Healthcare worker Cleveland Wishop landed at Baltimore-Washington International Airport last fall expecting to pick up his car from long-term parking and go home.

It never occurred to Wishop that he had fallen into one of the economic traps stemming from the COVID-19 pandemic.

His blue Camaro was gone. The dealer who sold him the 2010 car a year ago caught it after Wishop was just 19 days behind on his payment in August.

“I was mad, extremely mad,” Wishop said.

In the past, auto dealers and lenders were slower to repossess cars when borrowers fell behind. Finding and retrieving the vehicles was often difficult, sometimes dangerous. And reimbursing costs for impounded vehicles was a losing game.

But the pandemic changed that.

Global supply chain disruptions continue to cause chronic shortages in many vital products, including the computer chips at the heart of modern cars.

And that has led to an unprecedented surge in used car prices as new vehicle production remains limited.

Based on government surveys, prices for used cars and trucks rose 43% in June from August 2020, when they first started jumping. For new vehicles, prices increased by 17% in the same period.

This surge in demand for used cars and trucks due to the pandemic has turned the repo game on its head.

Now a dealer who moves quickly to repossess a vehicle can expect to resell it quickly, sometimes at a much higher price.

And thanks to the proliferation of tracking technology, finding vehicles is quite simple.

Auto repos had fallen during earlier stages of the pandemic as lenders gave more breaks to borrowers. Although statistics for this year are not yet available, title firms, government regulators and many people involved in car collecting and auctions say repossessions are on the rise, especially for used cars.

“There was a period for a lot of creditors, they were getting pushed back earlier in COVID,” said Colin Welsh, a Woodland Hills attorney who works with borrowers and has done many more repo calls. “That has faded and now they are seizing the moment.”

Mark Lacek, a Florida repo that has repossessed more than 10,000 vehicles since the 1970s, predicts the trend will only grow.

“I expect to be super, super busy,” he said, adding that technology has improved the process of assigning and finding repo vehicles. Like beachgoers with metal detectors, Lacek said, a small army of people with license-reading cameras mounted on their cars cruise the streets, waiting for a ping to alert them when they pass a vehicle in the repo database.

In the case of Wishop’s Camaro, Caspian Auto Motors of Stafford, Va., resold the car within two weeks and is now suing Wishop, of Petersburg, Va., to pay off the balance of the four-year, high-interest loan. .

Wishop, while acknowledging his checkered credit history, says he is pursuing legal action against the dealer.

“They were paid twice for the same car,” he said. “That was their goal. That’s their game.”

Caspian managers did not return phone calls.

Car prices have risen so much that Robert W. Murphy, a Fort Lauderdale, Fla., attorney who represents borrowers, said he even had two clients who were paid several thousand dollars each after their cars were repossessed and sold. in an auction.

This is because, by law, income that exceeds the loan recovery amount must be returned to the borrower.

“Neither put any money in, no equity, no skin in the game, and they both got checks,” Murphy said.

Cars have been a major factor in boosting the country’s overall inflation, which is at its highest level in four decades. In the years before the pandemic, used car prices saw almost no change.

At the same time, a growing number of consumers are starting to fall behind on their car payments.

Not only is inflation straining household budgets, but the government’s pandemic relief checks have stopped flowing, and many people who bolstered their savings accounts during the earlier stages of COVID are seeing those balances begin to dwindle.

Consumer auto loan delinquencies are starting to rise, especially for new and subprime borrowers. Auto loans more than 60 days past due rose 30% in May from a year earlier, although defaults so far remain below pre-pandemic levels, Cox Automotive said.

American consumers currently have car loans totaling $1.4 trillion, double the amount from 10 years ago and now larger than credit card debt, according to the Federal Reserve Bank of New York.

If the economy falls into recession and more people lose jobs and incomes, families will feel increased financial stress.

The average monthly payment on a used car loan today tops $500, says. It’s about $650 for new vehicles, with one in eight borrowers on the hook for $1,000 or more a month.

If used car values ​​moderate in the coming months — and increases are already beginning to moderate — many consumers could be stuck with upside-down car loans.

Some analysts say the situation looks eerily similar to the subprime mortgage crisis that led to the Great Recession in 2007-09.

Although most economists do not foresee anything like a financial crater at that time, they nevertheless worry that imbalances in the auto industry and financing will cause significant trouble for consumers and lenders, especially those heavy in the subprime market.

Credit unions, with their reputation for lower interest rates and lending to diverse communities, have seen rapid growth in used car loans. Credit unions now make up about a third of the nation’s auto loan market.

Mike Schenk, chief economist at the Credit Union National Assn., says data suggests about a quarter of credit union borrowers have lower scores, meaning they’re more likely to get into financial trouble and fall behind on car payments.

Schenk dismissed the concerns as overblown, saying auto loan delinquencies of more than 60 days have increased only slightly for credit unions and remain historically very low.

But some lenders are starting to feel more pressure.

Pentagon Federal Credit Union has one of the largest used car loan portfolios, about $3.6 billion as of March. This is an 80% increase from the previous year. Since March, the dollar volume of delinquencies 60 days or more has doubled from a year earlier to about $45 million, according to quarterly filings.

Other lenders may face higher risk due to their large exposure. In Orange County at Westminster-based LBS Credit Union, for example, cars make up 70% of its total loans. Neither Pentagon Federal nor LBS Financial would comment.

“You look at some financial institutions, including credit unions, pretty deep in subprime cars, and if this market turns suddenly and wildly, they’re going to find themselves on the wrong side of a speculative bet,” Aaron Klein said. , a senior fellow at the Brookings Institution.

He noted that the pandemic, prompting massive amounts of federal stimulus money and an abnormal increase in car values, masked underlying problems in the used car market, particularly in the fast-growing subprime price segment that has long been troubled. from discrimination and unpleasant practices. .

Massachusetts and several other states have cracked down on subprime car dealers and financers.

Although lenders can legally repossess vehicles from borrowers who are more than 10 days past due—and in many states without notice— it is illegal to “Breach the peace” by doing so, said John Gayle Jr., a Richmond, Va., consumer rights lawyer and co-author of the state’s lemon laws.

He said changes in state laws can create gray areas for repossession operations, but almost anywhere would break the law if it could lead to any kind of violence or if the repossession took place in a car owner’s yard or on private property.

Iieska Packard of Fresno, a 43-year-old licensed practical nurse, was in her company’s office last year when a colleague asked her, “Isn’t your car pulling over?” Packard ran down the stairs and out the door, but it was too late. Her 2017 Lincoln MKX was gone.

“I didn’t know what was happening. At first I thought it was theft,” she said. Later, Packard learned that her SUV, which she had purchased just a month earlier, had been towed by an unmarked truck.

She said the dealer, LA Auto Exchange in Montebello, told her the financing was canceled because it could not confirm her employment.

Managers at LA Auto Exchange did not return phone calls. The dealership is in arbitration with Packard’s attorney, Welsh of Woodland Hills.

When Packard bought the vehicle, she put down $2,000 for a purchase price of $21,285, including sales taxes and fees. She financed the rest through the dealer with a six-year loan at an annual interest rate of 26.2% — even higher than the average 9% to 20% rate subprime car buyers face, according to the Consumer Financial Protection Bureau.

The sales contract showed Packard’s financing fees over the term of the loan totaling $19,561 — more than the original principal borrowed.

Packard, a mother of two, says her credit was damaged after she fell behind on her student loans and medical bills. But having her car repossessed that way “was frustrating and embarrassing,” she said. “Everyone in the office was there.”

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