Tim owns a small company that handles auto repossessions in the local area. He knows very well the state and local statutes and regulations that apply to his business. Tim has a vague notion that the Consumer Financial Protection Bureau (CFPB) is a new federal agency with responsibility for consumer financial services, but he does not really think the CFPB has much to do with his repossession business. Then, CFPB examiners contact Tim and tell him they will be conducting a thorough, on-site examination of his company to see if it is violating the law or putting consumers at risk of harm. Responding to the CFPB examination threatens to significantly disrupt Tim’s business operations is going to impose substantial costs on his business.
Seems far-fetched? It isn’t, because the CFPB is now actively evaluating the practices of repossession firms.
In creating the CFPB six years ago, the Dodd-Frank Act gave the CFPB authority to investigate and bring law enforcement actions against “covered persons” who engage in unfair, deceptive, and abusive acts and practices (“UDAAPs”). Repossession firms are not usually considered “covered persons” under the Dodd-Frank Act. The Dodd-Frank Act, however, also gives the CFPB the authority to investigate and bring law enforcement actions against “service providers” that engage in UDAAPs. The Dodd-Frank Act defines a service provider as anyone that “provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” So, the CFPB can investigate and bring law enforcement actions against repossession firms that engage in UDAAPs in repossessing automobiles for lenders who are covered persons under the Dodd-Frank Act. Nevertheless, because the CFPB has not brought any enforcement actions against repossession firms during its five years of operation, it may have created the impression the CFPB is not interested in the activities of such firms.
The CFPB’s recent supervision and examination work, however, belies this impression. The agency has the authority to conduct examinations of certain types of businesses specified in the Dodd-Frank Act (e.g., large banks) as well as types of entities that it has determined by rule to be “larger participants” in a market. The CFPB last year defined larger participants in the automobile loan financing industry as firms engaged in automobile lending if they originate more than 10,000 automobile loans annually, which the CFPB estimated includes the 34 largest non-bank automobile lenders. The Dodd-Frank Act allows the CFPB to examine not only large banks and larger participant non-bank automobile lenders but also their service providers. Consequently, the CFPB can examine firms that repossess automobiles for large banks and larger participant non-bank automobile lenders that are subject to CFPB examination.
The CFPB has been actively using this authority to examine repossession firms. In the Fall 2016 edition of its Supervisory Highlights publication describing its examination work, the agency revealed that its “examiners have identified unfair practices relating to repossessions fees” that repossession firms were charging. In particular, the Bureau indicated that it had seen repossession companies refusing to return personal property in a vehicle until after repossession and storage fees were paid as well as charging fees that had not been disclosed to consumers. The CFPB warned that its “examiners will be looking closely at how companies engage in repossession activities, including whether property is being improperly withheld from consumers, what fees are charged, how they are charged, and the context of how consumers are being treated to determine whether the practices were lawful.”
Technically, what the CFPB says in Supervisory Highlights is not legally binding. Nevertheless, the CFPB’s decision to discuss a practice in Supervisory Highlights means that it believes either the practice is already prohibited under statutes or rules the CFPB enforces, or there is at least a risk of consumer harm from the practice. Because Supervisory Highlights is reviewed by all parts of the Bureau prior to publication, it also means the CFPB’s examiners, investigators, and enforcers all concur and will be looking to see if others are engaged in this conduct, potentially taking appropriate action against them. In short, repossession firms are very much on the radar of CFPB examiners and perhaps its enforcers as well.
Because of this CFPB scrutiny, repossession firms would be smart to assess their policies and procedures, especially relating to the fees they charge. It also would be prudent for such firms to follow closely the CFPB’s supervision, enforcement, and rulemaking activities to gain insights as to what conduct CFPB examiners and investigators are likely to find problematic. Taking these preventative measures will minimize the risk that the CFPB will examine a repossession firm and reduce the costs if the CFPB does examine. The old adage that an ounce of prevention is worth a pound of cure certainly applies to how repossession firms should respond to CFPB scrutiny.
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