Rule2022-04508
Bulletin 2022-04: Mitigating Harm From Repossession of Automobiles
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 3, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (Bureau or CFPB) is issuing this Compliance Bulletin regarding repossession of vehicles, and the potential for violations of sections 1031 and 1036 of the Dodd- Frank Wall Street Reform and Consumer Protection Act's (Dodd-Frank Act's) prohibition on engaging in unfair, deceptive, or abusive acts or practices (collectively, UDAAPs) when repossessing vehicles.
Full Text
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<title>Federal Register, Volume 87 Issue 42 (Thursday, March 3, 2022)</title>
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[Federal Register Volume 87, Number 42 (Thursday, March 3, 2022)]
[Rules and Regulations]
[Pages 11951-11954]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-04508]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
Bulletin 2022-04: Mitigating Harm From Repossession of
Automobiles
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Compliance bulletin and policy guidance.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
issuing this Compliance Bulletin regarding repossession of vehicles,
and the potential for violations of sections 1031 and 1036 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act's (Dodd-Frank
Act's) prohibition on engaging in unfair, deceptive, or abusive acts or
practices (collectively, UDAAPs) when repossessing vehicles.
DATES: This bulletin is applicable on March 3, 2022.
FOR FURTHER INFORMATION CONTACT: Pax Tirrell, Counsel, Office of
Supervision Policy at 202-435-7097; Tara Flynn, Senior Counsel for
Enforcement Policy and Strategy, Office of Enforcement at 202-435-9734.
If you require this document in an alternative electronic format,
please contact <a href="/cdn-cgi/l/email-protection#fab9bcaab8a5bb99999f898993989396938e83ba999c8a98d49d958c"><span class="__cf_email__" data-cfemail="8dcecbddcfd2cceeeee8fefee4efe4e1e4f9f4cdeeebfdefa3eae2fb">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
In recent months, there has been extremely strong demand for used
automobiles. Since the start of the COVID-19 pandemic, the average list
price for used automobiles has continued to climb. While there are many
factors contributing to high prices, the Consumer Financial Protection
Bureau is concerned that these market conditions might create
incentives for risky auto repossession practices, since repossessed
automobiles can command these higher prices when resold. To mitigate
harms from these risks, the Bureau is issuing this bulletin to remind
market participants about certain legal obligations under Federal
consumer financial laws.
To secure an auto loan, lenders require borrowers to give creditors
a security interest in the vehicle. If a borrower defaults, a creditor
may exercise its contractual rights to repossess the secured vehicle.
Servicers collect and process auto loan or lease payments from
borrowers and are either creditors or act on behalf of creditors.
Generally, servicers do not immediately repossess a vehicle upon
default and instead attempt to contact consumers before repossession,
usually by phone or mail. Servicers may give consumers in default the
opportunity to avoid repossession by making additional payments or
promises to pay. Servicers generally use service providers to conduct
repossessions.
While some repossessions are unavoidable, the Bureau pays
particular attention to servicers' repossession of automobiles. Loan
holders and servicers are responsible for ensuring that their
repossession-related practices, and the practices of their service
providers, do not violate the law. The Bureau intends to hold loan
holders and servicers accountable for UDAAPs related to the
repossession of consumers' vehicles.\1\
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\1\ Although the focus of this bulletin is UDAAPs, the Bureau
notes that certain provisions of the Fair Debt Collection Practices
Act and its implementing Regulation F may also apply to the
repossession of automobiles. Fair Debt Collection Practices Act,
803(6), 15 U.S.C. 1692a(6); 12 CFR 1006.2(i)(1) (effective November
30, 2021).
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II. Unfair and Deceptive Acts or Practices in Supervision and
Enforcement Matters
This Bulletin summarizes the current law and highlights relevant
examples of conduct observed during supervisory examinations or
enforcement investigations that may violate Federal consumer financial
law.
Under the Dodd-Frank Act, all covered persons or service providers
are prohibited from committing unfair, deceptive, or abusive acts or
practices in violation of the Act. An act or practice is unfair when
(i) it causes or is likely to cause substantial injury to consumers;
(ii) the injury is not reasonably avoidable by consumers; and (iii) the
injury is not outweighed by countervailing benefits to consumers or to
competition.\2\
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\2\ Dodd-Frank Act sections 1031, 1036, 12 U.S.C. 5531, 5536.
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Whether an act or practice is deceptive is informed by decades of
precedent involving Section 5 of the Federal Trade Commission Act.\3\
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\3\ See CFPB Exam Manual at UDAAP 5.
