Wells Fargo, one of the biggest lenders for new and used car purchases in the U.S., sent letters to hundreds of independent auto dealerships last month telling them that the San Francisco-based company was dropping them as a customer, according to people with knowledge of the situation.
A Wells Fargo spokeswoman confirmed that the bank will no longer accept loan applications from most independent shops. Independent dealerships typically sell used cars, unlike franchise dealerships that focus on new vehicles from specific manufacturers.
The move follows Wells Fargo’s retrenchment from parts of the mortgage market as the coronavirus pandemic took hold in the U.S. The bank is operating under a dozen consent orders tied to its 2016 fake accounts scandal, and one of those orders, from the Federal Reserve, limits the bank’s ability to grow its balance sheet until it fixes compliance shortcomings.
That limitation stung Wells Fargo after the coronavirus pandemic drove commercial clients to take billions of dollars in credit lines and loans, moves that strained the firm’s regulatory asset cap. “We’ve had to take substantial actions to get down below the cap,” CEO Charlie Scharf, noted last week and that the constraint “hasn’t been easy” on the bank.
Still, the move was more related to concern about the credit quality of loans made by independent dealerships rather than the asset cap, according to a person with knowledge of the bank’s operations.
Wells Fargo has also been stepping back from parts of the mortgage market since the coronavirus pandemic took hold. The bank told mortgage personnel that it was “temporarily” halting all new home equity lines of credit after April 30, CNBC first reported.
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