REPOSSESSION. Rationale for Repossession

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1 REPOSSESSION The purpose of this technical assistance article is to provide you with guidance regarding the issue of repossession. The local site is responsible for establishing a repossession policy for their specific loan program. Rationale for Repossession The central financial theme of the loan program is to assist qualified applicants who are otherwise unable to obtain financing from traditional lending sources. The loan program coordinator operates a loan program that serves a social service purpose yet maintains a business discipline. The desire of the coordinator to assist unbankable members of a community is a key ingredient to a successful program. At the same time, sound business practices need to be adhered to by the coordinator to ensure that the loan program is balanced and successful. The loan coordinator is an advocate for loan recipients who are obedient to the loan application process. The coordinator is an advocate for clients who honor their financial responsibilities. A loan coordinator is an advocate for loan recipients who understand that paying their loan in a timely manner enables their fellow community members to receive financial assistance from the loan program. A synonym for advocate is supporter. It is easy for a coordinator to support a loan recipient who deals in good faith and does everything within his or her power to honor their financial commitment. It is not easy for a coordinator to champion the rights of a person who avoids telephone calls, written communication, and financial responsibility. Loan recipients who default their loans place a loan coordinator in the position of advocacy for loan program participants who do pay their loans. Is it fair for non-paying loan recipients to get something for nothing? Is it fair that loan applicants who work every day, who are obedient to budgeting discipline, and who want the hand up and not the hand out be denied a loan because too many loan recipients do not pay their debts? Is it right that paying loan recipients watch recipients default on their loans yet continue to drive cars financed via Ways to Work? The loan coordinator has no choice but to champion the rights of clients who act in good faith. The coordinator has no choice but to be an advocate, a supporter, of loan recipients who pay their loans. Ways to Work, Inc West Lake Park Drive, Milwaukee, WI Phone (866) ; Fax: (414)

2 Technical Assistance Memo #5 Repossession Page 2 Core Issue of Repossession The core issue regarding repossessing vehicles is about sending a message to loan recipients and to the loan applicant community. The message is that there are consequences of neglect to be faced by loan recipients who do not pay their automobile loans. The repossession issue is about ensuring that members of the local community do not consider the loan program a grant program. The majority of Ways to Work car loans range from $2,000 to $3,000. The experience of loan coordinators reveals that the resale value of Ways to Work repossessed vehicles is not very good. In other words, repossession is not a very profitable proposition due to the low resale values. A pro-repossession policy by an agency is centered in advocacy. A pro-repossession policy supports loan recipients who pay their loans. A decision to repossess a vehicle protects the loan/collateral pool fund because existing clients and potential clients know that accountability is an issue that is not ignored by the loan coordinator. Repossession in the Collection Process Acknowledging that the program is a social service that maintains a business discipline, the decision to repossess a vehicle is not casually made by the loan coordinator. The coordinator is obligated to pursue all available collection efforts that will facilitate voluntary repayment from the loan recipient before taking such severe action as repossession. Restructuring the loan, accepting partial payments, considering interest concessions, waiving late fees and penalties are all options available to a loan coordinator to assist a client to achieve a favorable payment history. Again, all efforts to work with and coach the applicant to loan payment success must be pursued before a decision to repossess a vehicle is made. Taking a car from a client happens when all efforts to receive payment from the loan recipient have been exhausted. Lien A lien has to be perfected on the title for the lender to repossess a vehicle. When a bank is the closing agent on the loan, the bank is responsible for making sure that the title work is done properly. The title work is done when the loan papers are signed by the lender and the borrower. The loan recipient is listed as the owner of the car with the lender listed as the lienholder. When the agency buys back the account from the bank, it is necessary to reassign the lien to the agency.

