Tag: CFPB

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CFPB and Justice Department Caution Auto Finance Companies about Servicemember Protections

CFPB and Justice Department Caution Auto Finance Companies about Servicemember Protections

WASHINGTON, D.C. – The Office of Justice and the Customer Financial Safety Bureau (CFPB) issued a joint letter these days reminding vehicle finance firms of their duties to understand important authorized protections for military services people under the Servicemembers Civil Relief Act (SCRA). Though servicemembers have the exact same rights as non-armed forces borrowers, the SCRA supplies more rights to defend servicemembers and their people towards distinctive financial issues.

“Auto finance companies that perform by the policies ought to not be deprived by rivals that violate the legal legal rights of navy families,” explained CFPB Director Rohit Chopra. “The CFPB is intently monitoring the auto finance field to guarantee that servicemembers and their families are staying dealt with reasonably.”

“The Civil Rights Division is entrusted with the accountability of making sure that the rights of the brave guys and ladies of our Nation’s armed forces are safeguarded from discrimination and unfair therapy,” explained Assistant Legal professional Standard Kristen Clarke. “We function each individual working day to guarantee that these legal rights, such as all those relevant to auto financing, are shielded via litigation, outreach, and policy development.”

Recent CFPB study has demonstrated that servicemembers are inclined to carry more vehicle loan personal debt at more youthful ages than their civilian counterparts, largely thanks to the need for transportation though living on a military base. They are also generally the focus on of unfair or predatory procedures which includes costly financial loans and high priced contracts for the reason that of the fiscal inexperience of lots of getting into the services as youthful adults, put together with their continual paychecks and potential to construction payments by means of the navy allotment system. CFPB’s Spring 2022 Supervisory Highlights also uncovered unfair functions or methods, prohibited by the Purchaser Economical Defense Act, in the automobile servicing business.

The letter is created to guarantee that car finance providers are mindful of important provisions within the SCRA, which include:

  • Wrongful car repossessions: The SCRA prohibits an automobile finance business from repossessing a car throughout the borrower’s military services assistance without having a court docket order, even if the borrower financed or leased the car or truck prior to entering military company.
  • Failure to terminate motor vehicle leases without the need of penalty: The SCRA lets servicemembers to terminate motor automobile leases early and without the need of penalty after entering armed forces services or getting qualifying navy orders for a long lasting improve of station or deployment.
  • Violations of vehicle bank loan fascination rate positive aspects: The SCRA also boundaries curiosity rates on financial loans incurred prior to military services services to no far more than 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} for every year, which include most service fees. If servicemembers make a good ask for, a creditor ought to forgive and not defer any fascination higher than 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.

Read through the joint letter to auto finance businesses pertaining to armed service borrower protections .

Customers encountering troubles with auto servicing can submit a criticism with the CFPB online or by contacting (855) 411-CFPB (2372).

Personnel who think their companies have violated federal client money safety rules are encouraged to send out data about what they know to whistleblower@cfpb.gov.

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The Customer Money Protection Bureau is a 21st century company that implements and enforces Federal client monetary regulation and makes sure that marketplaces for shopper economic solutions are truthful, transparent, and aggressive. For more details, check out consumerfinance.gov.

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CFPB Invokes Dormant Dodd-Frank Authority to Regulate Nonbank Financial Companies

CFPB Invokes Dormant Dodd-Frank Authority to Regulate Nonbank Financial Companies

May 5, 2022

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On April 25, 2022, the Consumer Financial Protection Bureau announced that it will begin relying upon a “largely unused legal provision” of the Dodd-Frank Act to supervise nonbank financial companies that purportedly pose risks to consumers.  To facilitate that process, the CFPB simultaneously promulgated a procedural rule that authorizes it to publish its decisions about whether certain nonbank entities present such a risk.  The CFPB has stated that it intends for these decisions to provide nonbank entities with guidance about the circumstances in which they may be subject to regulation.  Left unstated is the reality that the threat to publicly designate an entity as posing risks to consumers will provide the CFPB with additional leverage over such entities.

