EDITORIAL
Last week I reported the Consumer Financial Protection Bureau findings of charging of repossession fees over the average $350 as an UDAAP violation in their Winter 2023 Supervisory Highlights Junk Fees Special Edition. I heard from many of differing opinions and concerns over the issue and agree that there wasn’t enough information provided to really understand exactly how to interpret this clearly. This lack of context sent me in search for clarity from the CFPB, who finally got back to me Tuesday.
After my reporting of the CFPB’s declaration that repossession expenses above the average repossession fee were apparent unfair, deceptive and abusive practices (UDAAP), I received a number of emails form readers. Forwarders, repossession agency owners and lenders alike are either in disbelief in what they are reading or looking for clarification and guidance. In response to all, I could only reply that what I showed and what they published is all that I have. Like everyone, this examination finding leaves me with more questions than answers.
Read the Original Article
The statements regarding “inflated vehicle repossession fees of $1,000 despite average repossession costs of $350.” Has already made it into USA Today and many legal, banking and credit union websites and if not for the sudden meltdown and FDIC seizure of Silicon Valley Bank, might have caught a little more attention. This story has likewise already made it into the websites of several consumer law websites and is doubtlessly in the hands of consumer advocate attorneys as well.
Unfortunately, there is still time for this to spread, and may very well be interpreted as the reader desires until guidance is provided. This is the stuff that urban legends are made of and could be very problematic until reined in by clear regulatory guidance.
After having read the CFPB’s findings, I must have re-read a dozen times or more before I ever laid a key stroke on the screen to write about it. The statements were clear, but offered no context. What were the excess fees being charged the consumer for?
In case you didn’t read it, here’s the relevant section.
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Clear as Mud
On the CFPB’s website where they announced their release of the Junk Fees special exam findings, they stated,
- Inflated estimated repossession fees: Servicers, before returning vehicles to some consumers, charged inflated estimated repossession fees of $1,000. The average cost to repossess a vehicle is $350.
Reading this alone, it would seem that in the event of an auto loan reinstatement or redemption, that lenders are required to refund any fees in excess of “the average cost to repossess a vehicle, which is $350.” Leading into this statement, they hyperlink the words “compliance guidance”, which only takes the reader to an older CFPB article titled “CFPB Moves to Thwart Illegal Auto Repossessions” and makes no mention or reference to the “inflated repossession fees” issue.
Where did that come from? Is anyone out there really doing this? Don’t get me wrong, I do agree with the CFPB that there is an issue, but I do not see what lenders are supposed to have been doing to be in compliance of this.
Going one step further, if it is not allowed during an auto loan reinstatement or redemption, is it allowed when the vehicle is not? If not, it somewhat contradicts the below statements in regard to the “concrete monetary harm” mentioned below. These expenses carry on to judgements and credit reports regardless of the later disposition.
2.2 Auto Servicing
During auto servicing examinations, examiners identified UDAAPs related to junk fees, such as unauthorized late fees and estimated repossession fees. Additionally, examiners found that servicers charged unfair and abusive payment fees.
2.2.3 Charging estimated repossession fees significantly higher than average repossession costs
Examiners found that, where servicers allowed consumers to recover their vehicles after repossession by paying off the loan balance or past due amounts, servicers charged a $1,000 estimated repossession fee as part of the amount owed. This estimated repossession fee was significantly higher than the average repossession cost, which is generally around $350. By policy, the servicers returned the excess amounts to the consumer after they received the invoice for the actual cost from the repossession agent.
Examiners found that the servicers engaged in unfair acts or practices when they charged estimated repossession fees that were significantly higher than the costs they purported to cover. The relevant contracts permitted the servicers to charge consumers default-related fees based on actual cost, but here the fees significantly exceeded the actual cost. Charging the fees caused or was likely to cause substantial injury in the form of concrete monetary harm.
For consumers who paid the amount demanded, deprivation of these funds for even a short period constituted substantial injury. Furthermore, some consumers may have been dissuaded from recovering their vehicles because the servicers represented that consumers must pay a $1,000 estimated repossession fee in addition to other amounts due. Some consumers may have been able to afford a $350 fee but not a $1,000 fee, and therefore did not pay and permanently lost access to their vehicles.
Consumers could not reasonably avoid the injury because they did not control the servicers’ practice of charging unauthorized estimated repossession fees. And the injury was not outweighed by countervailing benefits to consumers or competition because the fee exceeded costs necessary to cover repossession.
In response to these findings, the servicers ceased the practice of charging estimated repossession fees that were significantly higher than the actual average amount and provided refunds to affected consumers.
That’s it. NO clarification of what the excess fees were for. Kind of leaves everyone wondering what they did wrong and if they’re doing the same.
Looking for Advice
The reaction from readers was mixed. The repossession agency owners felt vindicated. For years now, they have been complaining of forwarders withholding fees from them and charging the consumers for them anyhow. Yes, this is true and I have seen evidence of it many times.
From the two forwarders I heard from. One thought I was being an alarmist and shouldn’t have published it until clearer guidance was provided. In other words, don’t rock the boat until clear legal guidance is received. The other, thought that I should be the one to research these questions, so I did.
I like to think that I’m a reasonably smart guy, but with the vagueness of the CFPB’s given example, made me reach out to some smarter people than myself for guidance. Attempting contact with two prominent credit union attorneys, one didn’t reply and perhaps I’ll hear from them later.
