How to Mitigate Federal Action After a Wrongful Repossession

The CFPB is taking a hard line on wrongful repossessions. In a 2022 bulletin, the bureau characterized the error of wrongful repossession as a criminal theft, stating “No American ever wants to wake up to see their car stolen.” For creditors, such inflammatory statements suggest a zero-tolerance approach, meaning a single erroneous repossession would be detrimental for the lender. But there are steps lenders can take to minimize negative repercussions.

The CFPB recognizes speedy correction and restitution.

No lender wants to wrongfully repossess a vehicle, but the manual nature and complexity of the repossession process will result in mistakes. As a result, lenders of any scale occasionally wrongfully repossess a car. It can happen due to breakdowns at any of several points in the repossession process, from timing issues with posting a payment, not documenting a promise to pay, or failing to close a repossession order after a payment is received, to name a few.

To mitigate agency action when a wrongful repossession occurs, lenders should take the following steps immediately after identifying the error, well before a regulatory examination begins. Every step should be carefully documented to demonstrate their good-faith efforts to rectify the error.

• Immediately return the vehicle to the consumer. Once the lender identifies the wrongful repo, the vehicle should be returned to the consumer immediately. The car and all personal property should be returned to the customer at home or another location convenient to the customer.
• Waive all fees and costs of the repossession. The lender should immediately waive late charges, repossession fees, storage charges and any other cost that may have been charged to the consumer for the repossession.
• Ensure that no negative credit reporting occurs. The lender should immediately ensure that no adverse credit reporting occurred because of the error. This should happen immediately, before the consumer faces any adversity from negative reporting related to the repossession.
• Address staff who made errors. Lenders should be able to provide evidence of coaching for all team members who made errors leading to the wrongful repossession. Informal coaching conversations can be recorded in an email or other saved format. Formal written warnings should be documented on applicable forms. The goal is to correct the behavior and demonstrate to the regulator that the lender acted swiftly to hold staff accountable for repossession errors.
• Make corrections to your processes and systems. The lender should perform a root-cause analysis to understand the error, and make improvements to policies and procedures, incentive agreements, training, quality control reviews and internal systems where necessary.
• Act immediately on regulatory concerns during the examination. The lender should demonstrate an eagerness to rectify errors, even during the regulatory examination. For example, if the bureau identifies a fee that was not refunded after a wrongful repossession, the lender should make that refund immediately, even on the same day of the observation if possible. The bureau takes note of fast remediation after a problem is identified.

It's important that these steps be executed and documented immediately, with documentation saved in a way that ensures easy retrieval in the future. Relying on memory during an examination that could take place years in the future is ill-advised.

If you are the subject of a CFPB examination in which wrongful repossessions are uncovered, you need to be able to provide documentation evidencing your reasonable and good-faith efforts to restore the consumer, hold staff accountable and correct all internal processes that failed. If the examiner brings additional errors to your attention, resolve them immediately. If you take these steps, and document them well, you might find that the bureau is more reasonable than their rhetoric implies.

Kendall Schorr

General Counsel, Chief Risk Officer

Kendall has deep consumer finance expertise in all three lines of defense including internal audit, enterprise risk management, and first line testing and operations. He's created processes to effectively mitigate regulatory compliance, strategic, reputational, financial, and operational risks within large, highly regulated financial institutions.