Repo Risk: Beware Illegal Car Repossessions

Used cars are suddenly so much more appealing than they used to be. With prices near historic highs and inventory near record lows, some officials are warning people with car loans that unscrupulous lenders may use more aggressive - and possibly illegal - tactics to repossess cars and beef up their lots. At the same time, brisk sales for nearly all vehicles could make the alternative - working with borrowers behind on payments - a less appealing option.

The Consumer Financial Protection Bureau says it will work to prevent illegal repossessions in the heated automobile market. CFPB says it has seen “illegal seizures, sloppy record keeping, unreliable balance statements and ransom for personal property,” where loan servicers hold belongings found inside repossessed vehicles and refuse to return them unless the property owner pays a fee.

Pennsylvania attorney Andrew Milz says questionable repossessions are already happening. He said his office, which represents consumers in auto repossession cases, fields daily calls from people concerned about whether their car was legally taken.

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“Lenders are making snap judgments about repossessing people’s vehicles because they want to put them back on the lot,” Milz said. “A few years ago, lenders might have been a little more lenient.” Now, “due to the dearth of automobiles, particularly used, it appears these kinds of snap repossessions are happening more and more.”

Milz said he couldn’t estimate how often repossessions are illegal, but could say it’s frequent in his experience.

CFPB says it has found instances in which car loan servicers misled borrowers about the amount of their final loan payments after their payments were deferred due to financial difficulties, mostly as a result of the pandemic.

What Can Borrowers Do If a Car is Repossessed?

Car repossession is an unusual area of the law, Milz said. “It’s very rare in the law where someone can just come and take your stuff,” he explained. But auto loans have provisions known as security agreements where the borrower pledges the vehicle as collateral. That means the lender may seize the car without a court order if the borrower goes into default. “It’s a weird animal in the law,” Milz said. Sometimes, cars are repossessed for other reasons, such as lapsed insurance, even if the loan payments are current, Milz said.

The CFPB notes that some lenders use technology to aid repossessions. For example, many require GPS locators in cars so they can always locate the vehicle.

They may also require the installation of a device that allows them to prevent cars being started if a borrower has missed even one payment.

Milz recalled one client who was driving down a busy street in Philadelphia when the engine stopped because the lender employed a disabling device. “She was lucky enough to get over to the side of the road, but it was a frightening experience for her for sure,” he said. And it turned out she was not in default. “There were several problems with that particular repossession.”

Steps to Take Before Your Car is Repossessed

What can you do if you think your car or truck may be repossessed? According to Ryan Kelly, acting auto finance program manager at the CFPB, you should:

1. Contact your lender as soon as possible. Your lender may be willing to work with you to come up with an affordable payment plan, especially if you have made timely payments in the past. If you do reach an agreement, get it in writing so there isn’t a dispute later.
2. Refinance. You may be able to get a lower interest rate or spread out the payments over more time. Generally, a longer term loan means you will pay more in interest. Shop around.
3. Sell your vehicle. Figure out how much you owe on the auto loan and then check the approximate market value of your vehicle. If you owe less than the value of the vehicle, you can sell it and use the proceeds to pay off the loan. Check your auto loan contract to see if you have a prepayment penalty for paying off early.

Active duty military members have additional protections under the Servicemembers Civil Relief Act.

What to Do When the Repo Man Shows Up

If the repo man shows up, Milz said, he has the “right to be stealthy and take your car. There’s nothing wrong with that. The problems arise when they do disturb the peace.” They’re not allowed to break a gate, for example, or damage the vehicle.

You also have the right to prevent a repossession agent from taking your car or truck, Milz said. If you object, he has to leave and either get a court order or come back and try another time, likely when you’re not present to object.

If the person who is attempting to repossess the vehicle breaches the peace, including continuing with the repossession after you resisted, you may have a claim for damages or a defense that may lessen the amount you owe, according to CPFB.

Also, the agent is not legally allowed to involve the police to help take your vehicle. The police can be summoned by any party, but they can’t take your car from you on behalf of the lender. And you can request that police remove a trespassing agent.

If You Think Your Car Was Wrongfully Seized

Milz said if your car is repossessed, you should gather as much evidence as possible about the seizure. Take video and pictures, and make sure to save any surveillance video from nearby cameras.

You also need act quickly. State laws vary, but generally, you have a window of just 10 to 15 days to dispute a repossession. Lenders are required to provide you with a detailed notice of the repossession, where your car is being held and how to get it back.

Milz encouraged people whose cars are repossessed to contact a consumer protection attorney. Often, these attorneys don’t charge consumers anything because they can recover their fees from lenders.

Kelly said that if you think your car was wrongfully repossessed, you should also submit a complaint to the CFPB. “You may also have other rights under your state law,” Kelly added. “You may be able to get more information about your state law from your state attorney general, your state consumer protection office, a private attorney, or your local legal services office.”

Will Used Car Repos Rise?

Auto loans are the third largest consumer credit market in the U.S., valued at more than $1.46 trillion, more than double the amount a decade ago. Overall vehicle repossessions fell during the pandemic as people took advantage of government assistance and lenders offered forbearance. But hefty demand, as well as supply chain and chip shortages, drove the price of used cars up quickly. The average price of used cars and trucks has gone up by more than 40% in the past year for urban consumers, according to the Bureau of Labor Statistics. In April the average listing price for a used car was $28,365, said Mark Schirmer, director of public relations for Cox Automotive. “This is unheard of and no one on our team remembers a time when the vehicles in their garage were going up in value,” he said.While analysts expect used car prices to return to historical rates of depreciation - usually about 1% of their value each month - CFPB notes that even when inventory shortages abate, larger car loans will put pressure on household budgets for much of the next decade.