Repossession is a vital part of automotive lending, allowing lenders to mitigate risks when extending credit, and ultimately expanding access to credit and to transportation for countless borrowers. But at the same time, repossession laws can be a web of state and local regulations, meaning a creditor needs to proactively seek out information from multiple jurisdictions.

This article will go over the  different areas where regulators commonly put consumer protections in place, giving you a shortlist of compliance areas to look into for each local jurisdiction you operate in. For more information on specific states' regulations, we recommend reading the state requirements list from the American Recovery Association (ARA).

How repossession works

Generally, a lender can begin the repossession process as soon as the account becomes delinquent. In some states, that means the borrower has missed even just one payment, but others set higher thresholds, such as a certain amount or number of days past due before a lender can repossess the vehicle. In most cases, the lender's original loan or lease contract includes all the legal protections they need to repossess it, so they don't need an additional court order. However, the lender needs to make sure they don't "breach the peace" by using threats of force.

Additionally, some states will only allow repossession of automobiles, but others allow lenders to repossess other collateral, like boats, ATVs, or motor homes.

Repossession agent

Once the decision has been made to repossess a vehicle, the lender will hire a repossession agent, who will collect it either with a tow truck or a copy of the vehicle's keys. The repossession agent does have rules they have to follow, though. They can't break into a locked garage or use physical force to remove a person from their car.

Some states have specific licensure requirements both for acting as a repossession agent as well as operating a tow truck. Other states require that you give advance notice to the police.

Repossession hold period

Many states require you to hold a repossessed vehicle for a certain number of days before selling it, and may also require you to send the borrower a notice of intent, telling them that you plan to auction the vehicle. This allows the borrower to either pay off or come current on the debt before the vehicle is sold. 

Auction

If the repossession hold period ends and the borrower hasn't come current on their account , then the car is then sold at public auction. They'll have it sanitized, which usually costs between $20 and $50 dollars.

The lender is required to inform the borrower when and where the auction will take place. From there, the money paid for the car in public auction goes toward the original principal balance, and anything left over becomes unsecured debt for the borrower.

LoanPro solutions

LoanPro has several tools that can help streamline repossessions and mitigate losses.

First and foremost, however, it's important to note that repossession is not a way that lenders can automatically recover all the money they lost as a result of the a defaulted loan. Typically, repossessing a car will only help the lender regain approximately 30% of the loan value. Long before repossessing collateral, you can help decrease delinquencies and prevent defaults through tools like personalized communication or hardship relief programs.

When an account does default and repossession is necessary, LoanPro has a direct integration with the Recovery Database Network (RDN), allowing you to automatically initiate repossessions and auctions, with accounts being updated with the appropriate statuses, portfolios, and processes within LoanPro.

To keep compliant with widely varying state laws, LoanPro's Compliance Guardrails can adapt your repossession processes to match the requirements for each borrower's state. Reach out to your regular LoanPro contact and they can help you with configuration.