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The Dodd-Frank Act prohibits two types of abusive practices. First,
materially interfering with the ability of a consumer to understand a
term or condition of a product or service is abusive. Second, taking
unreasonable advantage of statutorily specified market imbalances is
abusive. Those market imbalances include (1) a consumer's lack of
understanding of the material risks, costs or conditions of a product
or service, (2) a consumer's inability to protect their interests in
selecting or using a product or service, or (3) a consumer's reasonable
reliance on a covered person to act in their interests.\4\
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\4\ 12 U.S.C. 5531(d).
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a. Unfair or Deceptive Practices During the Repossession Process
In its Supervisory and Enforcement work, the Bureau has found the
following conduct related to repossession of automobiles to be
UDAAPs.\5\
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\5\ For convenience, this document generally refers to
historical findings by ``the Bureau'' in both Supervision and
Enforcement, even though in Supervisory matters the findings are
made by the Bureau's examiners rather than by the Bureau itself.
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Wrongful Repossession of Consumers' Vehicles
Many auto servicers provide options to borrowers to avoid
repossession once a loan is delinquent or in default. Failure to
prevent repossession after borrowers complete one of these options,
where reasonably practicable given the timing of the borrowers' action,
may constitute an unfair act or practice.
For example, in a public enforcement action, the Bureau found that
an entity engaged in an unfair act or practice when it wrongfully
repossessed consumers' vehicles.\6\ The servicer told consumers it
would not repossess vehicles when they were less than 60 days past due.
Additionally, the servicer maintained a policy and told consumers that
it would not repossess vehicles of consumers who had entered into an
agreement to extend the loan, or who had made a promise to make a
payment on a specific date and that date had not passed or who
successfully kept a promise to pay. Nevertheless, the servicer
wrongfully repossessed
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vehicles from hundreds of consumers who had:
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\6\ In the Matter of Nissan Motor Acceptance Corp., 2020-BCFP-
0017 (Oct. 13, 2020).
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<bullet> Made and kept promises to pay that brought the account
current;
<bullet> Made payments that decreased the delinquency to less than
60 days past due;
<bullet> Made promises to pay where the date had not passed; or
<bullet> Agreed to extension agreements.
Each of these actions taken by consumers should have prevented
repossessions of their vehicles. The Bureau found the servicer's
wrongful repossessions constituted an unfair act or practice. They
caused substantial injury by depriving borrowers of the use of their
vehicles, and many consumers also experienced consequences such as
missed work, expenses for alternative transportation, repossession-
related fees, detrimental credit reporting, and vehicle damage during
the repossession process. Such injury was not reasonably avoidable, and
the injury was not outweighed by countervailing benefits to the
consumer or to competition.
Supervision has identified similar unfair practices in numerous
examinations.\7\ Supervision observed that these violations frequently
occurred, after consumers acted to prevent repossession, because of one
of the following errors:
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\7\ Supervisory Highlights, Issue 16--Summer 2017; Supervisory
Highlights, Issue 17--Summer 2018.
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<bullet> Servicers incorrectly coded consumers as delinquent;
<bullet> Servicer representatives failed to cancel repossession
orders that had previously been communicated to repossession agents; or
<bullet> Repossession agents failed to confirm that the
repossession order was still active prior to repossessing a vehicle.
Other Practices Causing Wrongful Repossession
Supervision has also identified other practices related to
repossession that resulted in unfair acts or practices. For example,
the Bankruptcy Code imposes an automatic stay that bars collection
activity, including repossession, from the moment a consumer has filed
a bankruptcy petition. Supervision found that when servicers received
notice that consumers had filed bankruptcy petitions and their accounts
were subject to an automatic stay, the servicers committed an unfair
act or practice by repossessing vehicles subject to such automatic
bankruptcy stays.
Additionally, Supervision has identified that servicers committed
an unfair act or practice by wrongfully repossessing vehicles after
communicating inaccurate information. For example, Supervision has
found that some servicers sent consumers letters stating that loans
would not be considered past due if the consumer paid the amount due by
a specific date. Consumers reasonably expected the servicers not to
repossess before the date listed in the letter. When the servicers
repossessed the vehicles prior to that date, they committed an unfair
act or practice.
Representations of Amounts Owed
Supervision has also identified that servicers committed deceptive
acts or practices by failing to provide consumers with accurate
information about the amount required to bring their accounts current.
For example, when consumers called to determine what amount would bring
their accounts current, servicing personnel erroneously represented to
consumers an amount due that was less than what was actually owed. As a
result of this misrepresentation consumers paid an amount insufficient
to avoid delinquency and the consequences of delinquency. This later
led to repossessions that would not have occurred had consumers
received accurate information. This conduct was deceptive because the
servicer told consumers that an amount would bring their accounts
current when, in fact, that amount would not bring their account
current.
b. Unfair or Deceptive Practices That May Lead to Repossession
The following are examples of practices that lead to repossession
of consumers' vehicles that the Bureau has considered to be UDAAPs.
