Healthcare worker Cleveland Wishop landed at Baltimore-Washington International Airport last fall expecting to retrieve his car from long-term parking and drive home.
It never crossed Wishop’s mind that he had fallen into one of the economic traps stemming from the COVID-19 pandemic.
His blue Camaro had vanished. The dealer who sold him the 2010 car a year earlier seized it after Wishop fell just 19 days behind in making his August payment.
"I was pissed, extremely," Wishop said.
In times past, auto dealers and lenders were slower to retake cars when borrowers fell behind. Finding and repossessing vehicles was often difficult, occasionally even risky. And recouping costs on seized vehicles was a losing game.
But the pandemic changed that.
Global supply chain snarls continue to cause chronic shortages in many vital products, including the computer chips at the heart of modern cars.
And that's led to an unprecedented rise in used-car prices as production of new vehicles remains constrained.
Based on government surveys, prices for used cars and trucks rose 43% in June from August 2020, when they first started to jump. For new vehicles, prices rose 17% over the same period.
This pandemic-related surge in the demand for used cars and trucks has turned the repo game on its head.
Now a dealer who moves fast to repossess a vehicle can expect to resell it quickly, sometimes at a far higher price.
And thanks to the prevalence of tracking technology, finding vehicles is fairly simple.
Auto repos had been down during earlier phases of the pandemic as lenders gave more breaks to borrowers. Although statistics for this year aren't yet available, title firms, government regulators and many people involved in auto collection and auctions say that repossessions are rising notably, particularly for used cars.
“There was a period for a lot of creditors, they were deferring earlier in COVID,” said Colin Welsh, a Woodland Hills attorney who works with borrowers and has been fielding many more repo calls. “That has waned, and now they’re seizing the moment.”
Mark Lacek, a Florida repo man who's recovered 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 streamlined the process of assigning and finding repo vehicles. Like beachcombers with metal detectors, Lacek said, a small army of people with license-plate-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 due on the four-year, high-interest loan.
Wishop, while acknowledging his checkered credit history, says he is pursuing his own legal action against the dealer.
“They got paid twice for the same car,” he said. “That was their aim. That’s their game.”
Caspian managers didn't return calls.
Car prices have soared so high that Robert W. Murphy, a Fort Lauderdale, Fla., attorney who represents borrowers, said he even had two clients get paid several thousand dollars each after their cars were repossessed and sold at an auction.
That’s because, by law, proceeds exceeding the loan recovery amount must be returned to the borrower.
“Neither put any money down, no equity, no skin in the game, and they both got checks,” Murphy said.
Cars have been a major factor in the nation’s surge in inflation overall, which is at a four-decade high. In the years just prior to the pandemic, used-vehicle prices hardly saw any change.
At the same time, increasing numbers of consumers are beginning to fall behind on their car payments.
Not only is inflation straining household budgets, but government pandemic aid checks have stopped flowing, and many people who bolstered their savings accounts during the earlier phases of COVID are seeing those balances start to dwindle.
Consumer car loan delinquencies have started to tick higher, particularly for young and subprime debtors. Auto loans more than 60 days late were up 30% in May from a year earlier, although defaults so far remain below pre-pandemic levels, Cox Automotive said.
American consumers currently have auto 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, households will feel increasing financial stress.
The average monthly payment on a used-car loan today exceeds $500, says Bankrate.com. It’s about $650 for new vehicles, with one out of eight borrowers on the hook for $1,000 or more a month.
If used-car values soften in the months ahead — and the increases are already beginning to moderate — many consumers could be left with upside-down auto loans.
Some analysts say the situation looks frighteningly similar to the subprime mortgage crisis that led to the Great Recession in 2007-09.
Though most economists don’t foresee anything like the financial crater back then, they worry nonetheless that the imbalances in the auto industry and financing will cause significant trouble for consumers and lenders alike, especially those heavy in the subprime market.
Credit unions, with their reputation for lower interest rates and lending to diverse communities, have seen booming growth in used-car loans. Credit unions now account for about a third of the vehicle credit market in the country.
Mike Schenk, chief economist at the Credit Union National Assn., says data suggest that about a quarter of credit union borrowers have below-prime scores, meaning they are more likely to get into financial difficulties and fall behind on car payments.
Schenk dismissed worries as overblown, saying auto loan delinquencies of greater than 60 days are up only slightly for credit unions and remain historically at very low levels.
But some lenders are starting to feel more pressure.
Pentagon Federal Credit Union has one of the largest portfolios of used-auto loans, about $3.6 billion as of March. That’s up a whopping 80% from a year earlier. As of March, the dollar volume of delinquencies of 60 days or greater has more than doubled from a year ago to about $45 million, according to quarterly filings.
Other lenders may face higher risk because of their large exposure. In Orange County at Westminster-based LBS Financial Credit Union, for example, autos make up 70% of its total loans. Neither Pentagon Federal nor LBS Financial would comment.
“You do see some financial institutions, including credit unions, pretty deep in subprime autos, and should that market turn suddenly and viciously, they’ll find themselves on the wrong side of a speculative bet,” said Aaron Klein, a senior fellow at the Brookings Institution.
He noted that the pandemic, by inducing massive amounts of federal stimulus money and an abnormal surge in car values, masked the underlying problems in the used-car market, particularly in the fast-growing subprime segment that’s long been troubled by discrimination and unsavory practices.
Massachusetts and a few other states have been cracking down on subprime auto dealers and financiers.
Though lenders can legally seize vehicles from borrowers who are more than 10 days late on payment — and in many states without prior notification — it’s unlawful to “breach the peace” in doing so, said John Gayle Jr., a Richmond, Va., consumer rights attorney and co-author of the state’s lemon laws.
He said differences in state laws can create gray areas for repossessing operations, but almost everywhere it would break the law if it might lead to any kind of violence or if repossession occurred in a car owner’s yard or private property.
Iieska Packard of Fresno, a 43-year-old licensed vocational nurse, was at her company office last year when a colleague asked, “Isn’t that your car getting towed?” Packard raced down the stairs and out the door, but it was too late. Her 2017 Lincoln MKX was gone.
“I didn’t know what was going on. At first I thought it was theft,” she said. Later, Packard learned her SUV, which she had purchased only a month earlier, had been towed by an unmarked truck.
She said the dealership, LA Auto Exchange in Montebello, told her that the financing had been canceled because it couldn’t confirm her employment.
LA Auto Exchange managers didn’t return calls. The dealership is in arbitration with Packard’s attorney, Welsh of Woodland Hills.
When Packard bought the vehicle, she put down $2,000 on a purchase price of $21,285, including sales tax and fees. She financed the rest through the dealer with a six-year loan bearing an annual interest rate of 26.2% — even higher than the average 9% to 20% rate that subprime car buyers face, according to the Consumer Financial Protection Bureau.
The sales contract showed Packard’s financing charges over the term of the loan totaling $19,561 — more than the original principal borrowed.
Packard, a mother of two, says her credit was hurt after she fell behind on student loans and medical bills. But having her car repossessed like that "was frustrating and embarrassing," she said. "Everyone in the office was there."
This story originally appeared in Los Angeles Times.