The used-car market is blazing hot, thanks to supply problems that have made new cars hard to come by. So, like anything that suddenly grows in value, cars are prime targets not only for outright theft but also for illicit and premature repossession, the Consumer Financial Protection Bureau (CFPB) warns.
“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.”
The bureau says it has been receiving a growing number of complaints about sloppy bookkeeping, incorrect balance statements and other shoddy business practices leading to illegal repossessions. There are also cases of cars simply being held ransom while creditors press consumers for payment.
The higher price of cars is adding to the problem. Consumers are taking on more debt, which increases the possibility that they’ll fall behind in their payments. 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.
In this hypercharged environment, car loans are increasingly being “securitized” – meaning they are bundled together and sold to investors, who may be more likely to repossess a car than a traditional auto lender.
Auto title loans are also treacherous. Unscrupulous lenders can be unscrupulous about going after borrowers’ cars that are easily “turned around” for an inflated price.
The timing of auto repossessions often comes as a surprise to borrowers and can have devastating effects 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.
To head off the risk of wrongful repossessions, the CFPB is taking action against illegal repossessions and sloppy servicing of auto loans. A compliance bulletin describes instances where debt 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.