The CFPB’s announcement marks a significant expansion of its supervisory reach.  The CFPB said that it intends to “conduct examinations” of “fintech” companies and “to hold nonbanks to the same standards that banks are held to.”  And it is expected that the CFPB will assert the same authority over crypto firms.  The CFPB’s announcement comes at a time of increasingly intense competition among regulators to assert jurisdiction over fintech and digital assets firms.  Gibson Dunn represents many clients at the forefront of crypto and fintech innovation, and has deep experience challenging over-extension of agencies’ regulatory authority, including by financial regulators.  We stand ready to help guide industry players as the CFPB moves forward with its ambitious plans.

I. The CFPB’s Authority to Regulate Nonbank Entities

Historically, only banks and credit unions were subject to federal financial supervision.  That changed when Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).

Under Dodd-Frank, the CFPB has supervisory authority over several categories of nonbank entities, including entities that provide mortgage, private student loan, or payday loan services.  12 U.S.C. § 5514(a)(1)(A), (D)–(E).  In addition, and most relevant here, the CFPB may regulate nonbank entities when it “has reasonable cause to determine”—after providing notice and an opportunity to respond—that the entity “poses risks to consumers” regarding the provision of consumer financial products or services.  Id. § 5514(a)(1)(C).

The CFPB issued a procedural rule in 2013 delineating the risk-determination process, but it has never before used this authority to supervise a nonbank.  As the CFPB’s April 25, 2022 announcement explains, however, that is about to change.  In the announcement, the CFPB said that it will begin exercising its “dormant authority” under Dodd-Frank to supervise nonbank entities—including “fintech” firms—that it has determined pose a risk to consumers.

The Dodd-Frank Act and the CFPB’s implementing regulations detail the risk-determination process and the consequences of being subject to regulation.

  • The Risk-Determination Process. The CFPB promulgated detailed procedures for the process it uses to determine whether nonbank entities are a risk to consumers, and thus subject to regulation under Dodd-Frank.  See 12 C.F.R. §§ 1091.100–.115.  Those procedures give the CFPB discretion to initiate the risk-determination process through issuing a “Notice of Reasonable Cause,” id. § 1091.102, or through bringing charges in an adjudicatory proceeding, id. § 1091.111.  Whichever path the CFPB chooses, it must provide notice of the basis for the apparent risk and an opportunity for the nonbank entity to respond.  The CFPB has stated that it may base its risk determinations on “complaints collected by the CFPB, or on information from other sources, such as judicial opinions and administrative decisions,” as well as “whistleblower complaints, state partners, federal partners, or news reports.”  After considering the available evidence and any responses from the nonbank entity, the Director will decide whether it has “reasonable cause” to find a risk to consumers.  The Director’s decision to subject an entity to regulation under Dodd-Frank is subject to review under the Administrative Procedure Act.
  • Regulation under Dodd-Frank. If the CFPB determines that a nonbank entity is subject to regulation based on a risk determination, then it faces the same level of regulation as banks.  Among other things, the CFPB can conduct examinations to ensure compliance with consumer financial laws, 12 U.S.C. § 5514(b)(1), require entities to comply with recordkeeping requirements, id. § 5514(b)(7), and is generally vested with exclusive enforcement authority over federal consumer financial laws, id. § 5514(c).  Notwithstanding the formal processes for making risk determinations, entities may also voluntarily consent to regulation under Dodd-Frank.  12 C.F.R. §§ 1091.110(a), 1091.111(a).
  • Petition for Termination. In the event the CFPB determines after the Issuance of a Notice of Reasonable Cause that a nonbank entity poses a risk to consumers and is thus subject to regulation under Dodd-Frank, that entity may file a petition before the Director to terminate the decision and escape regulation under the Act.  12 C.F.R. § 1091.113(a).  That petition may be filed “no sooner than two years after” the decision, and only one petition may be filed per year.  Id.  The Director’s decision on a petition qualifies as “final agency action” that may be subject to review under the Administrative Procedure Act.  Id. § 1091.113(e)(3).

