In a move intended “to thwart illegal repossessions in the heated auto market,” the CFPB has issued a compliance bulletin that describes conduct related to repossession that it has found to be an unfair, deceptive, or abusive act or practice (UDAAP) and sets forth the Bureau’s expectations for actions entities should take to prevent UDAAPs.
In the bulletin’s background discussion, the Bureau expresses concern that the strong demand for used automobiles and accompanying rise in used automobile prices that has taken place since the start of the COVID-19 pandemic “might create incentives for risky auto repossession practices, since repossessed automobiles can command higher prices when resold.” The bulletin is intended to remind market participants of their legal obligations under federal consumer financial laws.
The bulletin describes examples of conduct constituting “wrongful repossession” that the Bureau has found to be UDAAPs in supervisory examinations, such as repossessing vehicles from consumers who had followed instructions that the servicer had indicated would avoid repossession. The Bureau found that such violations frequently were the result of servicers incorrectly coding consumers as delinquent or failing to cancel repossession orders that had previously been communicated to repossession agents, or repossession agents failing to confirm that a repossession order was still active before repossessing a vehicle.
Also described in the bulletin are examples of practices that have led to:
- repossession that the Bureau has considered to be UDAAPs, such as applying payments in a different order than had been represented to consumers and charging fees for unnecessary forced-placed insurance that contribute to a default; and
- illegal fees after repossession that the Bureau has considered to be UDAAPs, such as charging fees for recovery of property found in repossessed vehicles and collecting premiums for force-placed collateral protection insurance after repossession even though no actual insurance was provided for those periods (with the Bureau providing four different circumstances in which servicers charged consumers for insurance after repossession).
In a section of the bulletin titled “The Bureau’s Expectations,” the Bureau lists the following actions that entities should consider taking to prevent the UDAAPs described in the bulletin:
- review consumer complaints regarding repossession and ensure there is an appropriate channel for receiving, investigating, and properly resolving complaints regarding wrongful repossession and illegal fees after repossession;
- perform regular reviews of service providers, including repossession vendors; and
- monitor any force-placed insurance programs to ensure consumers are not charged for unnecessary insurance, which may include a review of insurance cancellation rates.
In a statement issued in response to the bulletin, the American Financial Services Association commented that “the Bureau is clearly demonstrating that it has very little tolerance for error and [the bulletin] represents another example of a shift in overall tone from the regulator that all members should note.” AFSA also expressed concern “that the Bureau is unilaterally labeling legal and customary practices as illegal.”