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As used-car prices surge, a federal watchdog is warning lenders not to illegally repo people’s vehicles

Prices have risen more than 40 percent during the pandemic

5 min

Repossessing a car is supposed to be the last resort for lenders, who can usually make more money working out a payment plan with borrowers than selling the car at an auction for a loss.

But the pandemic has changed so much in the world of finance.

A global semiconductor chip shortage is leading to historically high prices for used cars. This surge might tempt the companies that service auto loans to be too quick to repossess cars to take advantage of an overheated used-car market, said Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB).

So Chopra has a message for the companies that service auto loans: Don’t illegally repo people’s vehicles. We are watching.

Used-car prices, a large factor in boosting inflation, have been surging. The prices for used cars and trucks have increased 40.5 percent since January 2021, compared with a 12 percent increase for new cars, according to the Bureau of Labor Statistics.

“The concern I keep raising is this is going to create incentives for more-aggressive repossession conduct because you can quickly resell this in the used-car market, in some cases over Kelley Blue Book level,” Chopra said in an interview.

How crazy is the used-car market? This auction sparked a bidding war over a two-year-old minivan.

Here’s why this should matter to the agency charged with protecting consumer rights. Repossessing cars could be financially critical for struggling consumers because increasingly people don’t just use their cars to get to work — they need their cars to do their work, Chopra said.

Gig workers pick up people’s food or take on odd jobs that require reliable transportation. Others are making a living or supplementing their regular income by driving for Uber or Lyft. Their cars are fundamental to their livelihoods.

“You have a lot more people who are involved in moving goods, driving, and actually so much of the independent construction trades depend on people having light trucks,” Chopra said.

In a preemptive move, the CFPB issued guidance this week saying it would be closely reviewing repossession practices by loan servicers that might be tempted to circumvent the law in a rush to sell cars as prices surge rather than chasing people down for late payments.

Illegal repossessions have been an ongoing problem, the agency said.

Without admitting or denying any wrongdoing, in 2020 the auto financing subsidiary of Nissan North America, which services auto loans and leases originated by Nissan and Infiniti dealerships, agreed to settle allegations by the CFPB that it illegally repossessed vehicles. The company agreed to a $4 million fine and to pay up to $1 million in restitution to consumers.

In other cases, the agency said some auto loan servicers have refused to release personal property found in vehicles unless delinquent borrowers paid a storage fee. Servicers have been slammed for sloppy bookkeeping in which consumers were incorrectly coded as being delinquent. Servicers have ignored bankruptcy rules that would have — at least temporarily — stopped a repossession.

“I just am projecting the problems could get much worse unless we stay ahead of it,” Chopra said.

Car dealers are raising prices. Automakers are pushing back. Consumers are stuck in between.

Generally, auto loan servicers don’t immediately move to repossess a vehicle. They contact borrowers, giving them a chance to catch up on their loan payments. Except this doesn’t always happen.

The CFPB pointed out situations in which servicers sent letters stating that their loans would not be considered past due if the borrower paid by a specific date. Yet the cars were repossessed before the date indicated in the letters. In other cases, contrary to stated payment practices, servicers applied partial payments to late fees first. Reordering payments can make it appear that people are further behind than they might be, triggering a repo.

Unscrupulous servicers have additional “incentives for risky auto repossession practices since repossessed automobiles can command these higher prices when resold,” the agency said.

It’s also become easier to locate cars slated for repossession. The repo man isn’t just in a tow truck anymore. Chopra said repossessions have gotten much cheaper now because cars can be tracked with GPS or through license plate recognition cameras, which can scan for cars that are earmarked for repossession.

Exacerbating the problem the CFPB is trying to head off is borrowers’ growing auto debt. As car prices continue to rise, loan amounts are also increasing, which results in longer loan terms to make the payments more affordable.

As of the last quarter of 2021, the average monthly payment for new vehicles was expected to reach an all-time high of $636, according to Edmunds, an auto market research firm. The average monthly payment for used vehicles was also expected to break a record, climbing to $520, compared with $437 in the fourth quarter in 2020.

Auto loans are already the third-largest consumer credit market in the United States, at more than $1.46 trillion, double the amount from 10 years ago, the CFPB said.

To prevent unfair, deceptive or abusive practices, Chopra said, the CFPB wants auto loan servicers to review their policies and procedures, including call scripts, to thwart unnecessary repossession.

“We want to make sure that systemically this gets eradicated,” Chopra said.

Repossessions are unavoidable when people get in financial trouble and can’t pay their auto loans. But the CFPB is right to drive home the point that servicers shouldn’t wrongfully snatch people’s cars if they are making a good-faith effort to catch up on their payments.