U.S. financing and leasing companies (fincos) will likely face multiple headwinds in 2015, including increased competition, weaker asset quality, reduced reserve releases, and regulatory challenges that could impact profitability, according to Fitch Ratings. As a result, the sector outlook is negative, as outlined in Fitch's 2015 U.S. finco outlook report published on Nov. 18.

Despite the headwinds, Fitch's rating outlook is stable, reflecting favorable capital markets conditions which have allowed fincos to build liquidity, reduce their refinancing risk and strengthen their funding profiles.

Regulatory costs and compliance requirements may weigh on performance, particularly for consumer finance companies and nonbank mortgage servicers. Commercial finance and leasing companies are viewed as less exposed to these challenges. A modest rise in interest rates would likely increase overall funding costs for all fincos, but could also expand margins as increased rates are passed on to customers.

Fitch expects that most finco sub-sectors will see modestly weakened asset quality in 2015, as a result of looser underwriting, increased competition and declining asset residual values. More significant deterioration of asset quality, although not expected in 2015, could pressure individual finco ratings.