The Consumer Financial Protection Bureau issued a warning to auto lenders to avoid repossessing vehicles before they are legally allowed to. A representative for the consumer watchdog said that the organization has only seen a small increase in repossessions but wants to stay in front of the problem.
The agency issued new guidance to lenders.
Reason for the warning
Used car prices have spiked due to various economic factors. Regulators worry that this increase in prices may motivate unscrupulous lenders to attempt to repossess cars so that they can resell them at a profit.
The CFPB warned lenders that it will be scrutinizing repossession practices for attempts to circumvent the law. The agency reports that it has seen an increase in lenders violating their contractual grace periods that give borrowers a specific amount of time to catch up on late payments.
Additionally, some lenders have charged excessive fees to borrowers who wanted to recover their belongings from repossessed vehicles. Lenders have also ignored orders from bankruptcy courts that prevent them from repossessing vehicles from borrowers who are current on payments.
Some lenders have reordered payments so that they apply partial payments to late fees first, causing borrowers to appear further behind, resulting in a repossession.
Because of rising car prices, more Americans are taking out larger loans, with higher monthly payments and longer repayment periods than in the past. Borrowers who are struggling to keep up with payments need to know their rights when it comes to repossession.