[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 [www.gpo.gov]
[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 [email protected].

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

[[Page 11952]]

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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     Made and kept promises to pay that brought the account 
current;
     Made payments that decreased the delinquency to less than 
60 days past due;
     Made promises to pay where the date had not passed; or
     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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     Servicers incorrectly coded consumers as delinquent;
     Servicer representatives failed to cancel repossession 
orders that had previously been communicated to repossession agents; or
     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

[[Page 11953]]

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:
     Repossessed vehicles if consumers' loan account is 
current, even if there was a prior delinquency.
     Repossessed vehicles if consumers entered an agreement to 
extend the loan.
     Repossessed vehicles if consumers followed any 
instructions the company said would result in avoiding repossession.
     Repossessed vehicles from consumers who have filed for 
bankruptcy, and thus are protected by an automatic stay of collection 
activity.
     Repossessed vehicles as a result of processing payments in 
a different order than had been communicated to consumers.
     Repossessed vehicles after unlawful fees pushed the 
consumer's account into default.
     Withhold personal property found in repossessed vehicles 
until consumers pay an upfront fee to recover the property.
     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:
     Review policies and procedures, including call scripts, to 
ensure that they provide employees with accurate information about 
steps consumers can take to prevent repossession.
     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.
     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.
     Monitor repossession service providers for compliance with 
repossession cancellations.
     Incorporate monitoring of wrongful repossession in regular 
monitoring and audits of communications with consumers.
     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.
     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.
     Monitor for illegal fees charged after repossession.
     Review consumer contracts to validate that any fees 
charged to consumers are authorized under the terms of applicable 
contracts.
     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.
     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), https://www.consumerfinance.gov/documents/1385/102016_cfpb_OfficialGuidanceServiceProviderBulletin.pdf.
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     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