California Repossession Law Blog

If your vehicle was repossessed and sold, the bank or finance company may have sold its right to claim the resulting deficiency to a debt collector. The "deficiency" is the amount still owing on the conditional sale contract after the vehicle sale proceeds were applied. If you did not voluntarily pay that deficiency, the debt collector may decide to file a lawsuit to collect it.

Why are finance companies selling their rights to collect on deficiencies? In these tough economic times, they may simply prefer to collect a few sure dollars now rather than a few more dollars down the road. But sales to debt collectors can also be an indication that the right to collect a deficiency is growing stale. In other words, the statute of limitations may be about to run on the deficiency claim. Creditors are not supposed to sue on claims that are brought outside the limitations period.

For example, if your vehicle was repossessed more than four years before a debt collector files a deficiency lawsuit, the four-year statute of limitations for breach of contract can bar the debt collector's claim. But the statute of limitations is not an automatic defense; the consumer must appear and bring that issue to the court's attention.

Appearing and defending in court can be intimidating to most consumers, even if they know they have a defense. Because very few consumers ever appear in court, most of these deficiency lawsuits result in default judgments for the debt collectors. Then, once debt collectors obtain a judgment--even if the lawsuit was barred by the statute of limitations--they can garnish wages or lien property to get their judgments paid. At that point, there is little or nothing the consumer can do.

If you are sued by a debt collector for a deficiency, look carefully at the grounds for its deficiency claim. if you have questions, we may be able to help you.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Car Repossession

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Our law firm represents consumers whose cars were repossessed. Many of those consumers are being sued by the bank or finance company that repossessed the vehicle. We review the post-repossession Notice carefully to determine whether the creditor has complied with California repossession law. If the Notice does not comply with the law, then the consumer is not liable for any deficiency remaining after the vehicle is sold and the sales proceeds are applied to the outstanding contract balance.

In some cases, however, national banks have argued that they do not need to comply with California law because the California notice requirements are preempted by federal regulations pursuant to the National Bank Act. Although there are no federal laws or regulations that deal with the contents of post-repossession Notices, the banks argue that California notice requirements impermissibly interfere with their ability to lend money and to collect all that is owed. They have argued that forcing banks to comply with state-law notice requirements is an obstacle to the accomplishment of certain objectives under the National Bank Act.

We have vigorously opposed these preemption arguments. In fact, our law firm has several pending cases where federal preemption is an unresolved issue. But the U.S. Supreme Court issued an opinion yesterday called Wyeth v. Levine that may help settle this issue in the consumer's favor.

Wyeth v. Levine has nothing to do with national banks, repossession or lending. It concluded that consumers could continue to sue drug companies for personal injuries in state court, notwithstanding that the drug labels had been approved by the Federal Drug Administration. But similar to the banks' arguments in repossession cases, the drug company argued that permitting injured consumers to sue for compensation was an obstacle to the accomplishment of the FDA’s safety objectives. The Supreme Court rejected that argument. The Court also recognized that state law tort remedies were not inconsistent with the FDA's objectives, but rather were complementary to them.

We believe the same is true in repossession cases, that state-law repossession requirements are complementary to the National Bank Act's regulations. Federal preemption would leave a vacuum in which nothing would specify the contents of post-repossession Notices, with disastrous consequences. But our trial courts will decide that issue, not us. Check back for further developments.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Car Repossession

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