Truist is selling off billions of its loans and exiting the near-prime auto lending space.
Driving the news: Truist announced in a filing with the Securities and Exchange Commission that it has reached an agreement to sell $5.5 billion of auto loans, which represented “substantially all assets of Regional Acceptance Corporation.”
The sale is expected to close later this year.
Additionally, the sale will provide $5.2 billion in proceeds with a loss of $535 million.
Truist previously discontinued marine and RV loans.
Zooming in: Truist disclosed that pre-tax earnings of its affiliate RAC were approximately “break-even” through the first half of 2026.
The bank stated it “exits non-core, less profitable” near-prime lending for automotive loans.
The Charlotte Business Journal and Dallas Business Journal reported the layoff of more than 400 employees by RAC after the announcement of the sale.
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What they’re saying: Truist CFO Mike Maguire addressed the sale during the Barclays investor conference.
“We are under contract to sell the $5.5 billion in near prime auto loans and essentially exit that business entirely,” Maguire said. “As we thought about this business and you think about the year so far and some of the decisions that we've made around stopping originations and marine and rec vehicle lending, deemphasizing some of our national prime auto lending businesses.
“This was, in many respects, sort of along those same lines and consistent with that strategy. If you think about the strategic boxes, the financial boxes, we believe all are checked here. From a strategic perspective, regional acceptance is typically a loan-only, loan-first national business where our opportunity to really have a meaningful relationship with these clients beyond that single loan product is extremely limited.”
Bottom line: Truist’s exit from the near-prime space comes after recent headwinds in the subprime automotive industry, including the heavy financial losses of America’s Car-Mart and the collapse of Tricolor due to fraud two years ago.
A Federal Reserve report from earlier this year, specifically on buy-here, pay-here, noted that since the Tricolor collapse, banks have become “more guarded toward the sector.”
Maguire also pointed out that asset yields and spreads have tightened, changing their “credit appetite.”
“And the loss experience has remained somewhat elevated. So you think about, despite the fact that this is a higher-yielding asset, maybe call it 12% plus or minus, with a funding charge, call it, our marginal funding cost, 4%, you take into consideration the loss experience in the 7% to 8% area, you just run out of economics,” Maguire explained.
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