August 18, 2015 / 7:16 PM / 4 years ago

Wells Fargo adding car loan branches to boost less risky lending

(Reuters) - Wells Fargo (WFC.N) is building more branches devoted to car loans and financing for auto dealers in an effort to increase its auto lending business without taking bad credit risk, the bank’s head of car lending told Reuters.

A Wells Fargo branch is seen in the Chicago suburb of Evanston, Illinois, February 10, 2015. REUTERS/Jim Young

Making smart credit decisions is critical now as the auto lending business heats up. U.S. consumers have $1 trillion of automobile loans outstanding, up from about $700 billion in the first quarter of 2010, according to data from the New York Federal Reserve. That represents much steeper growth than credit card loans, which have remained essentially flat.

The fourth-largest U.S. bank has 56 branches for car and dealer financing, including one it recently opened in Cherry Hill, New Jersey, said Dawn Martin Harp, head of dealer services. The branches, called “regional business centers” serve car dealers exclusively.

The bank is planning to add more offices, including one in the Southwest by the end of the year, but has no specific number that it is targeting, Martin Harp said.

The branches are not just sales offices. They include credit officers who approve or deny loans. Having credit officers who are in the regions where they are lending ensures that they know their customers better, Martin Harp said.

“It’s a differentiator for us,” she said.

She added that the pace of growth depends on opportunities in different communities and in the overall car loan market.

With the market’s growth in recent years, regulators and bankers have grown concerned about risk in the sector. Wells Fargo’s Chief Executive John Shrewsberry said on the bank’s first-quarter earnings call in April that auto lending has “gotten to be a more competitive market,” adding, “we’ve picked our spots, I think, a little bit more delicately.”

On the second-quarter call in July, he said the sector is nonetheless “providing a big opportunity because so many cars are being sold.”

The Office of the Comptroller of the Currency, one of the major U.S. banking regulators, said in a report earlier this year that it is closely watching auto lending, noting that “extended rapid growth is difficult to maintain and can sometimes mask early signs of weakening credit quality.”

Wells is taking a different tack from competitors including Ally Financial Inc (ALLY.N) and JPMorgan Chase & Co (JPM.N), which have centralized their auto lending operations to cut costs.   

Reporting by Dan Freed; Editing by Alan Crosby

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