On February 28, 2022, the CFPB released a Compliance Bulletin and policy guidance entitled “Mitigating Harm from Repossession of Automobiles.” In its bulletin, the CFPB sets forth the objective of reminding market participants of certain legal obligations under federal consumer protection laws in light of what it perceived to be “risky auto repossession practices.” Per the CFPB, these “risky” practices may have resulted from the strong demand for used automobiles since the start of the COVID-19 pandemic. In its bulletin, the CFPB reminds the auto finance industry that the CFPB “pays particular attention to servicers’ repossession of automobiles.” This bulletin represents the latest in a series of public warnings by the CFPB that it is closely scrutinizing industry conduct, especially as it relates to servicing, default servicing, and collections.
Accordingly, the CFPB’s Compliance Bulletin highlights relevant examples of conduct that may constitute unfair, deceptive, or abusive acts or practices (UDAAP) under the Dodd-Frank Act at three different stages: (1) during the repossession process; (2) leading to repossession; and (3) after the repossession process. According to the bulletin, the CFPB was made aware of the problematic conduct either through supervisory exams or enforcement activity.
First, the bulletin discusses unfair or deceptive practices occurring during the repossession process. The primary example cited is a servicer who (1) told consumers it would not repossess vehicles when they were less than 60 days past due, and (2) maintained a policy that told consumers that it would not repossess vehicles of consumers who entered into an agreement to extend the loan or had made a promise to make a payment on a specific date, but despite this, the servicer repossessed vehicles from hundreds of customers despite these promises to the contrary. Some identified causes of these improper actions include servicers incorrectly coding consumers as delinquent, failing to cancel previously communicated repossession orders, and repossession agents failing to confirm that the repossession order was still active.
Other cited examples of unfair or deceptive practices during the repossession process include repossessing vehicles subject to an automatic bankruptcy stay after receiving notice, sending consumers letters stating that loans would not be considered past due if the consumer paid the amount by a specific date (yet repossessing vehicles prior to that date), and failing to provide consumers with accurate information about the amount required to bring their accounts current (leading to underpayment and repossession).
Second, the bulletin discusses unfair or deceptive practices that may lead to repossession. For example, the bulletin discusses examples of entities representing to consumers that payments would be applied in a specific order (i.e., interest then principal, then past due payments) and instead applying partial payments in a different order, leading consumers to be deemed more delinquent than they would otherwise be under the stated application order. The bulletin notes that providing consumers information that states an incorrect order of payment application could result in a UDAAP violation, even when the underlying contract provides that servicer may apply payments in any order. The bulletin also discusses instances where unlawful fees push consumers into default and repossession, such as fees associated with purchasing duplicative and unnecessary force-placed collateral protection insurance (FPI).
Third, the bulletin discusses unfair or deceptive practices that may result in illegal fees after repossession. The bulletin cites an example of an entity withholding consumers’ personal property found in a repossessed vehicle unless the consumers paid an upfront fee. The bulletin explains that a servicer may be legally responsible even when the repossession agent is the one refusing to return consumers’ personal property without payment of a fee. The bulletin further notes that it may be an unfair or deceptive practice to attempt to collect FPI premiums after repossession because no FPI protection is provided following repossession.
Of particular note to the auto finance industry, the bulletin closes with some compliance suggestions for auto finance companies. These suggestions include reviewing policies and procedures regarding cancellation of repossession orders, monitoring repossession service providers for compliance with repossession cancellations, reviewing payment allocation policies and procedures, and monitoring for illegal fees charged after repossession, among other recommendations.
The CFPB explicitly states in this bulletin that it “intends to hold loan holders and servicers accountable for UDAAPs related to the repossession of consumers’ vehicles.” Auto finance industry participants would be wise to heed this warning and consider taking action now to adopt some of the best practices identified in this bulletin before becoming the subject of a supervisory examination or an enforcement investigation.