Subprime Lender’s Warning Reflects Aim of New Accounting Rule

When subprime auto lender Credit Acceptance Corp. announced its earnings would drop 30% to 60% in 2020, it pegged the nosedive to accounting rules coming into force in the new year.

Plenty of businesses are predicting the current expected credit losses (CECL) accounting standard will jolt their financial reporting by forcing them to forecast losses on failing loans. Credit Acceptance’s warning sticks out—even among other lenders to customers with shaky credit. But that may not be a bad thing, as some analysts say its shows the biggest loan-accounting overhaul in decades is working precisely as intended.

Because Credit Acceptance accounts ...