Many factors influence the consumer auto lending community: the health of the economy and updates to regulatory and legal requirements are a couple of notes. One group tasked with keeping up with this ever-changing landscape of auto finance rules and regulations is the Consumer Financial Protection Bureau (CFPB).
As our federal government's primary consumer finance regulator, the CFPB exercises control of all aspects of consumer finance, including lending, deposit accounts, mortgages, auto loans, credit cards, credit reporting, debt collection, and more.
Fair Debt Collection Practices Act - New debt collection rule
Debt is an amount a consumer agrees to pay but still needs to pay back. The CFPB recently announced two final rules issued under the Fair Debt Collection Practices Act (FDCPA); both took effect on November 30, 2021.
One rule focuses on “debt collection communications and clarifies the FDCPA’s prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt.” The other “clarifies disclosures debt collectors must provide to consumers at the beginning of collection communications.” 1
How does this relate to car finance?
The question for automotive finance lenders is whether the debt collection rule applies to someone engaged in an automobile repossession. When repossessing a vehicle, the original creditor has the legal right to do so if their interest in the asset is secured.
If a lender takes back a vehicle and attempts to collect any debts owed from the borrower, this debt collection rule may apply. An individual knowledgeable about your lending procedures, such as a legal advisor or compliance officer, should assess this new legislation to determine its effect on your operations and identify any necessary steps to maintain compliance with this updated rule.
Tips to prepare for potential market shifts
To stay compliant, it is not only important to understand the new rules and regulations impacting lending operations, but also the future state of the industry so lenders can properly prepare. For instance, if the economy experiences a downturn and there is an increase in auto repossessions, lenders should take the following steps to ensure compliance and smoother processing:
- Closely monitor state and federal legislative guidance. To ensure compliance, lenders must keep up to date with the latest regulations around repossessions.
- Review your portfolio for exceptions. Lenders should ensure their titles are properly secured ahead of time. If the title can not be located, ordering a duplicate title will incur time and costs. Verifying titles ahead of the repossession will spare lenders any hassles and save time and money.
- Adjust timelines. Consider existing delays at departments of motor vehicle and start your title requests earlier to accommodate these delays.
- Consider automation or outsourcing. It can be challenging to manage a high volume of repossessions with existing staff. A third-party provider can help streamline the repossession titling process, reduce pain points, and provide transparency.
For more information about practicing sound auto loan management, as well as for some tips on the CFPB’s guidance, watch a replay of our webinar with Eric Goldberg, Partner at Akerman LLP, and Rick Vanko, Motor Vehicle Senior Product Manager for Wolters Kluwer Lien Solutions.
1 https://www.consumerfinance.gov/about-us/newsroom/cfpb-confirms-effective-date-for-debt-collection-final-rules/