II. New Rule Allowing Publication of Risk-Determination Decisions

Accompanying its announcement to begin supervising fintech nonbanks, the CFPB issued a procedural rule amending the risk-determinations procedures.  Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination; Public Release of Decisions and Orders, 87 Fed. Reg. 25397 (proposed Apr. 29, 2022).

As a general matter, materials submitted in connection with a risk determination are considered confidential.  12 C.F.R. § 1091.115(c).  But with this new rule, which took effect on April 29, 2022, the CFPB may in the Director’s discretion publish decisions and orders made during the risk-determination process on the CFPB’s website.  According to the CFPB, this is designed to “increase the transparency of the risk-determination process” and give nonbank entities guidance about how the CFPB will enforce the Dodd-Frank Act moving forward.  Of course, the measure also affords the CFPB an opportunity to make headlines regarding its efforts to bring large, innovative, and/or well-known entities under its supervisory control.  The rule gives the nonbank entity subject to the order or decision an opportunity to file a submission with the CFPB regarding publication of the CFPB’s determination.  The Director also decides whether to publish on the CFPB’s website the decision about whether the risk determination will be publicly released.

The CFPB has requested public comments on the rule, which must be received by May 31, 2022.  Interested parties should consider commenting on the proposal to express any concerns, propose improvements, and to preserve their ability to bring a legal challenge to the rule.  For regulated entities, a challenge to the rule may be preferable to raising objections only after the CFPB has identified the entity by name in a published risk determination.

III. Implications for Fintech and Crypto Companies

The CFPB’s announcement of its intent to begin supervising fintech firms—which is believed to include crypto firms as well—represents a muscular expansion of the agency’s regulatory purview.  It is yet another aggressive action in the young tenure of Director Rohit Chopra—one that has been controversial and generally perceived as hostile to industry.  The consequences for fintech and crypto firms could be significant.  Although much will depend on the vigor with which the CFPB pursues its rediscovered supervisory authority, the CFPB stated that it intends to “conduct examinations” of fintech companies and to hold them to “the same standards that banks are held to.”  Further, the CFPB’s new procedural rule allows the agency to publicize its findings about the risks that a fintech or crypto company poses to consumers before the agency completes an examination of the company, contrary to the confidentiality principles encouraging full and frank communications between an entity and its regulator, which principles lie at the heart of the supervisory process.

The CFPB’s new assertion of jurisdiction is in keeping with the surge of interest among federal regulators in the fintech and crypto industries over the past year.  The SEC, CFTC, FinCEN, Treasury, and other agencies have been jockeying for position to regulate this fast-growing and innovative space.  Absent legislation from Congress clearly defining regulatory roles within the industry, that jockeying is likely to continue.  In March 2022, President Biden issued an executive order directing numerous agencies to evaluate the risks and benefits of digital assets.  The reports resulting from that executive order may only heighten scrutiny of the crypto industry and increase the number of regulators asserting jurisdiction over it.

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As the CFPB decides which entities it will seek to regulate under Dodd-Frank, companies can take steps now to begin assessing their compliance with the laws administered by the CFPB.  Gibson Dunn represents many clients at the forefront of fintech, crypto, and blockchain innovation and stands ready to help guide industry players through this new era of CFPB regulation and the growing patchwork of federal regulation.  The Gibson Dunn team has the expertise to provide guidance and develop innovative arguments challenging the CFPB’s authority.  E.g., PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir. 2016) (holding that the CFPB was unconstitutionally structured in violation of Article II and that the CFPB violated the APA), on reh’g en banc, 881 F.3d 75, 83 (D.C. Cir. 2018) (en banc) (vacating a $109 million penalty because the CFPB misinterpreted the statute and violated due process by retroactively applying its new interpretation); Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) (defeat of SEC “proxy access” rule).

