Consumer Rights in Auto Reposession
Consumers with an auto loan already know that the vehicle can be repossessed if you don’t abide by the terms of the loan. You’ll never have to worry about this happening as long as you keep paying the monthly installment on time and abide by other terms of the loan, such as - in some states - keeping the lender-required insurance coverage up-to-date. But sometimes things don’t go as planned. Job loss, medical bills, or other unexpected expenses can affect your ability to pay car payments on time.
First of all, don't give up and accept that a repossession is in the works just because you're a little late making a payment. Call your lender if you want to keep your car and plan to get your payments up-to-date. Be honest about your situation but don't overdo the pity-story. Let them know what is going on now, and what will happen in the future that will help your ability to pay. Creditors are more likely to work with you if you let them know you intend to pay and have just run into a temporary situation.
If you know you won’t be able to get caught up on payments, then you probably realize that the car will eventually be repossessed. It’s important for you to understand your rights and the lenders rights:
Your vehicle is collateral for your auto loan. This means that upon your failure to pay as agreed in the terms of the loan, the lender has the right to take back the car without giving you advance warning or taking you to court.
Your creditor also may be able to sell your loan contract to a third party, called an assignee, who may have the same right to seize the car as the original creditor.
Some states have laws on how your creditor may repossess the vehicle and resell it to reduce or eliminate your debt. Creditors that violate any rules may lose other rights against you, or have to pay you damages.
States laws vary, so be sure to read and understand your auto loan contract. In many states, the lender can seize the vehicle as soon as you default on the loan.
In many cases with a traditional auto loan, there may be a grace period of a month or two. For buyers who got their vehicle at a buy-here/pay-here dealership, they may find their car can be taken in a matter of days from the overdue payment date. Read your loan contract!
Once you are in default, most states’ laws allow the lender or someone acting on their behalf to take back the car at any time without notice, and they may come onto your property or your workplace to accomplish this.
But when seizing the vehicle, your creditor may not commit a “breach of the peace.” In some states, that means using physical force, threats of force, or even removing your car from a closed garage without your permission.
If the creditor commits a breach of peace, they may be required to to pay penalty or pay compensation to you if harm is done to you or your property. A breach of peace also may give you a legal defense if your creditor sues you to collect a “deficiency judgment” — that is, the difference between what you owe on the contract (plus repossession and sale expenses) and what your creditor gets from the resale of your vehicle.
While the lender has the right to take back the car upon loan default, they do not have the right to keep, sell, or destroy any of your personal property that may have been in your vehicle. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. You may wish to speak to an attorney if the creditor cannot account for your personal items.
Disclaimer: Repossession laws vary by state. This article is for informational purposes only and is not for the purpose of providing legal advice. Contact a qualified attorney in your state for repossession laws that apply to you.
More details on the auto repossession process in an upcoming article...
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