The members of Eagle Group XX have noted a phenomenon occurring in our industry and would like to address it in order to assist other asset recovery industry members in avoiding costly lawsuits, bad publicity and loss of clients.
In today’s litigious society it is not an uncommon occurrence for a professional asset recovery agency to end up named in a lawsuit instigated by a consumer when the allegations of wrongdoing relate strictly to the activities of the lender.
The Consumer Financial Protection Bureau as well as many states attorney generals are scrutinizing the activities of automobile lenders and Buy Here Pay Here automobile dealers in relation to UDAAP (Unfair, Deceptive or Abusive Acts or Practices) violations.
In order to avoid a costly lawsuit, which will cost attorney fees into the $10,000.00 plus range just to defend, as well as avoiding the bad publicity and loss of clients it is imperative that asset recovery agencies have a clear understanding of the recognizable signs of “Predatory Lending Practices” in order to mitigate their risks by being able to avoid working for these volatile seller-lenders.
Predatory Lending, which mainly appears in sub prime markets, usually targets the less educated, the poor, the racial minorities and the elderly and includes the practice of convincing borrowers to agree to unfair and abusive loan terms which have been determined to be unfair, deceptive or fraudulent during the loan origination process.
The loans are primarily backed by vehicles which the lender can repossess upon default and realize a profit by reselling the collateral.
The deception usually involves the failure to clearly and accurately disclose all terms and conditions as well as altered and substituted documents. In most cases the borrower cannot manipulate the key loan factors while the seller/lender retains that ability.
There are several “Red Flags” the asset recovery agency should be observant for including but not limited to, the lender is unable to get financing at a higher rate or the consumer must return the vehicle, a required large down payment from which the seller-lender may draw from for “Usage” after the collateral has been returned, the lender client, after numerous refused attempts to get the consumer to return the collateral now insists on “NO CONTACT” with the consumer, “JUST GET OUR CAR” and last but not least the trade in vehicle has been sold.
How do you mitigate this risk and keep your agency out of the courtroom?
Asset recovery agencies should be doing in depth due diligence background investigations regarding clients and/or potential clients which might fall into the “Predatory Lender” category and refusing to work for seller-lenders who do not meet specific standards.
The mere fact that the CFPB has taken a direct interest in protecting consumers from this group should be a loud wake up call to the members of the asset recovery industry.
Trust your instincts and do not get ensnared in lawsuits for illegal client behavior. Learn to say “NO”.