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact Gibson Dunn’s Crypto Taskforce (cryptotaskforce@gibsondunn.com), or any member of its Financial Institutions, Global Financial Regulatory, Privacy, Cybersecurity and Data Innovation, Public Policy, or Administrative Law teams, including the following authors:

Ryan T. Bergsieker – Partner, Privacy, Cybersecurity & Data Innovation Group, Denver (+1 303-298-5774, rbergsieker@gibsondunn.com)

Ashlie Beringer – Co-Chair, Privacy, Cybersecurity & Data Innovation Group, Palo Alto (+1 650-849-5327, aberinger@gibsondunn.com)

Matthew L. Biben – Co-Chair, Financial Institutions Group, New York (+1 212-351-6300, mbiben@gibsondunn.com)

Michael D. Bopp – Co-Chair, Public Policy Group, Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)

Stephanie L. Brooker – Co-Chair, Financial Institutions Group and White Collar Defense & Investigations Group, Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com)

M. Kendall Day – Co-Chair, Financial Institutions Group, Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com)

Roscoe Jones, Jr. – Co-Chair, Public Policy Group, Washington, D.C. (+1 202-887-3530, rjones@gibsondunn.com)

Eugene Scalia – Co-Chair, Administrative Law & Regulatory Practice Group, Washington, D.C. (+1 202-955-8543, escalia@gibsondunn.com)

Helgi C. Walker – Co-Chair, Administrative Law & Regulatory Practice Group, Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com)

Associates Nick Harper and Philip Hammersley also contributed to this client alert.

© 2022 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

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CFPB Invokes Dormant Authority to Examine Nonbank Companies Posing Risks to Consumers

CFPB Invokes Dormant Authority to Examine Nonbank Companies Posing Risks to Consumers

Washington, D.C. – The Purchaser Monetary Defense Bureau (CFPB) announced that it is invoking a mostly unused lawful provision to examine nonbank financial corporations that pose threats to buyers. The CFPB believes that employing this dormant authority will aid shield customers and degree the enjoying discipline concerning financial institutions and nonbanks. The CFPB is also trying to get general public remarks on a procedural rule to make this course of action much more transparent.

“Given the swift development of customer choices by nonbanks, the CFPB is now using a dormant authority to hold nonbanks to the very same expectations that banks are held to,” said CFPB Director Rohit Chopra. “This authority offers us essential agility to go as promptly as the sector, permitting us to conduct exams of financial firms posing threats to buyers and quit harm right before it spreads.”

Under the Dodd-Frank Wall Street Reform and Purchaser Protection Act of 2010, the CFPB has authority to use traditional legislation enforcement to halt firms from engaging in carry out that pose danger to buyers this can require adversarial litigation. Nonetheless, the law also gives the CFPB authority to carry out supervisory examinations to overview the publications and documents of regulated entities. CFPB examiners commonly provide a report to entities with troubles that need to be resolved, and responsible institutions typically acquire prompt corrective action.

Nonbank supervision

For decades ahead of the Dodd-Frank Act, only banks and credit history unions were being subject to federal supervision. But following the 2008 monetary crisis in which nonbank organizations performed a pivotal role, Congress tasked the CFPB with supervising specific nonbanks, in addition to huge depository institutions with much more than $10 billion in assets, and their provider vendors. Nonbanks do not have a lender, thrift, or credit score union constitution a lot of currently run nationally and model them selves as “fintechs.”

Congress approved numerous classes of entities issue to CFPB’s nonbank supervision system. 1st and foremost, all nonbank entities in the home loan, non-public scholar personal loan, and payday mortgage industries, no matter of measurement. A different class of supervised entities features what the law calls “larger participants” in other nonbank markets for client financial items and products and services. The CFPB carried out rulemakings to outline thresholds for entities topic to supervision in the marketplaces of consumer reporting, financial debt assortment, scholar financial loan servicing, intercontinental remittances, and auto personal loan servicing.

