Originally posted on CUtoday.info
Too many hands in the process and no centralized repossession system are driving the number of wrongful auto repossessions higher, says Allied Solutions, which offers advice to credit unions on how to avoid this issue.
As CUToday.info reported, the Consumer Financial Protection Bureau said it is cracking down on wrongful auto repossessions.
Allied Solutions Vice President Of Recovery Operations Brooks Stewart said even with the new administration taking control next year, and uncertainty of Rohit Chopra’s role as CFPB director, that will not deter the agency from enforcement actions here.
Brooks Stewart, Vice President of Recovery Operations
Allied Solutions
“This issue, wrongful auto repossessions, is not a recent phenomenon. Wrongful auto repossessions have been a focus of the CFPB for the last 10 years,” Stewart said. “However, there's probably a 20% increase in repossessions this year over the past. That’s where we’re starting to see the CFPB and regulators come in and say with more delinquencies you need to make sure you're following your business practices carefully so there are no wrongful repossessions.”
Chopra, in a recent statement, said the CFPB will take action against auto finance companies that charge fees for nonexistent services, or repossess cars after borrowers make payments.
Stop 'Illegal' Conduct
The agency further stated that examiners are directing auto finance companies to stop “this illegal conduct.” Chopra added that exams found servicers wrongfully repossessed vehicles due to service providers failing to cancel orders to repossess vehicles when consumers had made payments or had obtained a loan deferment, loan modification, or extensions that should have prevented repossessions. CFPB examiners also found servicers repossessed vehicles without having a valid recorded lien to the vehicle.
“Some servicers were also misallocating borrowers’ auto loan payments, such as applying payments to late fees first instead of applying to the loan principal and interest, which resulted in borrowers having to pay erroneous late fees. As a result, CFPB examiners directed servicers to fully refund all accounts that incurred late fees due to payments being applied in a different order than that disclosed on the servicers’ website,” the CFPB said.
A big part of the problem among many lenders, said Stewart, is they are moving very fast with lending processes.
“It's starting to create some inaccuracies in the data and how customers are being managed,” Stewart said. “For example, it could be a timing issue when a new lender has paid off a refinance. That's one of the areas. Repossession technology hasn't changed drastically in the last 10 to 15 years. However, each one of these technologies has a direct link to the repossession agent that's actually at the vehicle. As long as the lender is actively stopping the repossessions when they need to, there shouldn't be a problem.”
Servicing systems at financial institutions and how they're interacting with individual repossession systems is an area where we're Allied is seeing growing issues, Stewart said.
CU Repo Volume Lower
How are credit unions performing, compared with other lenders?
“Historically with credit unions, repossession volumes have been lower than the traditional auto lending market, because of the credit band that CUs have generally stayed within. As you start to see more credit unions get into riskier portfolios, it brings on more delinquencies and repossessions,” Stewart said. “Where you used to manage, say, 100 repos a month, that was pretty manageable. But, now, when you have to manage 300 to 400 a month... is your technology and your automation set up to manage all of that, and are your processes as tight as they should be?”
Stewart said years ago there used to be one person at the credit union managing repossessions and keeping matters in order.
“Now, there are multiple touches, multiple hands involved. So, for example, is the documentation correct and do you know that information is systematically being communicated back to a repossession agent to ensure there are no wrongful repos?” he said.
Steps To Take
What should credit unions be doing?
“Number one, make sure your processes are very tight. And whether it's a payment arrangement, a refinance opportunity—any of the opportunities where consumers are trying to get current or get themselves back into a non-repossession situation, you need automation or a partner who can help you manage those pieces of the business,” Stewart said. “Credit unions need to be using a centralized repossession management system. And if they're not, then the chances for them to make mistakes increase. Are they using a centralized repossession network. I would say use a Recovery Database Network, MBSI Corp. or IBEAM solution to make sure they're connecting all of the agents under one technology. Then your internal agents and collectors only manage repossession assignments in one system.”