There are numerous factors influencing the consumer auto lending community: the health of the economy and updates to regulatory and legal requirements are a couple of note. One group that’s tasked with keeping up with this ever-changing landscape is the Consumer Financial Protection Bureau (CFPB). As the primary consumer finance regulator in our federal government, 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.
New debt collection rule
Debt is defined as an amount a consumer agrees to pay but have not yet paid 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
The question for lenders is whether the debt collection rule applies to someone who's engaged in an automobile repossession. When repossessing a vehicle, the lender has the legal right to do so if their interest in the asset is secured. However, if lenders repossess the vehicle and then try to collect an additional amount owed by the borrower, this debt collection rule could apply. Someone familiar with your lending operations, whether it's a legal counsel or compliance officer, should review this new law and determine if it impacts your operations and what actions may be needed to stay compliant with this new 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 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/