The U.S. Justice Department is looking into subprime auto lending, especially how it relates to selling loans to investors.

Among the companies being looked at is General Motors, which is already embroiled in legal controversy over product defects and related safety recalls.

There are allegations that some borrowers’ loan applications may have had false information about income and employment, according to The New York Times.

Preet Bharara, the U.S. Attorney for the Southern District of New York, is looking at companies beyond GM, as well. One question in the GM inquiry is whether a lender disclosed to investors the creditworthiness of borrowers, The Times reported.

“Our understanding is that the request is focused on the subprime finance space in general,” Susan Sheffield, an executive vice president at GM Financial, told the newspaper.

“It’s an industrywide investigation, or industrywide inquiry, that they’re making into the subprime order financing across a number of lenders,” Dan Ammann, GM president, was further quoted by the news media.

The Justice Department is looking at “underwriting criteria used to originate these automobile loan contracts and the representations and warranties relating to those underwriting criteria that were made in connection with the securitization of the automobile loan contracts,” GM Financial said in a filing with the Securities and Exchange Commission, according to a report from The Wall Street Journal.



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As the inquiries continue, prosecutors may try to see if there were violations of the Financial Institutions Reform Recovery and Enforcement Act.

“The law imposes a lower burden of proof than a criminal prosecution and threatens penalties of more than $1 million for each fraudulent statement or act,” according to a report from Automotive News.

“DOJ’s use of FIRREA over the past few years has led to some enormous settlements or court-ordered penalties, particularly where mortgages are concerned,” Michael Bresnick, an ex-head of the Justice Department’s financial fraud task force who now works at Stein Mitchell Muse Cipollone & Beato, told Automotive News.

It is noteworthy how the subprime auto loan market has increased over recent years. Subprime auto loans jumped about 15 percent to $145.6 billion in Q1 of 2014, compared to the same quarter in 2013, according to data from Experian. The resurgence of the auto market is due in part to the increases in subprime auto loans.

Neither Chrysler nor Toyota Financial Services have been contacted by the Justice Department on subprime auto loans. Nor, has Ford Motor Credit been subpoenaed by the Justice Department.

The Justice Department and the Consumer Financial Protection Bureau were previously looking at if lenders were discriminating against women and minorities.  Ally Financial has agreed to pay $98 million to settle in inquiry into its lending practices, The Journal reported.