The 3rd classification of entities subject to the CFPB nonbank supervision are nonbanks whose functions the CFPB has fair trigger to decide pose challenges to individuals. This authority is not specific to any unique shopper financial products or services. Whilst the CFPB did apply the provision by means of a procedural rule in 2013, the company has now begun to invoke this authority. This will allow the CFPB to be agile and supervise entities that might be fast-rising or are in marketplaces outdoors the current nonbank supervision method.

This kind of dangerous perform may possibly include, for case in point, probably unfair, deceptive, or abusive functions or procedures, or other acts or practices that potentially violate federal buyer economical regulation. The CFPB could foundation these kinds of sensible cause determinations on problems collected by the CFPB, or on data from other sources, this sort of as judicial thoughts and administrative choices. The CFPB may perhaps also master of such dangers through whistleblower issues, condition partners, federal associates, or information studies.

Transparency

The CFPB is also issuing a procedural rule now to enhance the transparency of the chance-dedication method. Contrary to other provisions of legislation regarding nonbank supervision, entities issue to supervision based mostly on danger are presented see and an possibility to react. In buy to present better steering to the marketplace on how the CFPB will make determinations, the CFPB is updating an factor of its treatments for hazard determinations to authorize the launch of specific information and facts about any ultimate determinations produced. The business involved will have an opportunity to present input to the CFPB on what data is launched to the public.

Examine the procedural rule .

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The Buyer Monetary Safety Bureau is a 21st century company that implements and enforces Federal client monetary law and makes certain that marketplaces for shopper economical goods are honest, clear, and aggressive. For much more data, visit consumerfinance.gov.

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CFPB Warns Auto Finance Companies About Inadvertent Repossessions | Troutman Pepper

CFPB Warns Auto Finance Companies About Inadvertent Repossessions | Troutman Pepper

On February 28, the Buyer Financial Defense Bureau (CFPB or Bureau) issued a bulletin and accompanying push launch, highlighting an problem that the company has penned about regularly over the previous a number of decades: inadvertent repossessions. For the most element, the bulletin reminds the field of steerage beforehand issued by the CFPB in several editions of Supervisory Highlights and a 2020 consent order, but it also stands as a very clear reminder that inadvertent repossessions keep on being a single of the Bureau’s highest priorities in vehicle finance.

Inadvertent repossessions are those people that occur in mistake — when a buyer has produced a payment or assure enough to halt the repossession, but it happens no matter. Quite a few mistakes can lead to this to materialize, some of which are highlighted in the bulletin:

  • Applying a payment to the completely wrong account
  • Failure to procedure an extension/deferment
  • Failure to cancel a repossession buy (or all orders, if the account is placed with extra than a person repossession seller)
  • Seller failures (recovering the car, even though the get experienced been place on maintain or canceled)
  • Failing to terminate energetic repossession orders when a purchaser files for personal bankruptcy
  • Implementing payments to the account in an get distinctive from that represented in consumer communications (i.e., having to pay fees very first, which may well avert the account from grow to be sufficiently compensated down to avoid the repossession)

The bulletin also notes occasions in supervisory examinations in which auto finance companies produced representations to people about what actions would be sufficient to stay clear of a repossession, but people statements were being inaccurate, top to repossessions even when consumers carried out the steps.

In retaining with the Bureau’s latest concentrate on charges, the bulletin also asserts that some repossessions ended up caused by automobile finance organizations charging “illegal fees” to buyers, but the “fees” referred to ended up essentially drive-placed insurance coverage rates. The Bureau additional notes that some auto finance firms improperly billed insurance premiums following repossessions, and (returning to an issue that the Bureau very first elevated in a 2016 variation of Supervisory Highlights) improperly authorized repossession agents to demand fees for the retrieval of personalized home from repossessed motor vehicles.

