America’s bad auto loans could have nasty consequences

The Federal Reserve’s interest-rate rises are causing pain in the land of casinos: Nevadans are googling how to return their car more than folk in any other state. Yet while their pain is acute, it is not unique. Across America, the share of high-risk auto borrowers that are behind on payments by at least 60 days reached 6.1% in September, its highest in three decades (even if just a little higher than in 2019).This spells trouble for an unglamorous yet increasingly important institution: the credit union. After all, one in three Americans who borrowed to buy a car during the covid-19 pandemic did so from such an organisation. The sector is now looking at a liquidity crunch of its own, as investments struggle and regulators demand bigger buffers. America’s 4,700-odd credit unions provide members with generous deposit rates and lending terms, and are run on a not-for-profit basis—an approach that won over savers during the low-rate era. All told, they now hold deposits worth more than 10% of those in traditional banks.