Americans are struggling to keep the cars they’re driving, the Consumer Financial Protection Bureau found.
A CFPB report, titled “Auto Repossession Trends and Consumer Impact,” indicated that the rate of vehicle repossessions in the United States at the end of 2022 exceeded the rates of pre-pandemic repo levels, according to a Thursday (Jan. 23) press release.
The study, which analyzed data from nine major auto lenders covering accounts active between 2018 and 2022, highlighted growing consumer risk in the $1.64 trillion auto loan market, per the release.
In December 2022, 0.75% of all outstanding vehicle loans were assigned for repossession. That was a 22.5% increase from December 2019, when that figure was 0.61%. The surge in repossessions came amid rising costs for buying and financing vehicles, driven by supply chain disruptions and higher interest rates, the release said.
“With outstanding auto loans exceeding a trillion dollars, it’s critical that borrowers can avoid the costly consequences of repossession,” CFPB Director Rohit Chopra said in the release.
Auto loans represent the second-largest source of consumer credit after mortgages, according to the release. As of April 2024, there were more than 100 million active auto financing accounts and $63 billion in new monthly originations — loans initiated or created within a given month.
There is also an increasing trend among lenders to use third-party repossession companies, the release said. The use of these “forwarders” jumped from 31% in January 2018 to 66% in December 2022. The shift has a direct impact on consumers, as the average repossession costs charged tended to be higher when a forwarder was involved.
Consumers often remained in debt even after their vehicles were repossessed and sold. The average outstanding balance for consumers who still owed money after repossession increased from more than $10,000 in December 2019 to over $11,000 in December 2022, per the release.
Meanwhile, auto loan servicing breakdowns are on the CFPB’s enforcement radar. This month, American Honda Finance Corporation reached a settlement between American Honda Finance Corporation with the CFPB to resolve accusations that the company added inaccurate information to consumers’ credit reports.
In October, the CFPB directed auto finance companies to stop repossessing cars after borrowers made payments or received loan extensions. It also emphasized the importance of clear communication with consumers regarding optional add-on products and accurate loan payment allocation.