Applying Payments in a Different Order Than Disclosed to Consumers,
Resulting in Repossession
Payment application for auto loans is governed by the finance
agreements between servicers and consumers. Supervision has found that
entities engaged in a deceptive act or practice when they made
representations to consumers that payments would be applied in a
specific order, and then subsequently applied payments in a different
order. For example, Supervision found that servicers represented on
their websites that payments would be applied to interest, then
principal, then past due payments, before being applied to other
charges, such as late fees. Instead, the servicers applied partial
payments to late fees first, in contravention of the methodology
disclosed on the website. Because servicers applied payments to late
fees first, some consumers were deemed more delinquent than they would
have been under the disclosed payment allocation order, and these
servicers repossessed some consumers' vehicles.
Under these circumstances, servicers' websites provided inaccurate
information about payment allocation order. In some instances, the
underlying contract provided the servicer the right to apply payments
in any order, which did not immunize the company from liability for the
deceptive website content.\8\
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\8\ Supervisory Highlights, Issue 24--Summer 2021.
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Unlawful Fees That Push Consumers Into Default and Repossession
Enforcement has brought claims under the CFPB's unfairness
authority where unlawful fees push consumers into default and
repossession.
For example, in a public enforcement action, the Bureau found that
an entity engaged in an unfair act or practice by operating its force-
placed insurance (FPI) program in an unfair manner, in some instances
resulting in repossession.\9\ The entity purchased duplicative or
unnecessary FPI policies and, in some instances, maintained the
policies even after consumers had obtained adequate insurance and
provided adequate proof of coverage. This conduct caused the entity to
charge consumers for unnecessary FPI, resulting in additional fees, and
in some instances delinquency or loan default. For some consumers the
additional costs of unnecessary FPI contributed to a default that
resulted in the repossession of a consumer's vehicle. Charging
unnecessary amounts to consumers and subjecting them to default and
repossession caused or was likely to cause substantial injury. This
injury was not reasonably avoidable and was not outweighed by
countervailing benefits.\10\
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\9\ In re Wells Fargo Bank, N.A., 2018-BCFP-0001 (Apr. 20,
2018).
\10\ See also Supervisory Highlights, Issue 24--Summer 2021.
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c. Unfair Practices That May Result in Illegal Fees After Repossession
The following are examples of practices that led to illegal fees
after repossession of consumers' vehicles that the Bureau has
considered to be UDAAPs.
Charging Illegal Personal Property Fees
The Bureau has identified an unfair practice concerning illegal
personal property fees. Borrowers often keep personal property in the
repossessed vehicles. These items often are not
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merely incidental but can be of substantial practical importance or
emotional attachment to borrowers. State law typically requires auto
loan servicers and repossession companies to secure and maintain
borrowers' property so that it may be returned to the borrower upon
request. Some companies charge borrowers for the cost of retaining the
property.
In a public enforcement action, the Bureau found that an entity
engaged in an unfair act or practice by withholding consumers' personal
property unless the consumers paid an upfront fee to recover the
property.\11\ Many of the repossession agents employed by the entity
imposed fees on consumers for holding personal property in the
repossessed vehicles. The agents often refused to return consumers'
personal property unless and until the consumers paid the fees. The
Bureau found that the servicer was responsible for its agents
withholding consumers' personal property unless the consumer paid an
upfront fee to recover it and thus caused substantial injury that was
not reasonably avoidable and not outweighed by countervailing benefits
to consumers or competition. Supervision has also identified this
unfair act or practice at other servicers where the servicers withheld
consumers' personal property unless they paid an upfront fee.\12\
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\11\ In the Matter of Nissan Motor Acceptance Corp., 2020-BCFP-
0017 (Oct. 13, 2020).
\12\ Supervisory Highlights, Issue 13--Fall 2016.
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Charging for Collateral Protection Insurance After Repossession
Supervision found that servicers engaged in unfair acts or
practices by collecting or attempting to collect force-placed
collateral protection insurance (FPI) premiums after repossession even
though no actual insurance protection was provided for those periods.
FPI automatically terminates on the date of repossession, and consumers
should not be charged after this date. Despite this, servicers charged
consumers for FPI after repossession in four different circumstances.
First, servicers failed to communicate the date of repossession to the
FPI service provider due to system errors. Second, servicers used an
incorrect formula to calculate the FPI charges that needed to be
removed due to the repossession. Third, servicers' employees entered
the wrong repossession date into their system of record, resulting in
improper termination dates. Fourth, servicers charged consumers--who
had a vehicle repossessed and subsequently reinstated the loan--post-
repossession FPI premiums, including for the days the vehicle was in
the servicer's possession, despite the automatic termination of the
policy on the date of repossession. These errors caused consumers
substantial injury because they paid amounts they did not owe or were
subject to collection attempts for amounts they did not owe. This
injury was not reasonably avoidable because consumers did not control
the servicers' cancellation processes. The substantial injury to
consumers was not outweighed by any countervailing benefits to
consumers or competition.\13\
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\13\ Supervisory Highlights, Issue 24--Summer 2021.
