The following is a case update written by Everett L. Green, an attorney with the U.S. Department of Justice, Office of the United States Trustee, analyzing a recent decision of interest:
In Richards v. PAR, Inc., 2020 WL 1451906 (7th Cir. 2020), the Seventh Circuit ruled that under the Fair Debt Collection Practices Act courts must look to state law to determine whether a repossession company has a present right to possess the property at the time it was seized.
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Appellant, Nicole Richards, defaulted on her car loan. Her lender contracted with appellee PAR, Inc. (“PAR”) to repossess the vehicle, and PAR subcontracted the job to a towing company. When the towing company’s employees attempted to take the car, Richards protested and ordered them off her property. The towing company’s employees called the police who handcuffed Richards until the car was towed away.
Richards admitted that her lender possessed a valid security interest in the car and that she defaulted on her car loan. Her complaint involved the consequences of what she believed to be a wrongful repossession. She sued PAR and the towing company, alleging criminal trespass and replevin under Indiana state law, and because the repossession violated state law, that defendants violated the Fair Debt Collection Practices Act (“FDCPA”). The district court granted summary judgment in favor of PAR and the towing company, holding that any improper conduct that occurred during the repossession is “independently a matter of state law” — the FDCPA is not an enforcement mechanism for matters governed by state law.
The Seventh Circuit reversed, holding that Richards’s complaint alleged a plausible claim under 15 U.S.C § 1692f(6)(A) of the FDCPA.
The FDCPA broadly proscribes unfair debt collection practices and sets forth certain prohibited acts, including prohibiting debt collectors from “taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if there is no present right to possession of the property claimed as collateral through an enforceable security interest.” 15 U.S.C. § 1692f(6)(A).
A repossessor, according to the Richards court, may qualify as a debt collector under the FDCPA. 15 U.S.C. § 1692a(6) (defining “debt collector” to include a person in “any business the principal purpose of which is the enforcement of security interests”). Therefore, repossessions without judicial process violated Section 1692f(6)(A) unless the property is collateral under an enforceable security interest and the repossessor has a “present right to possession” of the property.
The FDCPA des not define the phrase “present right to possession.” The trial court held that defendants held a present right to possession because they held a valid security interest. But this reasoning was in error because state law determines whether a repossessor has a present right to possess property. To support its reasoning, the Richards court relied on two prior rulings where the Seventh Circuit looked to state law to define a provision of the FDCPA, Seeger v. AFNI, Inc., 548 F.3d 1107, 1111 (7th Cir. 2008) and Suesz v. Med-1 Sols., Inc., 757 F.3d 636 (7th Cir. 2014) (en banc).
Here, Indiana law permits nonjudicial repossession only if the process does not breach the peace. Drawing inferences in Richards’ favor, a reasonable jury could conclude that a breach of peace occurred during the repossession, meaning that once Richards’ protested, the towing company no longer had a present right to possession, but took the car anyway. Richards’ theory was sufficient to present her FDCPA claim to a jury.
The holding in Richards appears to be consistent with California decisions. In Pflueger v. Auto Finance Group, Inc., 1999 WL 33740813 (C.D. Cal. April 26, 1999), the court addressed a similar issue.
A lender engaged the services of a third party to repossess a car. Plaintiff alleged wrongful conduct in the act of repossessing the vehicle and sought relief under California law and the FDCPA.
Similar to the Richards court, the trial court held that state law determines whether a secured party has a “present right “ to possess collateral under Section 1692f(6)(A). Id. at *15-16.
The trial court examined California law, which permits a secured party to repossess collateral if it can be done without breach of the peace. See Cal. Com. Code § 9609.
Because the plaintiff alleged material issues of disputed facts concerning whether a breach of peace occurred, the trial court denied summary judgment.
Interestingly, the trial court in Pflueger held that although the repossession company was not a debt collector under the FDCPA, it could still face liability under the FDCPA for wrongful repossession. For additional cases discussing whether repossession companies are liable under the FDCPA see Lee v. Toyota Motor Sales USA Inc., 2016 WL 4608220 (N.D. Cal. September 6, 2016) and Brooks v. Leon’s Quality Adjusters, Inc., 2016 WL 45399673 (E.D. Cal. August 30, 2016).
These materials were written by Everett L. Green, an attorney with the U.S. Department of Justice, Office of the United States Trustee, who is a member of the ad hoc group and a member of the Business Law Section’s Executive Committee. Editorial contributions were made by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal., Ret.), also a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.
 Section 9606 of the California Commercial Code provides:
(a) After default, a secured party may do both of the following:
(1) Take possession of the collateral.
(2) Without removal, render equipment unusable and dispose of collateral on a debtor’s premises under Section 9610.
(b) A secured party may proceed under subdivision (a) in either of the following ways:
(1) Pursuant to judicial process.
(2) Without judicial process, if it proceeds without breach of the peace.
(c) If so agreed, and in any event after default, a secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.