Consumer Portfolio Services Inc. has a two-year revolving line of credit, with a one year amortization period, which — while not recession-proof — is hopefully recession-resistant, Chief Executive Charles Bradley said.
“It gives us two years to use them, but what it really does, with the amortization, if for some reason you can’t securitize and clear those lines, they then continue for another year, almost like a securitization,” he said during a fireside chat at the 2016 Auto Finance Summit. “That’s a huge, sort of hedge against a recession. Remember, those markets only closed for ten months, so a year amortization would almost get you through the whole thing. So it’s not a coincidence that we went out and tried to build out those lines, so that you could weather a recession.”
It’s tough to predict exactly when a recession will hit, but certain signs are starting pop up, Bradley said.
“Being in subprime lending, our customers don’t have tons of disposable income, so we can see very quickly when their payments get late, delinquencies go up a little bit, then all of a sudden, sales drop a little bit,” he said. “Those kinds of things are poking around, to where we might think we’re getting closer to a recession.”
Banks are stronger today, though, than in the run up to the last recession, and they no longer compete in subprime, Bradley said, so the factors in the industry are not the same today. Still, it pays to be wary.
“Is it going to be tomorrow? Probably not,” he said. “[But] if I took the over-under on 18 months, I’d probably take the under.”