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Harbingers from the CFPB Repossession Front

Fond Memories of Repossessions
When I became employed at the Florida Attorney General’s Office, over 30 years ago, one of my responsibilities was to repossess vehicles where consumers had defaulted on their retail installment sale contracts. (Note: I didn’t use the term “car loan” since that is inaccurate. Car dealers do not provide car loans, they utilize retail installment sale contracts, a different legal construct.) The reason that I engaged in repossessing vehicles is due to the fact that our office legally forfeited the assets of a BHPH dealer and I became the receiver. I quickly learned that repossessing vehicles is a dirty business. Consumers may not be able to pay for their cars but they don’t want to return them either. They hide them, elude service, use profane language when questioned about their delinquent payments, and challenge the servicer to ever locate the vehicle. Even when I related to the errant consumer that the Florida attorney general’s Office was coordinating these repossession efforts with the Florida Highway Patrol, most of these scofflaws were unimpressed. I can’t say that I am sympathetic with consumers who default on their financial obligations and expect to keep their vehicles. However, servicers may engage in nefarious practices in repossessing vehicles and the CFPB is on a mission to correct this problem.

Enter the CFPB – Mitigating Harm from Repossession of Automobiles
The CFPB has taken notice of the used vehicle market and issued one of its many compliance bulletins and any financing source or servicer should pay heed. Used vehicle prices have ascended to unanticipated heights. The CFPB is concerned that these market conditions might create incentives for aggressive repossession tactics in order for repossessors to resell these valuable used cars and trucks. The bulletin states “To mitigate harms from these risks, the Bureau is issuing this bulletin to remind market participants about certain legal obligations under federal consumer financial laws.”

In addition, the CFPB identifies the substantial injury caused by illegal repossessions by depriving borrowers of the use of their vehicles, missing work, expenses for alternative transportation, repossession-related fees, detrimental credit reporting, and vehicle damage during the repossession process.

The CFPB intends to hold loan holders and servicers accountable for UDAAPs (Unfair, Deceptive, or Abusive Acts or Practices) related to the illicit repossession of consumers’ vehicles.

It is always important to note that public policy ambitions of the CFPB and the FTC are advanced by state attorneys general, who are far more likely to prosecute cases against the car business than any federal agency.

Anyone subject to the Dodd-Frank Act, (i.e., covered persons and service providers) are prohibited from committing “UDAAPs.” The elements of a UDAAP violation are involved but, essentially, it amounts to lying and cheating consumers. However, the “abusive” term raises other requirements in two different ways. First, materially interfering with the ability of a consumer to understand a term or condition of a product or service is abusive. Second, taking unreasonable advantage of statutorily specified market imbalances is abusive. Those market imbalances include (1) a consumer’s lack of understanding of the material risks, costs or conditions of a product or service, (2) a consumer’s inability to protect their interests in selecting or using a product or service, or (3) a consumer’s reasonable reliance on a covered person to act in their interests. Cases based upon abusive practices are scant but the potential exists for extensive prosecution. The abusive term may be especially apt in prosecuting cases regarding repossessions.

A Note about Herbies
The CFPB took action against Herbies Auto Sales several years ago for abusive financing practices. Evidently, the store misled consumers and hid financing charges. Restitution of $700,000 and a civil penalty of $100,000 had to be paid. Herbies is a BHPH dealer in Colorado. The point of this note is that even smaller dealerships are prosecuted, from time to time, by the CFPB. All potential targets should be mindful of this bulletin. It is important to note, once again, that state attorneys general will also be prosecuting these types of cases.

A Note about the Fair Debt Collection Practices Act (FDCPA)
The FDCPA, and its implementing Regulation F, may also apply to the repossession of automobiles. However, the FDCPA doesn’t apply to repossession companies as repossession companies do not call, send mail to, or otherwise interact with debtors or attempt to collect money from debtors. The repossession company’s limited role is to find and retrieve the debtor’s car and store the car on its lot for a limited period of time.

Offensive Repossession Practices Cited by the CFPB
The CFPB goes into detail regarding repossession practices by the servicer that could be the subject of prosecution. They include:

• Failure to prevent repossession after borrowers completed certain options provided by the servicer if the consumer had executed the following:
• Made and kept promises to pay that brought the account current;
• Made payments that decreased the delinquency to less than 60 days past due;
• Made promises to pay where the date had not passed; or
• Agreed to extension agreements.
• Servicers incorrectly coded consumers as delinquent;
• Servicer representatives failed to cancel repossession orders that had previously been communicated to repossession agents;
• Repossession agents failed to confirm that the repossession order was still active prior to repossessing a vehicle.
• Applying payments in a different order than disclosed to consumers, resulting in repossession
• Charging unlawful fees that push consumers into default and repossession
• Charging illegal personal property fees
• Charging for Collateral Protection Insurance after repossession

This is certainly not an exhaustive list. Servicers are open to being prosecuted in many other ways.

A Recommendation from the Talmud

An epigram from the Talmud states “A word to the wise is sufficient, but for a fool not even a stick helps.” Anyone involved in repossessing vehicles should study the CFPB Bulletin 2022-04: Mitigating Harm from Repossession of Automobiles. The CFPB provides an outline for servicers to emulate. The final word rests with the CFPB:

The Bureau will continue to review closely the practices of entities repossessing automobiles for potential UDAAPs, including the practices described above. The Bureau will use all appropriate tools to hold entities accountable if they engage in UDAAPs in connection with these practices.

Terrence O'Loughlin
Terrence O'Loughlin
Terry O’Loughlin, J.D., M.B.A., director of compliance for The Reynolds and Reynolds Company, has nearly 30 years of legal and regulatory experience in motor vehicle-related fields. From 1989-2006, O’Loughlin served with the Florida Office of the Attorney General, investigating and prosecuting automobile dealers, manufacturers, and financing and leasing companies. He led a task force that examined more than 100,000 motor vehicle files and settled with over 1,600 vehicle dealers for more than $15,000,000.00. O’Loughlin helped to draft and served as mediator of Florida’s Motor Vehicle Lease Disclosure Act. He has served as a consultant to the Federal Reserve Board’s Leasing Education Committee and has routinely advised numerous states’ agencies on motor vehicle fraud. Admitted to both the Pennsylvania and Florida Bars, O’Loughlin graduated from the University of Pittsburgh and received his graduate degrees from the University of Dayton.
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