California bill stalls that would have banned repossessions for 2 years

CARY, N.C. – 

Representatives from the American Financial Services Association, the American Recovery Association and the National Automotive Finance Association let out of collective exhale of relief after what they each described as a significantly damaging piece of potential regulation stalled in the California state legislature.

On Thursday, AFSA, ARA and the NAF Association recapped that California Assembly adjourned without reconsidering the COVID-19 Homeowner, Tenant, and Consumer Relief Law of 2020, known as AB 2501. If approved, the law would have required creditors to provide up to nine months of vehicle payment relief — with a repossession ban for two years (except under certain circumstances) — as well as 12 months of mortgage payment relief.

Danielle Fagre Arlowe, AFSA senior vice president and head of the state government affairs department, explained AB 2501 would have significantly hindered consumers’ access to credit, and weakened broader capital markets, by effectively turning vehicle secured credit obligations into unsecured loans. Fagre Arlowe cautioned the measured may have led to ratings downgrades for vehicle asset-backed securities and certainly would have led to a collapse in confidence in the marketplace.

“The American Financial Services Association and its member companies are pleased that the California Assembly declined to approve AB 2501,” Fagre Arlowe said in a statement. “The legislation, while well intentioned, would have created greater economic hardship for consumers and businesses alike by limiting consumers’ access to credit and undercutting confidence in some forms of asset-backed securities in the capital markets.

“The COVID-19 pandemic has created a unique set of circumstances for American consumers and businesses, and the consumer credit industry has taken unprecedented steps over the past four months to work with consumers to ensure the economic disruption many have experienced does not create undue hardship on them,” she continued. “AFSA and its members have made clear their ongoing commitment to work with their customers to resolve any financial challenges they may continue to experience in the months ahead.”

A stoppage of repossessions certainly could have been paralyzing to agents that operate in the Golden State. ARA executive director Les McCook praised the board of the California Association of Licensed Repossessors (CALR) for its “tireless efforts” on behalf of the recovery professionals. 

“It would have been devastating to our industry and the lending community,” McCook said in a message to SubPrime Auto Finance News. “You would not have to dig very deep to find out just how bad the unintended consequences would have been for the borrowers in California should the bill have become law. 

“We are very thankful to the many voices that contributed to the education of the Assemblymen and women as to the true harm that would have been inflicted on the California economy should the bill have passed,” he added.

ARA president Dave Kennedy also hailed the efforts of CALR to oppose AB 2501, “which thankfully was defeated.”

Kennedy went on to say in a separate message to SubPrime Auto Finance News, “This bill had so many unintended consequences which would have been devastating to the collateral recovery industry as well as to consumers and all of the ancillary industries which are supported by the automobile finance sector.”

During a phone conversation with SubPrime Auto Finance News, NAF Association president Joel Kennedy emphasized even though AB 2501 did not advance in California, the entire auto-finance industry “has to remain active and involved,” to prevent similar proposals from surfacing on the state or federal level.

Kennedy also reiterated the importance of ongoing cooperation and dialogue between finance companies and repossession agents, especially now with the coronavirus pandemic impacting so many business segments. He recollected a project that began back in 2018 involving the NAF Association and ARA.

Together with a working group of NAF Association bank and finance company members, the leadership of ARA has sought to address the lack of standardization of compliance programs by setting forth the following goals:

1. Create a set of baseline criteria for NAF Association members to use in the oversight, management, and auditing of recovery agents.

2. Produce a standard list of compliance requirements for recovery agents to help them satisfy all of their clients.

3. Streamline the process of third-party management for recovery agents specifically, resulting in lower costs for all parties.

“This is still an issue,” Joel Kennedy said on Thursday.

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