3 Technical Assistance Memo #5 Repossession Page 3 Loan Coordinator as Repo Man? How often does a loan recipient voluntarily drive his or her car to the agency and advise the loan coordinator that the loan coordinator is now the proud owner of a used vehicle? The answer is, not very often. The loan coordinator might go to the residence of the loan recipient to obtain the vehicle through a voluntary repossession effort. The client agrees to relinquish the car if the coordinator will come get it. This scenario isn t often enacted. The usual scenario is that the vehicle owner takes all available measures to ensure that the car is not readily accessible for repossession. The Uniform Commercial Code provides regulations that need to be adhered to regarding repossession. There are questions to be considered by the loan coordinator. Is the loan coordinator fully aware of the repossession statutes? Does the loan coordinator have a complete working knowledge of the Uniform Commercial Code 9-503? Does the loan coordinator desire to potentially put him or herself in a confrontational and dangerous situation? How does a coordinator actually take a car? What does the coordinator do with car when he or she gets the vehicle? Is the coordinator s time more valuable spent in direct service or driving around town looking for a car? If a loan coordinator participates in a voluntary repossession and hurts him or herself while driving the repossessed car, is workers compensation an issue? What about liability issues? These are just a few of the questions to be factored in when deciding if the loan coordinator will perform the role of repossessor. Repossession Company Assuming that the loan coordinator is not interested in being the one to actually repossess a vehicle, then the services of a repossession company need to be obtained. The selection of a reputable and bonded repossession company is of primary importance to the agency. The agency can be held liable for the actions of either a loan coordinator during repossession efforts and can be held responsible for the actions of an agent acting on behalf of the agency. The agency is responsible for the acts of their representatives and this includes a contracted agent. The professionalism displayed by a repossession agency is of utmost concern to the agency. The use of a professional repossession firm is highly recommended and encouraged. There are two basic methods available to the loan coordinator to in order to search for the services of a repossession firm. The first method is to network within your community. In other words, look for a referral from someone you know. For example, a banker or collector from a third party collection agency may serve as a resource of referral for you. The second method is to seek assistance from a national organization to help you with your selection process.

4 Technical Assistance Memo #5 Repossession Page 4 The National Finance Adjusters is a national organization that has been in existence for over forty years. Upon receipt of your request, they will send you a directory of reputable, bonded repossession firms. This information is free to lending institutions, which Ways to Work is considered. You can write to National Finance Adjusters at the following address. National Finance Adjusters Post Office Box 3855 Baltimore, MD Questions for a Bonded Professional Repossession Specialist What is the cost factor? What is the process? I have to write a letter to the client after the company repossesses the car? Can you guide me through that process? Do you handle the sale of the vehicle? If you can t locate the vehicle, is there charge? If so, how much? If you start repossession efforts, can I stop the process? If so, is there a fee involved? What references will you present to me? The above represent just a few of the suggested questions to ask a repossession firm to help you discern if you will use that company. Do You Know? Breach Of Peace. Repossession is allowed if breach of peace isn t a part of the process. Breach of peace has a broad definition but includes verbal confrontational situations, physical threats, and generally disturbing peaceful situations. If breach of peace is broken, the lender may forfeit the right to pursue collection efforts for a deficiency balance. It is acceptable to repossess a car from the owner s driveway but not from a secured garage. You are in violation of process if you take a policeman or policewoman with you to repossess a car (except with a court order). You have to notify the owner in writing offering him or her an opportunity to obtain their personal possessions that are in the repossessed automobile. You don t have to be bonded or a member of a national organization to be a repo man. Right to Cure. This is a document sent before repossession activity is initiated. This document has to include the past due amount, a specific time frame and specific amount of money the client pays to avoid repossession. All states do not require a Right to Cure letter.

5 Technical Assistance Memo #5 Repossession Page 5 The decision to establish a repossession policy varies from program to program. There is neither a correct nor incorrect policy for an agency to adopt and incorporate into policies and procedures. If the policy of the agency and loan program is to permit automobile repossessions, it is strongly recommended that the agency contract with a professional repossession firm. Enclosed with this technical assistance article is an example of a letter written to a client after a repossession company repossessed the vehicle. The agency is responsible for sending the letter to the client after the car is repossessed. The letter is sent to the client through the regular mail system and also via certified mail. Please contact Ways to Work at (866) or operations@waystowork.org with questions.