A&B Abstract: The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) recently released a Bulletin addressing the repossession of vehicles and alerting market participants to what it views as those market participants’ legal obligations under federal law governing unfair, deceptive, or abusive acts or practices (“UDAAP”).  That same day, the CFPB also published an inflammatory Press Release, claiming creditors were engaged in activities causing consumers to “wake up to see their car stolen.”  Shortly thereafter, a number of Republican Congressmembers responded to the Bulletin and Press Release with a Letter expressing concern that the Bureau’s post mischaracterized the activities of vehicle finance companies.  The Letter requested information and data supporting the CFPB’s contentions that the identified issues are occurring in the current marketplace.

Discussion of Bulletin:

On February 28, 2022, the CFPB published a compliance Bulletin and issued a Press Release expressing concerns over certain auto repossession activities.  While the Bulletin was generally neutral in tone, the Press Release accused creditors and servicers of stealing consumer’s vehicles.  Interestingly, both the Bulletin and Press Release also incorrectly stated that the collection of personal property storage fees by repossession agents was “illegal.”  While the CFPB has certainly taken the position that doing so constitutes an unfair practice under its UDAAP authority, the charging of such fees and the amounts allowed to be charged are expressly authorized under applicable state law where such activities have historically occurred.

Regardless of how one may feel about repossessions, the references in both documents various publications and findings dating back to 2016 provide insight into how the Bureau approached repossession investigations and examinations in the past, which is useful for industry to take into account.  The CFPB begins the Bulletin by noting the “extremely strong demand” and rising prices for used automobiles.  The Bureau then expresses concern that these market conditions could create incentives for more risky auto repossession practices which may violate the law.  By way of example, the Bulletin addresses findings from prior – and one might suggest quite dated – examinations and enforcement actions, where servicers are alleged to have acted improperly.

The types of activities identified by the CFPB, both in the Bulletin and Press Release as problematic were characterized as illegally seizing cars, sloppy record keeping, unreliable balance inquiries, and “ransoming” a consumer’s personal property that was in the vehicle at the time of repossession.  Conduct cited by the CPFB as improper includes the charging of fees before and after repossession, and specifically the collection of allegedly “illegal” personal property storage fees demanded by repossession agents before they would return that personal property to the borrower.  Noteworthy is the fact that this allegedly “illegal” conduct is expressly permitted under many state’s laws, though the amount that may be charged is typically limited by those same state laws.  The Bureau also raised the issue of conducting vehicle repossessions despite the presence of a bankruptcy stay and misrepresentations of the amount owed by the borrower leading to an underpayment and subsequent repossession.

In addressing issues of sloppy recordkeeping uncovered in examinations, the Bulletin focused on servicers who incorrectly coded consumers as delinquent leading to undue repossessions, referring back to certain 2017 and 2018 Supervisory Highlights – items published approximately 5 and 4 years ago respectively.  In other  instances cited in the Bulletin, servicers allegedly failed to cancel repossession orders for consumers that made payments to bring their account current, and repossession agents failed to confirm that a repossession order was still active prior to repossessing a vehicle.  Finally, the CFPB noted that it had found instances in which a borrower’s payments were not applied to the outstanding debt in the manner represented to consumers by the servicers, thereby causing some borrowers to be deemed further delinquent.

To avoid UDAAP violations, the Bulletin suggests that market participants should (1) review their policies regarding repossession, (2) communicate promptly with repossession service providers when a repossession is cancelled and monitor compliance with those orders, (3) exercise routine oversite by monitoring undue repossessions and auditing portfolios, and (4) act swiftly to correct any undue repossessions and reimburse consumers for associated costs.  The Bulletin also recommends entities should ensure consumers are not charged for unnecessary force-placed insurance.

Response from Congressional Republicans:

On March 10, 2022, eleven Republican members of the House Financial Services Committee sent a Letter to CFPB Director Rohit Chopra expressing their concerns with the inflammatory comments made in the Press Release and the dated nature of the information contained within the Bulletin.  The Letter starts by questioning the CFPB’s rhetoric, stating that it was a “gross mischaracterization” for the Bureau to equate repossession of a vehicle with theft.  Then the Letter points out that “there are over 2.2 million car repossessions” annually in the United States, and argues that the examples raised by the CFPB were not representative of the entire industry.  Next, the Letter requested that the Bureau provide data to support the contention that “high car prices increase risk of improper repossession by lenders, servicers, and investors.”  Lastly, the members of Congress touted the essential role that auto financing companies play in helping Americans get to or complete their work.

Guidance to Businesses:

The issuance of such a Bulletin, and even the Press Release itself, suggests the CFPB will be heavily scrutinizing repossession activity during future examinations.  These documents further suggest the potential for future enforcement actions where servicers have failed to meet the standards expected of them by the CFPB.  Auto loan servicers should review their policies and procedures to ensure repossession practices comply with all applicable laws and that procedures are in place to identify and prevent unwarranted repossessions.

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