WASHINGTON, D.C. -

The lengthening of vehicle financing contracts as well as the loan amount attached to those deals has the attention of another federal regulator — the Office of the Comptroller of the Currency.

The auto finance market appeared several times in the OCC’s Semiannual Risk Perspective from its national risk committee, which monitors the condition of the federal banking system and emerging threats to the system’s safety and soundness. NRC members include senior agency officials who supervise banks of all sizes, as well as officials from the law, policy, accounting, and economics departments. The committee meets quarterly and issues guidance to examiners that provides perspective on industry trends and highlights issues requiring attention.

“The OCC sees signs that credit risk is now building after a period of improving credit quality and problem loan clean-up,” the agency said in the report. “Examiners have observed erosion in the underwriting standards for syndicated leveraged loans, as well as loosening of standards and increased layering of risk in the indirect auto market.

“Further, bankers are speaking out increasingly regarding their concern with competitive pressures. Given these trends, the OCC will increase its attention on underwriting standards and encourage banks to diligently assess their credit risk appetite in this stage of the credit cycle,” officials said.

To reinforce its assessment, OCC officials cited several metrics previously reported by SubPrime Auto Finance News, including Experian Automotive’s quarterly analysis of term length and loan-to-value ratios.

According to Experian’s latest State of the Automotive Finance Market report, loan terms in the first quarter of this year reached the highest level since the company began publicly reporting the data in 2006.

The analysis also showed that loans with terms extending out 73 to 84 months made up 24.9 percent of all new-vehicle loans originated during the quarter, growing 27.6 percent since the first quarter of last year.

The average amount financed for a new vehicle loan also reached an all-time high of $27,612 in Q1 2014, up $964 from the previous year. In addition, the average monthly payment for a new-vehicle loan reached its highest point on record at $474 in Q1 2014, up from $459 in Q1 2013.

“Across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. Loan marketing has become increasingly monthly-payment driven, with loan terms and LTV advance rates easing to make financing more broadly available,” the OCC said in its report.

“The results have yet to show large-scale deterioration at the portfolio level, but signs of increasing risk are evident,” officials continued. “Average LTV rates for both new and used vehicles are above 100 percent for all major lender categories, reflecting rising car prices and a greater bundling of add-on products such as extended warranties, credit life insurance and aftermarket accessories into the financing

“The average loss per vehicle has risen substantially in the past two years, an indication of how longer terms and higher LTVs can increase exposure,” the agency went on to say. “Average charge-off amounts are higher across all lender types over the last year.

“These early signs of easing terms and increasing risk are noteworthy, and the OCC will continue to monitor product terms and risk layering practices to ensure that banks manage growth and exposure prudently,” the OCC concluded.