Repossession regulations and compliance have always been important for BHPH car dealerships, but conforming to the rules now is more vital than ever. The U.S. government is cracking down on dealers who fail to adhere to regulations when repossessing a vehicle, as several BHPH car lots have recently learned the hard way. Reviewing your current strategy to ensure it complies with repossession regulations may save your dealership a lot of trouble and expense in the future.
This recent crackdown may be, in part, a reaction to changes at the Consumer Financial Protection Bureau (CFPB), which has been criticized for relaxing its standards in lender regulations too much. As a result, there is a push to strengthen regulations and prosecute lenders who fail to comply. Federal Trade Commissioner Rohit Chopra expressed concerns of troubling trends he’s been witnessing.
“What we see at the federal level is of great concern to me because it is a signal to the marketplace that you can go closer to the line, and even cross the line, and you can even make a business decision to cross the line, and even if you are caught, maybe there won’t be much consequences at all,” he explained. “This is deeply unfair to law-abiding financial firms… they should be angry about weakening reinforcement.”
Assistant Attorney General Eric Dreiband has made no secret of the Justice Department’s stance where this issue of repossession compliance is concerned, stating that the department “will continue to vigorously pursue lenders who fail to take the simple steps necessary.”
The specific case Dreiband is referring to involve an Orange County subprime lender, California Auto Finance, and a military service member whose vehicle was wrongfully repossessed. This repossession was in violation of the Servicemembers Civil Relief Act, as California Auto Finance failed to obtain court approval before repossessing the vehicle of a military service person who had previously made payments. That mistake cost the lender $80,000, of which $30,000 was paid directly to the service member and $50,000 was paid in civic penalties. That, of course, does not include what the company paid in legal costs. They have also been ordered to change their repossession policies.
This is only one of several cases concerning the BHPH car dealerships and repossession regulations to hit the press over recent months, and it isn’t only occurring on the national level. Many state courts have seen lawsuits concerning repossessions, and some are even adopting new laws to further regulate what auto dealers can and cannot do. Any BHPH car dealer not paying attention to changes in both state and national regulations may find themselves in the courtroom next.
The state of New Jersey recently sued two BHPH car dealerships for failing to adhere to repossession regulations. According to State Attorney General Gurbir S. Grewal, New 2 U Auto World and Pine Valley Motors both engaged in lending practices specifically and purposefully designed to cause customers to default, allowing the dealerships to repossess the vehicles. Both dealerships sold high-mileage vehicles at inflated prices with high down payments and high interest rates – something that might describe practices often seen among BHPH car dealerships and that could allegedly lead to a higher rate in loan defaults resulting in repossessions.
Along with individual law suits dealers should be concerned about, some states are introducing new or strengthening current laws related to repossessions. Nevada passed a bill this year that is a game changer for BHPH dealers in the state. Under the new repossession regulations, starter interrupt devices commonly installed by dealers have essentially become illegal. The language of the bill is clear and rather strong.
“A person, other than a manufacturer of a motor vehicle, engages in a deceptive trade practice when, in the course of his or her business or occupation, he or she: installs or requires to be installed any electronic repossession technology in a motor vehicle, or uses any electronic repossession technology to take possession of or render inoperable a motor vehicle.”
New Jersey isn’t alone. The nearby state of New York passed similar legislation last autumn, although the New York bill is not as strict. It does, however, prohibit BHPH car dealers and subprime lenders from using starter interrupt technology without first providing notice. The exact affect this will have on the local BHPH industry is not yet entirely clear.
In fact, looking at all of these recent developments, there is only one thing that is entirely clear: it is absolutely vital that BHPH car dealerships understand repossession regulations and ensure their compliance standards are up to par. It seems that enforcement of such regulations may continue to become stronger, and any dealership not complying could well face legal and financial consequences. Dealers must ask themselves how much they really understand about federal and state repossession regulations and address any gaps in their knowledge as quickly as possible. Otherwise, in the subprime auto industry of 2019, what you don’t know may very well hurt you.