Banking and Finance Law Daily For FDCPA purposes, repo company’s ‘present right to possess’ car determined by Indiana law
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Thursday, March 26, 2020

For FDCPA purposes, repo company’s ‘present right to possess’ car determined by Indiana law

By Nicole D. Prysby, J.D.

A consumer’s FDCPA claim goes forward because, under Indiana law, the debt collector lost the present right to possess the consumer’s car when the peace was breached during the repossession of the vehicle.

Whether a debt collector has the "present right to possess" property for purposes of the Fair Debt Collection Practices Act (FDCPA) is determined by looking to state law, held the federal Seventh Circuit Court of Appeals. Therefore, a repossessor sent by a debt collector lost the present right to possess a consumer’s vehicle when the consumer objected and the police were called, because under Indiana law, a repossessor has a present right to take possession of collateral without judicial process only if he proceeds without a breach of the peace. A repossession of property without judicial process violates the FDCPA unless the property is collateral under an enforceable security interest and the repossessor has a "present right to possession." The statute doesn’t supply its own rule for determining whether a repossessor had a present right to possess the property when it was seized; that question can be answered only by reference to state law. A reasonable jury could find that having the police arrive, handcuff the consumer, and threaten her with arrest, breached the peace, thus ending the repossessor’s present right to possess the vehicle. Therefore the consumer’s FDCPA claim goes forward (Richards v. PAR, Inc.,March 25, 2020, Sykes, D.).

Background. After the consumer defaulted on her car loan, her lender sent PAR, Inc. to repossess the vehicle. The consumer protested when the towing company hired by PAR tried to take the car. The towing company called the police, and the consumer was placed in handcuffs and threatened with arrest until after the car was towed away. The consumer sued PAR and the towing company, alleging that they violated the FDCPA provision making it unlawful for a debt collector to take "nonjudicial action" to repossess property if "there is no present right to possession of the property claimed as collateral through an enforceable security interest." 15 U.S.C. section 1692f(6)(A). The district court viewed the claim as an improper attempt to repackage a state-law violation as a violation of the FDCPA and entered summary judgment for the defendants. The consumer appealed.

FDCPA claim goes forward. Repossessors qualify as debt collectors under the FDCPA, and a repossession without judicial process violates 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. Here, there is no dispute that the vehicle is collateral under an enforceable security interest; the dispute centered on the present right to possession. The FDCPA does not define the phrase "present right to possession." Repossession rights are governed by the relevant state’s law, so the court must look to state law to determine whether a repossessor had a present right to possess the property at the time it was seized.

Indiana law authorizes nonjudicial repossession only if the repossession "proceeds without breach of the peace" (Ind. Code section 26-1-9.1-609). If a breach of the peace occurs, the repossessor must immediately stop and seek judicial remedies. The towing company lacked a present right to possession of the property because, under Indiana law, it was allowed to take possession of the vehicle without judicial process only if the possession proceeds without breach of the peace. A reasonable jury could conclude that a breach of the peace occurred during the towing company’s attempt to repossess the vehicle, at which point the towing company no longer had a present right to possession, but its employees took the consumer’s vehicle anyway.

The court rejected the defendants’ argument that the requirement of a "present right to possession" means only that the repossessor must have an enforceable security interest in the property claimed as collateral. The statutory text provides that debt collectors may not take nonjudicial action to effect dispossession of property if "there is no present right to possession of the property claimed as collateral through an enforceable security interest" (FDCPA section 1692f(6)(A)). Under the last-antecedent canon, the phrase "through an enforceable security interest" modifies the phrase directly preceding it: "the property claimed as collateral." That is, the phrase "through an enforceable security interest" identifies the legal mechanism through which the property is "claimed as collateral"; it does not modify "present right to possession."

The case number is No. 19-1184.

Attorneys: Robert E. Duff (Law Office of Robert E. Duff) for Nichole L. Richards. Gregory M. Bokota (Garan Lucow Miller PC) for Par, Inc. and Lawrence Towing, LLC.

Companies: Par, Inc.; Lawrence Towing, LLC

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