, leading⁢ to a period of homelessness. “Although my story is complex, the solutions​ are ​easy to solve‌ these continuous cycles of burden for any ​and everyone,” Compton told USA TODAY. “Our contry​ is in a ​state of crisis from not just big​ things but also these everyday⁢ little things that are overlooked by the ⁤highest levels​ and wealthy corporations that don’t‌ have to feel it directly.”

Several factors are contributing⁣ to the increase in ‌auto loan delinquencies.⁢ Inflation,while cooling,continues to‍ strain household‍ budgets.Rising interest rates, implemented by ‍the‌ Federal Reserve⁢ to combat inflation, have made borrowing more​ expensive.Additionally, the end of pandemic-era forbearance⁤ programs ‍and​ student⁢ loan payment restarts are adding ⁢to financial pressures.

Consumer advocates are calling for ‍greater government oversight and consumer protections. Rosemary Shahan, president of Consumers​ for‍ Reliability and Safety, stated, “People are hopelessly outgunned ⁤when they go ⁣to a car dealer,” adding that “the agencies that are there to protect us at the Federal ‍level have abandoned consumers.”​

The ⁣politicization of‍ federal agencies tasked with consumer protection, ⁤such as the Federal Trade Commission, is also raising concerns. Biden-appointed commissioners have faced ​removal by the Trump governance,potentially ‌weakening consumer safeguards.

The trend in auto loan delinquencies is being⁣ closely watched as a potential indicator of broader economic weakness. A sustained increase in defaults could have negative consequences for lenders, the auto industry, and the overall economy.

Betty Lin-Fisher is a consumer reporter for USA TODAY. reach her at blinfisher@USATODAY.com or⁣ follow her on X, Facebook or Instagram⁣ @blinfisher and @blinfisher.bsky.social on Bluesky. Sign up⁤ for our free The Daily Money newsletter,which will ⁢include consumer ‌news on Fridays.