Delayed tax refunds postponed the start of the busiest season of the year in subprime auto loans, two big lenders in subprime say.
“We normally expect, as we get into February, to start to see application volumes start growing,” Rich Morrin, COO of Santander Consumer USA, said last week. “Due to the tax-season impact, we had not seen that early in the month.”
Tax-refund business could have started to tick up in mid-February, but Morrin said it was still too early to tell. “We’ll see,” he said during a Feb. 23 presentation in New York for investors and Wall Street analysts.
Santander Consumer, of Dallas, is historically a subprime specialist, but its business also extends to prime, including a preferred-lender relationship with FCA US since 2013.
The Internal Revenue Service said last month that new fraud-prevention measures this tax season meant tax authorities would require more time to process returns which include certain tax credits, including the Earned Income Tax Credit and the Additional Child Tax Credit. Those are typically used by lower-income consumers, who often also have subprime credit scores.
The earliest refunds from those returns probably won’t reach taxpayers until the end of February, the IRS said in early January.That’s about two weeks later than they would normally be expected. The start date for filing individual tax returns this year was Jan. 23, the IRS said.
In a separate conference call this month, subprime auto lender Consumer Portfolio Services, of Las Vegas, also said it was feeling the delay.
“Considering it should be the beginning of tax season, it seems real quiet out there,” said CEO Brad Bradley on Feb. 15.
Santander Consumer CEO Jason Kulas said he expects the delays to affect only the timing of the tax-refund bump. “The key word there is ‘delay,’” he said. “The funds are coming. I think that’s a really important fact to remember.”