GMAC Bangs Heads With the FDIC

The FDIC also was cool to GMAC’s desire to expand its auto lending by reaching out to consumers with lower credit scores. GMAC executives argued to government officials that they needed to reach lower down the credit scale in order to boost business and provide credit to a broader swath of American consumers, according to people familiar with the matter. But the FDIC, concerned about protecting its rapidly depleting bank-insurance fund, imposed policies that made this more difficult. The FDIC, for example, declined to relax a requirement that Ally Bank extend auto loans only to customers with credit scores above 660. The median score in the U.S. is currently above 700.

All this made it difficult for GMAC to stem declines in its auto-finance business. The average car loan made by GMAC’s bank this year is to a customer with a credit score of more than 750, above the U.S. median. GMAC made $5.6 billion of new car loans in the second quarter, up from late last year but far below the $12.5 billion made in the year-earlier period.

GMAC has the option to lend to riskier borrowers through the parent company, which is regulated by the Fed. The Fed allows GMAC’s financing arm to offer loans to consumers with credit scores as low as 621, and in some cases even lower. But raising money for such loans in the bond market is costlier than it is for Ally Bank to bring money in through bank deposits.