Hudson Cook partner Allen Denson read through the auto-finance portion of the latest Supervisory Highlights shared by the Consumer Financial Protection Bureau and immediately thought of another credit segment. The CFPB’s report described problems bureau representatives found with vehicles being repossessed after contract holders evidently made catch-up payments or entered into agreements to avoid repossession.
In the report, the CFPB acknowledged that contract holders give creditors a security interest in their vehicles. When a borrower defaults, the CFPB said a creditor can exercise its rights under the contract and repossess the secured vehicle.
The bureau also pointed out that servicers may have formal extension agreements that allow borrowers to forbear payments for a certain period of time or may cancel a repossession order once a borrower makes a payment.
“In one or more recent exams, examiners found that one or more entities were repossessing vehicles after the repossession was supposed to be cancelled,” the CFPB said in the report. “In these instances, the servicer(s) wrongfully coded the account as remaining delinquent, customer service representatives did not timely cancel the repossession order after borrowers made sufficient payments or entered an agreement with the servicer to avoid repossession, or repossession agents had not checked the documentation before repossessing and thus did not learn that the repossession had been cancelled.
“Bureau examiners concluded that it was an unfair practice to repossess vehicles where borrowers had brought the account current, entered an agreement with the servicer to avoid repossession, or made a payment sufficient to stop the repossession, where reasonably practicable given the timing of the borrower’s action,” the report continued.
Upon reviewing that update, Denson arrived at this assessment.
“The problems with repossession highlighted in the most-recent version of the CFPB’s Supervisory Highlights are reminiscent of financial regulators concerns about alleged wrongful foreclosures during the mortgage crises,” Denson said in a message to SubPrime Auto Finance News. “There, mortgage servicers on occasion foreclosed on consumers who were involved in loan modification or workout pipelines.
“The same circumstances appear to apply here: Consumers may have had their vehicles repossessed while they were part of a workout agreement,” continued Denson, who is set to be a part of a regulatory discussion during Repo Con at Used Car Week, which begins on Nov. 13 in Palm Springs, Calif.
After the CFPB discovered what the regulator deemed to be an improper practice, the bureau’s report shared what happened next.
“Supervision directed the servicer(s) to stop the practice,” the report said. “In response to our examiners’ findings, the servicer(s) informed supervision that the affected consumers were refunded the repossession fees.
“The servicer(s) also implemented a system that requires repossession agents to verify that the repossession order is still active immediately prior to repossessing the vehicle, for example, through a specially designed mobile application for that purpose,” the report added.
Upon seeing how the CFPB handled the matter, Denson closed with an upbeat recommendation of how the auto finance industry can move forward to avoid these problems down the road.
“The Supervisory Highlights, while noting the problem, also seem to contain a proposed solution,” Denson said. “Servicers should develop methods to ensure real-time or near real time status updates of accounts before repossession and should develop procedures whereby repossession agents confirm that a repossession should occur immediately prior to the event.
“In the case of the servicer highlighted in Supervisory Highlights, a ‘high-tech’ solution in the form of an app was adopted,” he continued. “However, services could adopt more manual procedures as well. The key is having open information channels and checks against alleged wrongful repossessions.”