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III. The Bureau's Expectations
As explained in greater detail above, the Bureau has held auto
lenders, loan holders, and servicers accountable if they or their
agents commit UDAAPs when repossessing automobiles, including when
they:
<bullet> Repossessed vehicles if consumers' loan account is
current, even if there was a prior delinquency.
<bullet> Repossessed vehicles if consumers entered an agreement to
extend the loan.
<bullet> Repossessed vehicles if consumers followed any
instructions the company said would result in avoiding repossession.
<bullet> Repossessed vehicles from consumers who have filed for
bankruptcy, and thus are protected by an automatic stay of collection
activity.
<bullet> Repossessed vehicles as a result of processing payments in
a different order than had been communicated to consumers.
<bullet> Repossessed vehicles after unlawful fees pushed the
consumer's account into default.
<bullet> Withhold personal property found in repossessed vehicles
until consumers pay an upfront fee to recover the property.
<bullet> Charged for collateral protection insurance after a
vehicle is repossessed.
To prevent these unfair, deceptive, or abusive acts or practices,
entities should consider doing the following:
<bullet> Review policies and procedures, including call scripts, to
ensure that they provide employees with accurate information about
steps consumers can take to prevent repossession.
<bullet> Review policies and procedures regarding cancellation of
repossession orders to ensure that there is an appropriate process for
cancelling repossessions if consumers take steps that should result in
cancellation.
<bullet> Ensure prompt communications between the servicer and
repossession service provider when the servicer cancels a repossession.
For example, servicers may call repossession service providers to
confirm cancelation or use mobile phone applications that push
cancellation updates to repossession service providers' phones.
<bullet> Monitor repossession service providers for compliance with
repossession cancellations.
<bullet> Incorporate monitoring of wrongful repossession in regular
monitoring and audits of communications with consumers.
<bullet> Ensure that the entity has a corrective action program to
address any violations identified and to reimburse consumers for the
direct and indirect costs incurred as a result of unlawful
repossessions when appropriate.
<bullet> Review payment allocation policies and procedures to
validate that they are consistent with the payment allocation order
disclosed in contracts and other consumer facing disclosures, such as
websites.
<bullet> Monitor for illegal fees charged after repossession.
<bullet> Review consumer contracts to validate that any fees
charged to consumers are authorized under the terms of applicable
contracts.
<bullet> Review consumer complaints regarding repossession and
ensure there is an appropriate channel for receiving, investigating,
and properly resolving consumer complaints relating to wrongful
repossession and illegal fees after repossession.
<bullet> Perform regular reviews of service providers, including
repossession vendors, as to their pertinent practices.\14\
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\14\ CFPB Compliance Bulletin and Policy Guidance; 2016-02,
Service Providers (Oct. 31, 2016), <a href="https://www.consumerfinance.gov/documents/1385/102016_cfpb_OfficialGuidanceServiceProviderBulletin.pdf">https://www.consumerfinance.gov/documents/1385/102016_cfpb_OfficialGuidanceServiceProviderBulletin.pdf</a>.
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<bullet> Monitor any FPI program to ensure that consumers are not
charged for unnecessary FPI. This may include review of FPI
cancellation rates.
IV. Conclusion
The Bureau will continue to review closely the practices of
entities repossessing automobiles for potential UDAAPs, including the
practices described above. The Bureau will use all appropriate tools to
hold entities accountable if they engage in UDAAPs in connection with
these practices.
V. Regulatory Requirements
The Bulletin constitutes a general statement of policy exempt from
the notice and comment rulemaking requirements of the Administrative
Procedure Act (APA). It is intended to provide information regarding
the
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Bureau's general plans to exercise its supervisory and enforcement
discretion for institutions under its jurisdiction and does not impose
any legal requirements on external parties, nor does it create or
confer any substantive rights on external parties that could be
enforceable in any administrative or civil proceeding. Because no
notice of proposed rulemaking is required in issuing the Bulletin, the
Regulatory Flexibility Act also does not require an initial or final
regulatory flexibility analysis. The Bureau has also determined that
the issuance of the Bulletin does not impose any new or revise any
existing recordkeeping, reporting, or disclosure requirements on
covered entities or members of the public that would be collections of
information requiring approval by the Office of Management and Budget
under the Paperwork Reduction Act.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-04508 Filed 3-2-22; 8:45 am]
BILLING CODE 4810-AM-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.