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Repossessions: 6.4.8 Deception, Trickery, or Stealth

As long as the creditor does not misrepresent the involvement of the law in the repossession, courts generally permit the creditor to repossess collateral with the use of stealth, trickery, or fraud.334 Courts have found no breach of the peace when repossessors retain a vehicle after misrepresenting that they were taking it either for repairs335 or for a test drive to ensure that its value had not been impaired.336

Repossessions: 6.4.9 Waiver

Article 9 provides that the debtor cannot waive the prohibition against breach of the peace.347 Indeed, the parties cannot even incorporate into the agreement a standard for determining whether the creditor has breached the peace.348 This standard must be left to “continuing development by the courts.”349

Repossessions: 6.4.10 Who Is Liable for Breach of the Peace

The secured party is responsible for the actions of others taken on the secured party’s behalf, including independent contractors engaged by the secured party to take possession of the collateral.350 At least one court held under the former version of Article 9 that the UCC duty not to breach the peace does not apply directly to independent repossession companies, but that a breach of the peace is a factor in determining whether the company committed a tort.351 However, Article 9 now casts l

Repossessions: 6.5.3 Creditor’s Agreement Not to Repossess

Former UCC § 9-503 provided a right to self-help repossession “unless otherwise agreed.” The current version does not include this language, but the general rule is that all duties under the UCC can be varied by agreement unless specifically precluded.369 In addition, UCC § 1-302(c) provides that the use of the phrase “unless otherwise agreed” in certain parts of the UCC does not imply that the effect of other parts may not be varied by agreement.370 When a creditor has agreed after default

Repossessions: 6.5.4 State Licensing Requirements

Given the inherent dangers in physically seizing property such as a vehicle, which typically weighs well over a ton and is capable of high speeds, it is surprising that only about a third of the states have licensing requirements for repossession agents.373 These provisions are usually found in the portion of the state code dealing with private detectives or collection agencies.

Repossessions: 6.5.5 Criminal Statutes Applicable to Wrongful Repossession

Wrongful repossession may involve such state criminal code violations as assault and battery or burglary.382 Although prosecutors will not pursue all criminal complaints, debtors should consider pressing a complaint when serious repossession violations occur. The debtor will not receive individual relief (unless plea bargaining or sentencing results in restitution), but the criminal action will deter future creditor misconduct.

Repossessions: 6.6.1 Nature of Electronic Car Repossession

Some buy-here, pay-here used car dealerships, automobile title lenders, a growing number of subprime automobile finance companies, and other creditors install or arrange for the installation of electronic devices in vehicles in which they have a security interest.383 There are several different types of devices, but they are typically designed to pressure the consumer into making payments or to assist the creditor in the collection or repossession process.

Repossessions: 6.6.2.1 Article 9 Does Not Authorize Disabling Vehicles

Article 9 does not authorize disabling a vehicle when the consumer defaults. Instead, on default it provides that the secured party “without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under Section 9-610.”390 This provision is limited to the disabling of “equipment” and the definition of “equipment” explicitly excludes consumer goods.391

Repossessions: 6.6.2.2 If Allowed, Any Disablement Must Comply with Article 9

As described in the prior subsection,392 disabling a vehicle on default should be allowed only when it is a necessary part of a self-help repossession.393 But, assuming that disablement is allowed more broadly because it is considered the first stage of a repossession or a constructive repossession, it must comply with all laws applicable to repossessions.

Repossessions: 6.6.2.3 FDCPA and State Law Applications When Creditor or Repossessor Disables Vehicle Without Intent to Take Possession

It may be illegal for a creditor or repossession agent to disable a vehicle when it does not intend to repossess the vehicle. The Fair Debt Collection Practices Act (FDCPA) prohibits a debt collector (including a repossession company) from “taking or threatening to take any nonjudicial action to effect dispossession or disablement of property” if there is no present intention to take possession of the property.398 Disabling a vehicle without intending to take possession of the vehicle is thus a violation of federal law.

Repossessions: 6.6.2.4.1 Breach of the peace in electronic repossessions

An electronic disablement must take place without breaching the peace. Article 9 imposes this requirement,406 and tort law also generally prohibits the use of force to reacquire possession of collateral that a debtor acquired lawfully,407 so it applies regardless of whether electronic disablement is allowed by Article 9.

Repossessions: 6.6.2.4.3 The bankruptcy stay

If the debtor has filed bankruptcy, electronic disablement is likely to violate the automatic stay.414 The automatic stay statute prohibits not only any act to obtain possession, but also any act to exercise control over property of the estate.415 Disabling the vehicle is a means of exercising control over the vehicle.

Repossessions: 6.6.2.5.1 Default requirement; expiration of cure or grace periods

Article 9 allows repossession only if the consumer is in default.419 Assuming that Article 9 is interpreted to allow electronic disablement of consumer goods, rather than prohibiting it altogether except when it is a necessary part of a self-help repossession, it is subject to the requirement that the consumer be in default. Grounds for default may be limited by state law, by the parties’ contract, or by the UCC.420

Repossessions: 6.6.2.5.2 Consumer remedies

If the dealer or creditor uses electronic disablement when it is not legally entitled to repossess the collateral, UCC penalties for wrongful repossession apply.426 Even if Article 9 does not apply, electronic disablement of the vehicle in the absence of default should be considered conversion or trespass to chattels,427 as well as a breach of contract.

Repossessions: 6.6.2.6 Consumer’s Removal of the Disabling Device

Consumers may have reasonable grounds to remove a disabling device. If the device is improperly installed so that the vehicle is dangerous to drive or will cause damage to the vehicle, then removing the device may be justified. In such cases repossession of the vehicle based upon the consumer’s removal of the device should be wrongful and a conversion.433

Repossessions: 6.6.2.7 Creditor’s Duties After Electronic Repossession

If electronic disablement is not wholly prohibited by Article 9, but is treated as the first stage of a self-help repossession or as a constructive repossession, the creditor must proceed in conformity with Part 6 of Article 9 after electronically disabling the collateral. Moreover, even if electronic disablement is not an Article 9 repossession in and of itself, the creditor’s Article 9 duties apply once it takes physical possession of the disabled vehicle.

Repossessions: 6.6.4.1 Devices That Annoy May Violate Debt Collection Statutes

Some devices do not disable a vehicle but speak, make noises, or display signals to indicate that the debtor is in default or that the payment due date is nearing. Some of these “reminders” are intentionally created to be so loud or annoying as to make use of the car difficult. The “reminders” may also make the debtor embarrassed about using the car to carry others. It thus is a question of fact whether a particular set of reminders should be treated as the equivalent of a disablement.

Repossessions: 6.6.4.3 Electronic Repossession As an Unfair Practice

There is a good case to be made that electronic disablement is an unfair practice that violates state deceptive practices and debt collection laws. Electronic disabling of a car, particularly if the creditor does not immediately seize the vehicle, is used primarily for its in terrorem effect470 in order to obtain payment, rather than to satisfy the obligation by selling the vehicle.

Repossessions: 6.6.4.4 Truth in Lending Act

If consumers are charged for the installation of disabling devices, then the cost of the device is a finance charge under the federal Truth in Lending Act (TILA). Failure to disclose the charge as such violates TILA.476 A finance charge under TILA includes any charge imposed as an incident to, or condition of, the extension of credit.477 Disabling devices are not used when vehicles are purchased for cash.

Repossessions: 6.6.4.5 Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) and state credit discrimination laws may be violated when a creditor’s decision as to which customers must install disabling or other electronic devices is based on the consumer’s race, age, ethnicity, public assistance status, or other protected classification.478