Improper, illicit auto repossessions are the target of a compliance bulletin issued Monday by the federal consumer financial protection agency, which outlines conduct the agency has observed in exams; the agency also said it is “closely watching” the auto lending market.
Monday’s bulletin release from the Consumer Financial Protection Bureau (CFPB) is the second time in a week the agency has signaled it is monitoring the market for new and used autos. On Feb. 24, the agency issued a release asserting that “a fair, transparent, and competitive auto lending market – particularly as car prices, especially for used models, rise” – will be a focus of the agency in the coming months.
In its Monday release, the bureau maintained that higher car prices are increasing the risk of improper – and illicit – repossessions by lenders, servicers and investors.
“In recent months, there has been extremely strong demand for used automobiles,” the bureau said. “Due to the global chip shortage, the average list price for new and used automobiles has spiked. The CFPB is concerned that these market conditions might create incentives for risky auto repossession practices, since repossessed automobiles can command higher prices when resold.”
The agency said it also expects that both the total amount of debt and the average loan size will continue to increase. “Even when inventory shortages abate, larger car loans will put pressure on household budgets for much of the next decade,” the agency said.
The bureau indicated that the timing of repossessions “often comes as a surprise to borrowers and can cause devastating injury by depriving borrowers of the use of their vehicles.” In addition, the agency said, 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.
The CFPB indicated it will take action against illegal repossessions and sloppy servicing of auto loans and is looking at servicers to ensure that every single repossession is valid, and ensure proper communication between them and any third party processing a repossession.
The agency also said it is watching when Inaccurate balances lead to a borrower paying less than a sufficient amount to avoid delinquency, resulting in a repossession; and servicers holding personal property found in repossessed vehicles hostage until the property owner pays a fee (which the agency called “ransom”).