Senator Warren Targets BHPH Repossessions - Why This Matters

In early February, Senator Elizabeth Warren, in her role as Ranking Member of the Committee on Banking, Housing, and Urban Affairs, sent letters to several large BHPH operators and AFSA, NIADA and ARA (the American Recovery Association) requesting information and data regarding repossessions, specifically on their practices to avoid errors and information on errors that have occurred in the last four years.

Thoughts on the Letters
Senator Warren began these letters by attacking the Trump Administration's efforts to deregulate the CFPB, stating CFPB has been “kneecapped”, and expressed concern over the current economic conditions and its impact on consumers. Indeed, the letter states that "the default rates on car loans are increasing at a nearly identical pace to default rates that lead up to the 2008 financial crisis". It also cites that "having a car repossessed is a devastating and deeply disruptive experience".

Alarmingly, she also makes incendiary allegations that "There is also evidence that repossessions are built into BHPH dealers' business models" (citing a much maligned 14 year old article from the Los Angeles Times) and that "defaults and repossessions may actually be more beneficial to BHPH dealers than a consumer's successful completion of all required payments" which allegation was taken from a comment published by the Center for Responsible Lending.

Needless to say, anybody that's spent some time in the independent and BHPH car sales and finance industry has encountered these inflammatory criticisms before. I've spent a career defending car dealers from these and similar attacks that are unsupported by data and lack a clear understanding of how the vast majority of such businesses operate. Unfortunately, I'm sure this won't be the last time someone in a position of power makes these comments.

The Information Being Sought
I think it is important to familiarize the greater industry on just what information Senator Warren is seeking.

The list is quite lengthy and covers a four year period, but here are some key requests:

• How many personal automobiles have been repossessed or ordered to be repossessed
• How many repossession assignments were issued
• How many repossession events involved towing or an attempt to tow the incorrect automobile due to an error by employees or contractors or that was later determined to be an error by an outside entity
• How many repossession events involved a consumer making a formal or informal complaint or claim that the repossession was in error
• On an annual basis, what are the most common reasons consumers believe the repossession to be in error and how such situations were resolved
• How are situations handled where there is a dispute between the company and the consumer about the terms of an agreement, particularly following a loan modification or other arrangement
• How many repossessions occur where a consumer has made a formal or informal complaint or claim that there was a material problem with the underlying transaction
• Information about the use of GPS and starter interrupt devices
• What policies are in place to address repossessions made in error and how situations are handled where the customer believes a repossession occurred in error or if the consumer complained that there was a material problem with the underlying transaction
• What policies, manuals and training exist for personal property that is in a repossessed automobile

What Happens Next?
As of this writing, the responses published by NIADA and AFSA point out many of the flaws in the Senator’s arguments, as well as the fact that organizations such as this don’t possess the data and information being sought. I haven’t had the opportunity to see the responses from the targeted companies, but given that these requests were not subpoenas, I don’t expect the sharing of actual data will occur, though I do think that the companies will use this as an opportunity to provide information on the overall subject of repossessions in an attempt to correct some of the assumptions being made.

Since Senator Warren is not the Chairperson of the Committee, I don’t expect there to be hearings on this subject anytime soon, and I expect the issue to be put on the back burner as the politicians prepare for the mid term elections.

Longer Range Concerns
I am concerned that consumer advocates like Senator Warren won't limit their attention to repossessions. In my view, the other side of the coin involves questions about fair lending, underwriting and how the applicants' ability to repay is analyzed before the credit decision is made. In my experience, these consumer zealots firmly believe that car dealers put some buyers in a position to fail. It's imperative that written policies exist that address these topics. Remember, policies are the guardrails of the business and are important evidence of intent and overall compliance.

I also believe that this salvo is an indication where attention may be focused in the event the Democrats take over the House, Senate or both in the coming midterm elections. The Democrats are still angry over President Trump’s attempts to dismantle the CFPB and the lack of oversight they believe has been the result. I think it is safe to say that they’ll look to the issues raised in Senator Warren’s letters, as well as for other ways to police our industry, if they again find themselves in the majority. That could be less than a year away!

I’ve been telling clients that now isn’t the time to rest easy when it comes to compliance matters. A new wave of scrutiny may be just around the corner and they’ll be coming with a vengeance. Based on the past actions of the consumer advocates, it would be foolish to take a “wait and see” approach. Now’s the time to dig into this and other potential vulnerabilities and work to close any gaps.

What Should BHPH Dealers Be Doing?
Would you be able to produce an up to date Repossession Policy if asked? Is your team trained on repossession decisions, the legal requirements of the process itself, and how to avoid errors? When was the last time your Right to Cure, post-repossession Notice of Sale, and Deficiency Balance letters were reviewed by an expert?

I think the Pennsylvania Department of Banking will be paying close attention to the questions raised by Senator Warren and many in the department have a similar view on the subject. That’s my way of saying that dealers should be prepared to have these subjects raised in examinations. I’ve already seen the department dissect the letters used by dealers and finance companies as well as do the math and follow the paper trail on all repossession charges and fees assessed. Companies can expect more of the same, so make sure your house is in order.