Businesses in the auto finance industry should take note of a recent compliance bulletin issued by the Consumer Financial Protection Bureau (CFPB). The bulletin states that the federal agency intends to hold loan holders and servicers accountable for unfair, deceptive, or abusive acts or practices related to the repossession of consumers’ vehicles.

The bulletin also 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.

Strong demand for used vehicles

In recent months, there has been a strong demand for used vehicles. 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 sellers can now demand higher prices.

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 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.

CFPB warns against wrongful repossessions

Below are examples in which servicers violated the Consumer Protection Act and the Dodd-Frank Wall Street Reform prohibition against unfair, abusive, or deceptive acts and practices.

Illegally seizing cars - Certain servicers have repossessed vehicles from borrowers who made payments sufficient to stop the repossession or who entered a payment plan.

Sloppy record-keeping and unreliable balance inquiries - Some servicers have failed to ensure proper communication between their organizations and a third-party processing a repossession, resulting in incorrectly coded records and miscommunication about canceled repossessions. In addition, some servicers have provided consumers with inaccurate balance inquiries, causing a borrower to pay less than a sufficient amount to avoid delinquency.

Ransom for personal property - Some servicers have held personal property found in repossessed vehicles hostage until the property owner pays a fee.

The bulletin closes with compliance suggestions for auto finance company owners, including the following:

• Review procedures and policies regarding the cancellation of repossession orders;
• Monitor repossession service vendors for compliance with cancellations;
• Review procedures and policies about payment allocation; and
• Monitor for unlawful fees charged after repossession.

Help is available

The business attorneys at O’Reilly Rancilio are available to answer your questions regarding the CFPB bulletin. For more information, please call 586-726-1000 or visit our website.