While many hard-pressed consumers fight to cover mortgage and rent payments, growing numbers are struggling to hold onto their main economic lifeline: their cars.
When Congress passed its coronavirus relief act in March, the legislation included protections for mortgage holders and some rental property owners holding federally backed loans. But nothing was done to shield auto owners with delinquent car loan payments. As a result, many who are unable to keep pace with their payments are potentially exposed to reduced credit scores — or worse — having their cars towed away.
Paradoxically, the pace of auto repossessions has been slow since the COVID-19 pandemic outbreak, industry experts say. That’s largely because of leeway given to owners by lenders on their car payments. But consumer lawyers and analysts believe repo men could be back in force in 2021 — particularly if Congress fails to produce a new round of financial relief for troubled households.
“It really depends on how the next several months go,” said Matthew Bavaro, a partner at the Loan Lawyers law firm in Fort Lauderdale, Florida. “It’s depending on what kind of relief package Washington is able to pass.”
“We definitely expect to see lenders get more aggressive as the months progress,” he said.
But for many car owners, the time to scramble is now.
A Broward County, Florida, retiree told the South Florida Sun Sentinel that he’s furious that his fiancée, a home care worker and cancer patient who lives in Miami-Dade County, lost her late model Toyota to a repossession in October. The car was hauled out of her gated community, he said, even though the woman made an agreed-upon payment and informed the finance company she was prepared to make more.
“We’ve been trying to negotiate with them,” said the man, who asked not to be named for fear of retribution from the lender. “They were nice enough to grant a one-month deferral but a one-month deferral in this environment is not reasonable.”
Lawyers in growing demand
Lawyers who help South Florida consumers say they are increasingly greeted with messages each day from car owners in need of help. Some want to renegotiate their loans; others ask about filing for personal bankruptcy.
“I get calls literally every day about people facing repossessions,” said Chad Van Horn, a Fort Lauderdale bankruptcy lawyer. “What we’re seeing is people are falling behind. Some of the larger lenders are working with them.”
A lender’s typical payment plan: “We’ll give you three months and put it on the back end” of the loan, Van Horn says.
Owners can file a Chapter 13 personal bankruptcy petition and restructure their loans over a five-year period, he said.
Van Horn wonders, though, how some people received a car loan in the first place. One person who bought a car in October asked for legal help after missing the first payment. The car was quickly repossessed.
“I don’t know how some of these guys qualify for loans — they don’t have work, they don’t have jobs,” Van Horn said. Even before the pandemic hit in March, many consumers were swimming in debt.
To accommodate anticipated growth in the business, he’s added lawyers to the firm.
In the months after the pandemic started to savage the economy in March, consumer bankruptcy filings in South Florida trailed the numbers filed in 2019. They still do. Analysts believe that’s a function of the trillions in federal relief money that helped millions of jobless survive the economic downturn. In 2019, 6,702 Chapter 13 cases were filed in the Southern District of Florida, which stretches from Key West to Fort Pierce. Through November 2020, 4,225 were filed.
Robert Murphy, a Fort Lauderdale consumer lawyer and a University of Florida law school faculty member, fears tighter credit and more repos may be in store over the long term.
“People are becoming really desperate,” he said. “Longer term I am really concerned — depending on stimulus, this could get a lot worse.”
“I think there is a likelihood we are going to see higher repossessions and a tightening in credit available which has real implications” for consumers, he added.
Lender leeway has helped
Unlike student loans or mortgages, the federal government’s COVID-19 relief act passed in March does not guarantee auto loans. So lenders can’t be forced to suspend payments or stop repossessions. Lenders, though, can’t file a negative report that would affect a car owner’s credit score if a loan is suspended.
Area car dealers say they haven’t seen high numbers of repossessions because their affiliated lenders are working with customers.
Jonathan Chariff, CEO of South Motors Automotive Group, which operates 10 dealerships in South Florida, said dealers through their lending affiliates try to help their customers stay above water so they’ll remain repeat customers in the future.
“Our banking partners are working with the consumer,” he said, on a case-by-case basis.
But borrowers with subprime credit histories had a sharp increase in delinquencies during the second quarter of 2020, according to TransUnion, one of the nation’s large credit reporting agencies.
Repo men in waiting
While lenders have helped keep cars on the road, the people who take them away have seen a slowdown in business.
“There’s no one in today’s business environment that’s operating at 100%,” said Les McCook, executive director of the American Recovery Association, which is based in Texas. “Most are in the 50% to 60% range.”
The pandemic has added to the repo men’s cost of doing business. The association website advises its members to add at least a $50 service fee for towing jobs to help pay for sanitizing work and personal protective equipment for employees.
McCook, whose organization has more than 250 members, said most cars being towed these days are the result of loan delinquencies from before the pandemic started. “Those are being cleaned up now,” he said.
“Most recoveries happening today are voluntaries,” he added, meaning cars that are being given up by their owners.