CFPB seeks to halt illegal auto repossessions by servicers

Huge demand for used cars has prompted the Consumer Financial Protection Bureau to warn about illegal repossessions by auto lenders and servicers.

The CFPB issued a compliance bulletin Monday describing ways in which auto repossessions violate the Dodd-Frank Act’s prohibition on engaging in unfair, deceptive or abusive acts or practices.

CFPB Director Rohit Chopra said the bureau is concerned that the spike in car prices, due partly to the global microchip shortage, could create incentives for servicers to illegally seize vehicles for their resale value.

“With today’s high car prices, auto lenders and investors might be tempted to seize vehicles for resale in the hot used car market,” Chopra said in a press release. “No American ever wants to wake up to see their car stolen. Auto loan servicers need to ensure that every repossession is lawful.”

Sharply rising car prices pushed newly opened auto loans to a record $734 billion in 2021, according to data from the Federal Reserve Bank of New York released this month.

Servicers generally do not immediately repossess a vehicle when a consumer defaults on a loan. Instead, they typically make multiple attempts to contact a consumer and potentially provide options for avoiding a default.

The CFPB warned servicers against repossessing cars from borrowers who have entered into payment plans or made sufficient payments to stop a repo. The bureau also said it will not tolerate sloppy record-keeping, such as agents failing to cancel repo orders or failing to communicate with third-party repo providers.

Applying loan payments in a different order than what has been disclosed to the borrower is a deceptive act or practice, the CFPB said, since it can lead to inaccurate balances and cause the borrower to pay less than a sufficient amount to avoid delinquency, resulting in a repo.

Charging unlawful fees, including unnecessary force-placed insurance, can push consumers into delinquency or default and lead to the repossession of a consumer’s vehicle, the CFPB said.

The bureau specifically cited a 2020 consent order against Nissan Motor Acceptance, the auto financing unit of Nissan North America, for unfair and deceptive practices that led to a $4 million fine and $1 million in consumer redress.

The bureau found that Nissan’s servicing unit in Irving, Texas, had wrongfully repossessed vehicles, required that consumers pay a storage fee to reclaim personal property left in the vehicle, and deprived some consumers of payment options that would have significantly lowered borrowers’ fees.