October 31, 2014 / 4:41 PM / in 3 years

UPDATE 1-SEC subpoenas Ally Financial over subprime auto lending

(Adds details of other subprime auto investigations, background on Ally’s business, paragraphs 2-5; adds bylines)

By Peter Rudegeair and Joy Wiltermuth

NEW YORK, Oct 31 (Reuters) - The U.S. Securities and Exchange Commission is investigating the subprime auto lending and securitization practices at No. 2 U.S. auto lender Ally Financial Inc, the company said on Friday.

Since the start of the year, Ally has issued $2.75 billion in three deals of bonds backed by subprime auto loans, down from $4.06 billion across four deals last year, according to data from Thomson Reuters IFR. In August, Ally issued a $750 million subprime auto-backed bond deal.

That was the first such securitization following the disclosure in early August that Santander Consumer USA Holdings Inc and GM Financial, the in-house lending arm of General Motors Co, were being investigated by the U.S. Department of Justice over similar subprime auto activities.

Ally has previously said it was being investigated by the Justice Department for potential fraud over mortgage bonds but has not disclosed any investigation by the department over subprime auto issues.

The issuance of bonds backed by subprime auto loans has risen steadily since 2011, with 2014 on pace to be the strongest year of issuance since the financial crisis, according to a Wells Fargo research report released on Tuesday.

The bank disclosed the investigation in a quarterly regulatory filing. (Reporting by Peter Rudegeair; Editing by Chizu Nomiyama and David Gregorio)

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