Q&A: Here’s a question that a Wisconsin credit union recently asked The League’s Legal Affairs team, along with our answer. Do you have a compliance question? Contact The League’s Compliance Hotline at (800) 242-0833 or email.
Q. What should the credit union do with personal property that was in a vehicle when we repossessed it?
A. To start, it’s important to understand that the car itself has been pledged as collateral, but the consumer never gave the credit union a lien on any personal property that might be inside the car. Since the credit union has no security interest in that personal property, the credit union is responsible for that property and cannot keep or sell it. And keep in mind that the material in the vehicle could include confidential information, such as account numbers.
Notifying the consumer
The Federal Trade Commission has said:
Regardless of the method used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can’t account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.
We don’t know of any Wisconsin laws that require you to tell the owner about personal items or give the person a chance to retrieve them. However, according to a federal appeals court (in a circuit that includes Wisconsin) a lender has a duty under the Fair Debt Collection Practices Act (FDCPA) to give the consumer a reasonable opportunity to retrieve his property. Nadalin v. Automobile Recovery, Inc., 169 F.3d 1084, 1085 (7th Cir. 1999).
The FDCPA does not apply when a credit union is trying to collect its own debt, but the opinion still suggests that notifying the property owner is a sound idea.
We would suggest either notifying the consumer about the items and giving them a “reasonable” chance to retrieve the property or simply sending the item(s) to the consumer. For either option, it may be better to use certified mail, so that you have a return receipt to prove the notice or package was delivered. If you send a notice, and the consumer takes no action, you may wind up having to keep the item until it is considered “abandoned” property. For details on when/how to turn over abandoned property to the state, see The League’s ii Release No. 0007.
Steps the credit union may consider
To protect the credit union, consider these steps for handling personal property in vehicles that are in the credit union’s possession:
- Use “reasonable care” to prevent anyone from removing property from the car, such as making sure the car is locked and kept in a secure area or removing all personal property and storing it securely.
- Make an inventory of any personal items left in the car, perhaps having two staff members search for any such property and prepare the inventory together, to avoid claims that a staffer took items on their own.
- Have the vehicle’s owner sign something confirming that the inventory lists all the items that were in the car and that nothing is missing. Your attorney may even recommend a clause releasing the credit union from liability related to the handling of any personal property that was in the vehicle.
Fees
To avoid disputes, it may be best not to charge members storage fees for the personal property left in a repossessed vehicle, even where the credit union stores such items securely for an extended time.
Contracts with repossession companies
Of course, most credit unions use a repo agent/company to pick up vehicles. Your agreement with that company should clearly state which party is responsible for properly handling all personal property left in vehicles. Also, consider including a clause that requires the repossession company to keep confidential any non-public personal information that may be found in the vehicle.
This is particularly important if the company transports the vehicle directly to an auction service. Since the credit union may never have physical possession of the repossessed vehicle, the repossession company (or the auction service) should promise to be responsible for any personal property.
Without contractual protection, the credit union could face claims by consumers, even if the repossession company or auction service acted improperly. Credit unions can often be held liable for acts by the agents it hires. If the repossession company does something wrong, it can expose the credit union to liability. That’s why it is important to address these issues (and others, such as liability for injuries or accidents that happen during repossession) in your contracts.
Potential consumer claims
If the credit union (or its repossession agent) loses or refuses to return personal property, the consumer may be able to sue the credit union. The consumer would have two claims:
- First, there’s “conversion,” which means taking something without the owner’s permission. The consumer could try to recover the fair market value of their personal property.
- The consumer could also claim negligence. Once a vehicle and personal property is repossessed, the credit union may be seen in court as a “bailee,” meaning it would have to use reasonable care in dealing with property left in its possession.
Of course, the more value the property has, the greater the chance a consumer might bring such claims. The credit union might decide (based on its own judgment) that some items have little or no value and that the risk of a claim is small if the items are disposed of. Costlier items, like tools, should be carefully stored until the member retrieves them.