The other didn’t seem to understand the lender/forwarder/agency relationship very well and was equally confused by the example given and its minimal context.
So, I reached out to the people most capable of shedding light on this; The CFPB.
Below is the inquiry that I sent to them.
On March 8th, the CFPB released their Winter 2023 Supervisory Highlights Junk Fees Special Edition. The findings under auto servicing 2.2.3 have the lending and repossession industries paralyzed with wondering how to comply.
In section 2.2 Auto Servicing, under 2.2.3 Charging estimated repossession fees significantly higher than average repossession costs, it is stated that;
“Examiners found that, where servicers allowed consumers to recover their vehicles after repossession by paying off the loan balance or past due amounts, servicers charged a $1,000 estimated repossession fee as part of the amount owed. This estimated repossession fee was significantly higher than the average repossession cost, which is generally around $350. By policy, the servicers returned the excess amounts to the consumer after they received the invoice for the actual cost from the repossession agent.”
This statement is causing an uproar in the lending and repossession management fields as they are curious what the excess fees being charged were, and if they are out of compliance by charging them. Obviously, no one wants to be out of compliance, let alone, guilt of UDAAP’s.
As has been the norm since the advent of auto lending, transportation, locksmithing, investigative expenses have always been billed to the borrower and disclosed accordingly in post repossession notices, which for most states are provided under a safe harbor form in accordance with the UCC.
This brings me to some of the questions arising from this;
- Are lenders disallowed to charge anything more than the actual cost of repossessing collateral? In other words, exactly what the repossession agency was paid and no investigative fees charged to locate vehicles, transportation fees, locksmithing fees, etc.?
- If the lender is using a repossession management service like Primeritus, PAR, just to name a couple, to assign and manage their repossession process, are they required to pay for the repossession management services themselves and not allowed to pass that cost on to the consumer?
- If any of the above are correct, are lenders required to recompensate all consumers who had been notified that they must pay these fees?
- If the collateral had been sold, are they required to return all payments made and remove any negative credit reporting?
- Are repossession agencies prohibited to adjust their repossession fees to address inflation? As it is, they have been paid $350 a repossession on average for over 30 years!
Of course, being a Friday, I didn’t expect an immediate reply, but this is about as good as I can do given the short period since it’s discovery. It’ not like I have Rohit Chopra’s cell number.
Quick Feedback
To my surprise, Monday morning, I received an emailed response from Tia Elbaum, the CFPB’s Office of Public Affairs Spokesperson. Her first contact simply inquired to what my deadline was. I told her a day or two would be nice and thanked her for her quick reply.
Lo and behold, Tuesday afternoon, she got back to me! Excited, I opened it right away. Aaaaaaaand this was her response;
Hi Kevin,
Thank you for your query. On background, Supervisory Highlights summarizes actions the CFPB has taken in examinations. In the citations referred to in Supervisory Highlights, servicers were charging consumers for repossession costs that exceeded the actual repossession costs billed to the servicers.
Disappointed. I thought that I’d laid out some pretty good questions to help better frame the issues created by the lack of full context of the situations. But apparently, they don’t seem too capable or willing to help us understand this at this point.
Moving Forward
I will say it again and again. I am not an attorney. I am a writer with an opinion based upon the evidence provided to us all which is so little that even your own attorneys will be unlikely to provide much guidance.
If I were a forwarder, I would be a little concerned about this to say the least. This could go poorly or this could be a big nothing-burger.
So, as a lender or collections manager/executive, do you keep assigning to your forwarders as you have always done? Like your CPI carriers have encouraged you to do? After all, “That’s the way we’ve always done it” has always served the credit union industry well. That’s your call.
But I would strongly suggest that everyone in the collections and lending world adopt a lot less of a hands-off approach to their repossession management processes. Perhaps it is time to do an audit of your repossession invoices received from your forwarding companies?
When was the last time you compared an invoice from a forwarder to that of the repossession company that actually performed the function? If you did that, I think you would often find some pretty big variances between what the forwarder was charging and what they actually paid.
Personally, I strongly suspect that most of the CFPB’s allegations stem from this. I know the collections industry gets tired of hearing the repossession industry complaining about fees. Sitting in your chairs and looking at invoices for recover ranging from $600 to $1,100 it probably seems pretty far-fetched and a lot of foolish whining.
But if you look back at the CFPB’s statement; “, servicers charged a $1,000 estimated repossession fee as part of the amount owed. This estimated repossession fee was significantly higher than the average repossession cost, which is generally around $350.” Perhaps this means exactly what it says?
Unfortunately, we’re all still stuck looking for answers. In the meanwhile, everyone goes on like it’s business as usual and the possibility that everyone who is using a forwarding company may have been and may continue to be committing UDAAPs by overstating repossession fees in NOI’s and every other collections activity related to it persists.
It’s not fair, but it is what it is until guidance is provided. And for everyone out there, it is deserved. The monetary risk to lenders by lack of compliance in this could be huge.
I’ll keep you all posted if I hear anything more. Again, if anyone would like to share their opinions or insight into this, lender, forwarder or attorney, you a most welcome to reach out to me at editor@cucollector.com.
Thank you,
Kevin Armstrong
Editor
CFPB’s Response to Questions on UDAAP Repo Fees – Consumer Financial Protection Bureau – CFPB
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