Before hitting the brakes (on everything) in February, the Consumer Financial Protection Bureau released a report as part of its auto finance data pilot that focused on vehicle repossession. The report was designed to convey data about trends in repossession frequency and costs of repossession based on information derived from nine vehicle finance providers that shared their data with the CFPB in connection with the pilot. The executive summary in the beginning of the report recites some "I could have told you that" statements about vehicle finance, like:

• repossessions are disruptive for consumers;
• creditors expect consumers to pay deficiency balances that remain after creditors sell repossessed collateral; and
• repossessions can impact consumers' credit scores.

Those are facts of vehicle finance life that have really not been the subject of dispute. But the CFPB landed on a few other findings based on the data gathered in its study that appear to make sense given the market conditions over the past five or so years. Let's have a look.

• Post-pandemic repossession assignments, as a percentage of open accounts, in late 2022 exceeded the pre-pandemic pace of repossessions by more than 20%. This finding seems like a natural consequence of the fluctuation in vehicle pricing attributable to supply chain and other issues that affected the vehicle market through the pandemic. Used car prices increased because the production of new cars slowed, which was just a reflection of supply and demand. But with rising inflation during and after the pandemic, financing rates were also higher. As a result, consumers were financing more expensive cars at higher finance rates. That is understandable, too, because of the relative importance of a car to individuals or families, whether or not they live near public transportation. In addition, economists reported no real increases in consumer wage earnings during this period. The increase in defaults and then repossession order assignments seems to be a natural consequence of these market factors.
• The number of successful repossessions declined in 2022 (27%) compared to 2019 (38%). It is not clear what this data point tells us, and the CFPB did not suggest an explanation. Repossession success can be hit-or-miss and depend on a number of factors, including the ability to locate and access collateral. The difference may simply be a function of timing, where the snapshot the CFPB took captured data that might have been different if the sample size were bigger or the date range of the study started earlier or later. But the data provide some potential industry baseline numbers for comparison for creditors that want to measure their (or their providers') repossession success rates against these averages.
• Creditors increased their reliance on repossession forwarders during the term of the study, and the use of forwarders increased repossession costs to consumers. The emergence of forwarders in the repossession space has been productive for the industry. They alleviate the burden of a creditor having to manage networks of local providers, especially in states that are physically very large and in remote areas. The CFPB reports data indicating that consumers paid more in repossession costs when creditors used a forwarder than they did when creditors did not use a forwarder. The report notes that costs involved in using a forwarder seemed to spike in 2022, from a difference of about 7-10% in the years before that to just under 21% for 2022. The report does not, however, explain anything else about repossession cost structures that might help to explain the difference. Repossession forwarders add value for creditors, and that value costs something to provide, so it makes sense that there is a cost differential. But in theory, using a forwarder can increase repossession volumes and efficiency, which can mitigate a creditor's losses after a consumer defaults and does not cure the default before repossession. With better recovery rates, creditors (still in theory) take smaller losses that can lead to more competitive credit pricing owing to the reduced risk of loss. If it plays out that way, it could be a win for consumers, though so many factors impact credit pricing that it will take a careful regression analysis to test this theory. Hopefully a future version of the CFPB will find that study worthwhile. In the interim, the CFPB did not suggest that using a forwarder to help with repossession was unfair or that it was unfair to allocate the additional cost of using a forwarder to the defaulting consumer.
• Consumers were able to redeem their repossessed vehicles in 2021 with greater frequency than they could in 2019. Pandemic-related stimulus payments are the likely reason because consumers found themselves with a little more cash in hand. Additionally, high rates of inflation set in after 2021, so consumers had to choose where to spend their money (remember there was no real wage growth during this period), and servicing credit took a back seat to more compelling needs like rent, childcare, and food.
• The average deficiency balance decreased in 2021 compared to 2019 and 2022 data. As noted above in the context of repossession assignment volume, more than anything else we can look to market conditions to explain this statistic. Specifically, supply chain problems through the pandemic resulted in higher used car prices. Those higher prices compelled more competition and auction sales because dealers knew they could price those vehicles higher than they could have a few years prior, and the market supported those higher prices. Higher prices at the repossession sale leads to smaller deficiency balances. As used car prices came back down in 2022, average post-sale deficiency balances rose.

One interesting fact from the report is that less than 1% of open accounts in the study were in repossession on average during the months of the study, even taking into account the fluctuation in rates of repossession. If those numbers translate to the broader market, that's about 1 million of the 100+ million open accounts the CFPB estimates are out there. While the raw number of repossessions sounds high, in context it really is not, suggesting that the mechanics of credit underwriting are generally working pretty well. 

*Charles F. Dodge, Jr., is a partner in the Maine office of Hudson Cook, LLP.
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