Auto lenders need to take a close look at their repossession policies and procedures as regulators home in on the process in tandem with an uptick in repossessions industrywide.
The Consumer Financial Protection Bureau earlier this month sued USASF Servicing, the financial arm of now-closed buy here, pay here dealership chain U.S. Auto Sales, alleging that the lender engaged in wrongful repossessions and illegally disabled vehicles.
As the bureau gains a better understanding of the auto finance process, enforcement actions are targeting whether repossessions are valid as well as practices related to disabling or tracking vehicles, John Redding, partner at Alston & Bird, told Auto Finance News.
“The bureau has learned more about [the auto finance] industry and has identified what they consider to be important points in the process that are likely to have meaningful impact on consumers,” he said. “Repossession is a point at which you can materially impact a consumer.”
Here are some best practices lenders can employ to improve recovery rates and remain compliant:
1. Review internal and external processes
Lenders must ensure they are properly handling a repossession and that the vendor is updated during the process, including whether a repossession should be canceled, Redding said. If a consumer has made a payment or is otherwise working with the lender in a capacity that warrants a cancellation, it’s up to the creditor to ensure the repossession is canceled or that proper steps are followed to return the vehicle to the consumer, he said.
“The regulators are going to hold the creditors responsible for this, so it’s important from a compliance perspective that creditors have systems in place to promptly communicate [a cancellation],” Redding said. “It’s also important from a vendor management perspective to make sure that the forwarder or the repo agent have similar systems in place that will allow for that cancellation.”
2. Follow policies as described
While lenders must comply with federal and state repossession regulations, they must also ensure their internal processes are followed, Redding said. If a creditor’s policy is that a repossession will be deferred upon receipt of a promise to pay from a consumer, for example, the creditor must ensure the policy is able to be followed.
“It’s making sure that our policies and procedures are clear, that we can perform to them and see that we are doing what we say we’re going to do,” Redding said. “A promise to pay is not a payment. If I say, upon receipt of a promise to pay the past due balance, we will terminate or suspend a repossession … are we following our policy? Make sure your policies and procedures are actionable.”
3. Strive for collaboration
Communication and collaboration between creditors and repossession providers is crucial to keep recovery time on track as there are fewer agents to work repossession jobs, Vaughn Clemmons, president of the American Recovery Association and repo agency Automobile Recovery Bureau, both based in Texas, told AFN.
“Our role is to facilitate discussions where we can have negotiation between anybody that’s in this industry. Whether you’re in auction or transport, a lender, forwarder or agent, we should be talking collectively,” he said. “The No. 1 deal is for lenders to start speaking to agents that are handling the assignments. To do that, it’s going to require collaboration and a renewed sense of thinking.”
Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with Ford Credit. To learn more about the 2023 event and register, visit autofinance.live/afs/.