In the September issue of the Consumer Financial Protection Bureau’s Supervisory Highlights — in which CFPB supervision staff reports on issues they are seeing in the context of examinations — the staff addresses one of the more axiomatic and frustrating realities facing creditors — trying to retract a repossession order. The difficulty stems from managing the time lag in communications between the creditor and the forwarder, and the forwarder and the repossession agent. Staff opined:
“To secure an auto loan, borrowers give creditors a security interest in their vehicles. When a borrower defaults, a creditor can exercise its rights under the contract and repossess the secured vehicle. Many auto servicers provide options to borrowers to avoid repossession once a loan is delinquent or in default. Servicers may have formal extension agreements that allow borrowers to forbear payments for a certain period of time or may cancel a repossession order once a borrower makes a payment.
In one or more recent exams, examiners found that one or more entities were repossessing vehicles after the repossession was supposed to be cancelled. In these instances, the servicer(s) wrongfully coded the account as remaining delinquent, customer service representatives did not timely cancel the repossession order after borrowers made sufficient payments or entered an agreement with the servicer to avoid repossession, or repossession agents had not checked the documentation before repossessing and thus did not learn that the repossession had been cancelled.
Bureau examiners concluded that it was an unfair practice to repossess vehicles where borrowers had brought the account current, entered an agreement with the servicer to avoid repossession, or made a payment sufficient to stop the repossession, where reasonably practicable given the timing of the borrower’s action.
Supervision directed the servicer(s) to stop the practice. In response to our examiners’ findings, the servicer(s) informed supervision that the affected consumers were refunded the repossession fees. The servicer(s) also implemented a system that requires repossession agents to verify that the repossession order is still active immediately prior to repossessing the vehicle, for example, through a specially designed mobile application for that purpose.” A little grammar may come in handy to ferret out what they mean.
To wit, the staff thinks it’s an unfair practice to repossess a vehicle when “borrowers,” where reasonably practicable given the timing of the “borrower’s” action:
- had brought the account current;
- entered an agreement with the servicer to avoid repossession; or
- made a payment sufficient to stop the repossession.
The language seems to acknowledge that sometimes consumers wait so long to repair their account status that it may not be “practicable” (a word I’ve only ever heard lawyers use) to cancel the repossession before it occurs. If that’s the case, then it would seem that the repossession in that instance is not unfair. If I’m right, it’s a welcome acknowledgement and one of the few times the bureau has publicly conceded that sometimes the consumer isn’t right.
Consumers often wait until after a repossession order to make a payment, and it is not unreasonable to think that they should bear the loss — i.e., the inconvenience of repossession and the associated fees that flow therefrom — arising from their action or inaction. However, it is not uncommon for finance companies to refund repossession fees even if the consumer is woefully late to the party. It is telling that the statement simply remarks what staff was told about refunds as opposed to a comment that it ordered repossession fees to be refunded.
It would appear that the bureau’s concern is with errors on the part of the creditor, e.g., failing to cancel a repossession order in a timely manner, miscoding the account, etc., or with the failure of repossession agents to make sure the order they have is current.
The creditor can certainly take steps to ensure it has proper procedures in place to avoid potential errors, but it has little ability to manage the myriad mom-and-pop repossession agents that pick up cars every day. That will take a heavy lift, so the most interesting part of the statement is — to me — the last sentence’s reference to a mobile app to facilitate communications. Is an effort afoot to improve the communications technology utilized by the parties? If so, that is a good thing.
Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Michael can be reached at 202-327-9705 or firstname.lastname@example.org. Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.2 - Readers Like This Post