Repossession of Secured Collateral During COVID-19 Pandemic

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With the defeat of Assembly Bill 2501 earlier this year — which was intended, among other things, to prohibit a servicer of vehicle-secured credit from taking any action to use self-help to repossess secured collateral during the COVID-19 emergency until Jan. 1, 2023, with limited exception — the formal state legislative landscape for repossession remained status quo.

Similarly, there is no federal prohibition or limitation on repossession of secured collateral due to or related to COVID-19. Thus, there is no express law prohibiting repossession of secured vehicles in California due to, or related to, COVID-19 or the financial fallout that has occurred as a result. There additionally does not appear to be any proposed legislation that would prohibit or restrict a credit union’s ability to repossess (or otherwise use an agent to repossess) its secured vehicles due or related to COVID-19.

However, this does not necessarily mean that there is no risk in a credit union retaining a recovery or repossession agent to repossess a vehicle that secures a loan.

Though no explicit state or federal laws have been enacted to prevent recovery and repossession agents from securing collateral on a credit union’s behalf during the COVID-19 pandemic, there is also no explicit state or federal law that allows it. Instead, the Governor and State Public Health Officer have created a comprehensive yet confusing framework that incorporates a Stay-at-Home Order and tiered business reopening that presents risk for both the recovery and repossession agency themselves, as well as the credit union which hires them.

The California Credit Union League's legal counsel believes there are arguments favoring their ability to do so, either as part of the “essential critical infrastructure workers” in the Financial Services Sector or in the Transportation and Logistics Sector, or as falling within the “non-essential” Limited Services Industry that is allowed to currently conduct business, with modification, in all tiers at the moment, as put out by the California Department of Public Health. Nevertheless, because these guidelines do not specifically refer to recovery or repossession agents, the arguments favoring credit unions’ ability to engage recovery and repossession agents are not without risk and not guaranteed to protect credit unions from possible challenges, or possible liability, should credit unions engage recovery and repossession agents at this time. A consumer’s attorney could take a contrary position and say recovery and repossession agents are not specifically authorized to act, and that position could result in litigation.

Credit unions must additionally ensure that the county or city in which they plan to attempt repossession do not have any more restrictive limitations than at the State level.

Lastly, the League suggests reviewing the Guidelines put out by the California Department of Public Health with the credit union’s recovery and repossession agent to ensure their compliance when attempting a repossession and to contractually limit, as much as possible, the credit union’s exposure, including incorporating defense and indemnity provisions to additionally cover any COVID-19 related prohibition or requirement.

Please read the following analysis from Moore Brewer Wolfe Jones Tyler & North. (The information contained herein is not, nor is it intended to be, legal advice and should be considered informational only. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and electronic mail. However, contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time when an attorney-client relationship has been established.)

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