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Subprime Lending Leading to More Auto Loan Deficiency Lawsuits


Einstein once said the definition of insanity was doing the same thing over and over again and expecting a different result. If that’s true then America’s banks and lending institutions should probably be committed, because it looks like they are engaging in many of the same mistakes as the housing industry did during the housing crisis a few years ago.

Automobile Subprime Lending

Unlike foreclosures, which are generally going down, auto loan lawsuits are going up and up. The automobile finance industry has become more deeply involved in the subprime lending category. This is a type of lending to people with poor credit, or lending products to those that the lender should know won’t be able to pay back the loan. Because of the poor lending terms, payments are often extended, and exorbitantly expensive.

Sometimes subprime lending is acceptable—for example, if someone has poor credit because of a closed period of unemployment when they couldn’t pay their bills, but they are now employed, they still may be reliable and able to pay the loan back despite a lower credit rating.

But more often, subprime lenders prey on people by providing loan products that can’t be paid back. According to some reports, courthouses in certain areas are becoming flooded with lawsuits against people who can’t pay back subprime auto loans.

Defenses to Repossession Judgments

In many ways a repossession works the same way as a home foreclosure. You have an asset—the car—and if you can’t pay, the car is repossessed. If it is worth more than what you owe, you won’t owe anything (although your credit will be damaged).

But if the car is not worth what you owe, which is often the case with subprime loans, you not only will lose your car, and have damaged credit, but you’ll have a money judgment (a deficiency judgment) entered against you for the difference between what you owe and the car’s value—plus expenses of auctioning or selling the car, and other interest and penalties.

Lenders that sell repossessed cars must do so in a “commercially reasonable manner,” which usually means that the car or auction must be advertised, and sold at an amount that’s at or close to the car’s value.

Lenders also can’t keep personal property belonging to you when they repossess your car, unless it has become a fixture to the car (such as a stereo, or an engine modification). You may be entitled to offset the cost of what you owe with any property the lender retained and did not return to you.

Dealing With Deficiency Judgments

Repossession deficiency judgments are money judgments, and can be discharged in bankruptcy. Collection on most deficiency judgments must be done in compliance with the Fair Debt Collection Practices Act (FDCPA). People with repossessions should also check their credit to make sure the amount owed is reflected as the deficiency amount—not the full value of the loan.

Are you being sued by a company seeking to repossess a vehicle, or harassed by a repossession judgment debt collector? Contact a consumer law attorney at Jacobs Legal in Miami today to discuss your rights and defenses to these claims.


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