Car prices and the resulting monthly payments have been rising rapidly in recent years. As of the third quarter of 2024, the average monthly payment in the United States was $737, according to Lending Tree.
And now, the Consumer Financial Protection Bureau (CFPB) reports that the rate of auto repossessions at the end of 2022 surpassed pre-pandemic levels.
To make matters worse, lenders were increasingly more likely to use third parties, called forwarders, to manage the repossession process. The use of a third party generally increases consumer costs.
“Supply chain shocks and higher interest rates drove up costs to purchase and finance a car,” said CFPB Director Rohit Chopra. “With outstanding auto loans exceeding a trillion dollars, it’s critical that borrowers can avoid the costly consequences of repossession.”
The CFPB analyzed data from nine major auto lenders covering accounts with activity between 2018 and 2022. The data show increasing consumer risk in the $1.64 trillion auto loan market.
Second-biggest purchase
Cars are the second-biggest purchase most consumers make and, not surprisingly, represent one of the largest sources of consumer credit outside of mortgage lending, with more than 100 million active auto finance accounts and $63 billion in new monthly originations as of April 2024.
When vehicles are repossessed, consumers often lose their primary transportation to work, may be required to repay outstanding balances plus repossession fees, and may see additional negative impacts to their credit scores.
Key findings in the report include:
- Vehicles eligible for repossession exceeded pre-pandemic levels: In the month of December 2022, 0.75% of all outstanding vehicle loans were assigned to repossession – a 22.5% increase from December 2019 (0.61%).
- Repossessions completed using forwarders had higher costs charged to borrowers: Lenders’ use of third-party repossession forwarding companies increased from 31% in January 2018 to 66% in December 2022. Average repossession costs charged to consumers were higher when a forwarder was used.
- Consumers still owed thousands after repossession: Consumers can continue to owe money on their vehicle even after it is repossessed and sold by the lender. The average outstanding balance for consumers that had an outstanding balance after repossession in December 2019 was more than $10,000. Following a brief drop, the average outstanding balance sharply increased and was more than $11,000 in December 2022.