« Hearing #4 was held in The Weinstein Co. bankruptcy and you won't believe what happened next | Main | Approaching the Middle of the Beginning of the End in Venezuela »

Illegal Repo Practices

posted by Adam Levitin

The Washington Post has an interesting piece about the coming of big data to the auto repossession world. But of particular note is the end of the article, wherein the repo man profiled says that he will return ransom the defaulted borrower's personal goods found in the car back to the buyer for a $50 flat fee (with child car seats given back for free). 

That's probably illegal. The auto lender's security interest extends only to the car, not to personalty that happens to be in the car (were it otherwise, it would violate the FTC Credit Practices Rule).  So the repo man, as the lender's agent, holds that personalty in the car as a bailment; there's no security interest interest in it.  The repo man can't simply destroy it or throw it away--that'd be conversion, and ransoming it back would seem to be some flavor of tort, making the repo many vulnerable to a trover action (for value) or replevin action (for the stuff itself), as well as a UDAP violation.

Now it's possible that there's contractual language in the loan agreement authorizing a storage and inventory fee or the like. But auto loan agreements aren't standardized and that language won't be in all agreements, so a blanket policy like the one described in the article surely isn't right.

As it happens state law in a handful of states (Connecticut, Florida, Maine) authorizes repo man storage fees, but I can't find anything like that in the Ohio Revised Code.  So the repo's practice looks like it's illegal to me.  

Whether or not anyone's going to litigate over this is another matter--Ohio's UDAP statute authorizes recovery of attorneys' fees, which changes the economics of litigation, and there are statutory damages of up to $5K, so with 25,500 repos last year alone there might be enough dollars at stake for a class action to make sense here (and the statute of limitations should cover more than that), but only if there's a defendant who can pay the damages.  I doubt the repo company has the assets to do so, but perhaps the lenders are liable for the repo man's actions.  And I suspect there are arbitration clauses on most auto loan agreements, so that will, at the very least, shield the lenders and perhaps also the repo man.  

Comments

25,000 repos is a respectable number for a state AG to take interest, given a sufficiently compelling narrative.

I was also pretty disturbed by this detail in the article. My immediate thought was that there's a contractual provision somewhere that purports to authorize this $50 fee. I hope someone digs into the facts to find out what's going on. Thanks for the post highlighting this aspect of the article.

Mike--there might be language in some contracts, but there isn't standardized documentation for auto loans and there are a lot of different lenders--captives, banks, credit unions--I can't imagine that they all have applicable contractual language for this (why would the lender care if the repo man can ransom the consumer's personalty?), and I'd be shocked if the repo man actually saw the loan agreements to know. In any case, by returning car seats for free, this repo company might be waiving its contractual rights.

Adam, would this be the type of thing that could/would appear in the sales contract? (Probably not, but I'm no expert.) If so, some states (like Colorado) have a car dealer licensing board that promulgates form contract documents.

Mike--I'd be surprised to find it in the sales agreement, as the right to repo arises from the financing agreement.

Perhaps there's an argument here that there is a UCC 7-209 warehouseman's lien--with the financing agreement being the warehouse agreement--but that seems a stretch to me. Indeed, the contrast with 7-209 and statutory/common law liens for rent/distraint for landlords makes me think this practice is all the more problematic.

An additional thought--what if the consumer were to file for bankruptcy? Surely the assets would be property of the bankruptcy estate and would be subject to a turnover order, wouldn't be eligible for adequate protection, and the repo man's interest would be strong-armed away. If the repo man can't beat the TIB, I don't see why the repo man should beat the consumer here other than that no one litigates over $50.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Contributors

Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Categories

Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

OTHER STUFF

Powered by TypePad