The Consumer Financial Protection Bureau (CFPB) is moving to thwart illegal repossessions in the heated auto market. A compliance bulletin issued today reveals conduct observed during CFPB examinations and enforcement actions, including the illegal seizure of cars, sloppy record-keeping, unreliable balance statements, and ransom for personal property.
“With today’s high car prices, auto lenders and investors might be tempted to seize vehicles for resale in the hot used car market,” said CFPB Director Rohit Chopra. “No American ever wants to wake up to see their car stolen. Auto loan servicers need to ensure that every repossession is lawful.”
In recent months, there has been an extremely strong demand for used automobiles. Due to the global chip shortage, the average list price for new and used automobiles has spiked. The CFPB is concerned that these market conditions might create incentives for risky auto repossession practices since repossessed automobiles can command higher prices when resold. The CFPB also expects that both the total amount of debt and the average loan size will continue to increase. Even when inventory shortages abate, larger car loans will put pressure on household budgets for much of the next decade.
To secure an auto loan, lenders require borrowers to give creditors a security interest in the vehicle. Sometimes, auto loans are bundled and sold to investors as securities. Servicers then collect and process auto loan or lease payments from the borrowers. If a borrower defaults, creditors often repossess the vehicle, then sell it.
The timing of auto repossessions often comes as a surprise to borrowers and can cause devastating injury by depriving borrowers of the use of their vehicles. In addition, many people experience emotional distress when a car is taken from them, lose personal property, miss work or lose their job, incur expenses for alternative transportation, pay repossession-related fees, experience negative credit reporting, and have to repair vehicles damaged during the repossession process.
CFPB examiners have found unfair practices in numerous examinations. Supervision observed that these violations frequently occurred after consumers acted to prevent repossession, because of one of the following errors:
- Servicers incorrectly coded consumers as delinquent;
- Servicer representatives failed to cancel repossession orders that had previously been communicated to repossession agents; or
- Repossession agents failed to confirm that the repossession order was still active prior to repossessing a vehicle.
To head off the risk of wrongful repossessions, the Bureau is taking action against illegal repossessions and sloppy servicing of auto loans. The bulletin describes instances, in examinations and enforcement actions, where servicers violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against unfair, abusive, or deceptive acts and practices such as:
- Illegally seizing cars: Servicers are repossessing vehicles from borrowers who made payments sufficient to stop the repossession or who entered a payment plan. Given the high level of harm caused by wrongful repossessions, servicers must ensure that every single repossession is valid.
- Sloppy record-keeping: Incorrectly coded records or agents failing to talk to their colleagues about canceling repossession orders hurts consumers and is a violation of federal law. Servicers need to ensure proper communication between them and any third-party processing a repossession.
- Unreliable balance inquiries: Inaccurate balances can lead to a borrower paying less than a sufficient amount to avoid delinquency, resulting in a repossession. People are also having their vehicles repossessed because their loan payments are processed in a different order than what they had been told.
- Ransom for personal property: Servicers are still holding personal property found in repossessed vehicles hostage until the property owner pays a fee, a practice the CFPB has been cracking down on for years.
The CFPB is closely watching the auto lending market. Auto loans are already the third-largest consumer credit market in the United States at over $1.46 trillion outstanding, double the amount from ten years ago.