Auto repossessions spiked in 2022 above pre-pandemic levels, coinciding with a sharp increase in the use of third-party repo agents and higher costs to consumers, the Consumer Financial Protection Bureau has found.
The CFPB on Thursday released a report on auto repos, an opaque segment of the $1.6 trillion auto finance market. Consumers were charged higher repo fees when third-party auto reposession companies, known as "forwarders," were involved, the CFPB found.
Auto lenders were increasingly more likely to use third parties, or repossession forwarders, to manage the repossession process, which tended to increase costs to consumers.
"It's critical that borrowers can avoid the costly consequences of repossession," CFPB Director Rohit Chopra said in a press release. "Supply chain shocks and higher interest rates drove up costs to purchase and finance a car."
Auto loans are the largest source of consumer credit outside of mortgage lending, with more than 100 million active auto finance accounts and $63 billion in new monthly originations as of early 2024. Many consumers avoided having their vehicles repossessed in 2021 and 2022. The increased use of repo agents "may have resulted in increased repossession costs passed on to consumers," the CFPB said in
The CFPB launched an auto finance data pilot program in 2023 to gain insight into the market. The bureau collected data from three banks, three finance companies and three captive lenders. The data covered five years of servicing activity through 2022. The report included de-identified data on 33 million loan originations including terms, fees and balances.
The CFPB said that anecdotal evidence suggested that the use of repossession forwarders has grown, but there is little publicly available data measuring their use and impacts.
"The use of forwarders is generally touted as a means for lenders to outsource the management of repossession assignments and repossession agents, and as a way for lenders to reduce their costs in doing so," the report states.
The use of auto forwarders hit a high of 69% for all completed repossessions in late 2022, up from 50% in early 2020 and 31% in 2018, the CFPB said.
"Trends in how and when repossessions are carried out also provide valuable insight into the auto finance market," the bureau said. "The use of repossession forwarders, their impact on the cost of repossession, and the potential consumer risks associated with their use are not fully understood."
The bureau also found that falling used car prices impacted consumers because deficiency balances rose significantly in 2022 as car prices declined in value. A deficiency balance is where the value of the repossessed vehicle is lower than the value originally borrowed, meaning the borrower still owes the lender money even after their vehicle has been repossessed.
As used vehicle prices began to decline by the end of 2022, 95% of repos had a deficiency balance. The average deficiency balance rose to $11,340 in 2022, a 47% increase from a year earlier.
When a repossession is completed, lenders generally charge consumers for the costs incurred from the repo process including vehicle recovery, towing fees, costs for use of a flatbed tow truck, storage fees, and attorney fees or other fees.
The CFPB also found that consumers with "superprime" credit scores generally were charged lower average fees than those with lower credit scores.
Interestingly, roughly 15% to 19% of borrowers voluntarily surrendered their vehicles in 2018 and 2019, but voluntary surrenders spiked to 63% of all completed repossessions in early 2020.
The CFPB notes that none of the lenders used GPS devices to facilitate repossessions.