Getting recapped its previous guidance on the concern of inadvertent repossession, the Bureau supplies a checklist of recommended compliance methods with regards to the concern. These methods include things like standard actions like guidelines, techniques, evaluation of customer communications and payment software procedures, monitoring of repossessions and complaints, logging and root trigger evaluation of inadvertent repossessions, and seller checking of repossession brokers. Nonetheless, it also notes a single matter not earlier showcased in Supervisory Highlights: acquiring a course of action to “reimburse people for the immediate and oblique charges incurred as a end result of illegal repossessions when acceptable.” This concept of consumer restitution was current in the CFPB’s 2020 consent purchase on this challenge, but it is the component of the Bureau’s current assistance that is possibly least widespread in the market today, and so it merits particular consideration.

For the most part, the bulletin summarizes current guidance as earlier observed from the Bureau, and it confirms the sort of compliance methods adopted by a lot of vehicle finance corporations over the previous many many years. But the launch of the bulletin, and the now-common strongly worded push launch evaluating inadvertent repossessions to getting a auto “stolen” and asserting that “[a]uto loan servicers require to make certain that each and every repossession is lawful,” should provide as a reminder that the subject of inadvertent repossessions will remain an spot of intensive scrutiny by the CFPB.

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CFPB Warns Auto Finance Companies About Inadvertent Repossessions

CFPB Warns Auto Finance Companies About Inadvertent Repossessions

On February 28, the Shopper Money Defense Bureau (CFPB or Bureau) issued a bulletin and accompanying push release, highlighting an issue that the agency has prepared about regularly more than the previous numerous several years: inadvertent repossessions. For the most part, the bulletin reminds the industry of assistance formerly issued by the CFPB in numerous editions of Supervisory Highlights and a 2020 consent get, but it also stands as a obvious reminder that inadvertent repossessions continue being 1 of the Bureau’s maximum priorities in vehicle finance.

Inadvertent repossessions are all those that manifest in mistake — when a shopper has produced a payment or guarantee enough to end the repossession, but it happens no matter. Several faults can cause this to happen, some of which are highlighted in the bulletin:

  • Applying a payment to the erroneous account
  • Failure to process an extension/deferment
  • Failure to terminate a repossession purchase (or all orders, if the account is positioned with far more than 1 repossession vendor)
  • Vendor failures (recovering the auto, even even though the order had been put on keep or canceled)
  • Failing to terminate lively repossession orders when a consumer documents for bankruptcy
  • Making use of payments to the account in an buy different from that represented in customer communications (i.e., spending costs to start with, which may well protect against the account from grow to be adequately paid down to prevent the repossession)

The bulletin also notes situations in supervisory tests in which car finance organizations produced representations to buyers about what actions would be enough to steer clear of a repossession, but all those statements were being inaccurate, leading to repossessions even when consumers performed the actions.

In trying to keep with the Bureau’s new concentration on costs, the bulletin also asserts that some repossessions were induced by vehicle finance businesses charging “illegal fees” to individuals, but the “fees” referred to were being really pressure-placed insurance plan premiums. The Bureau more notes that some car finance firms improperly charged insurance premiums just after repossessions, and (returning to an problem that the Bureau very first lifted in a 2016 model of Supervisory Highlights) improperly permitted repossession brokers to cost fees for the retrieval of individual assets from repossessed automobiles.

Getting recapped its former guidance on the concern of inadvertent repossession, the Bureau gives a checklist of suggested compliance steps with regards to the difficulty. These methods include things like common measures like procedures, techniques, evaluate of purchaser communications and payment application processes, checking of repossessions and issues, logging and root lead to examination of inadvertent repossessions, and seller checking of repossession agents. However, it also notes a person point not formerly highlighted in Supervisory Highlights: acquiring a course of action to “reimburse customers for the direct and indirect expenses incurred as a final result of illegal repossessions when ideal.” This thought of customer restitution was present in the CFPB’s 2020 consent order on this challenge, but it’s the facet of the Bureau’s new advice that is in all probability least prevalent in the field right now, and so it merits particular focus.

For the most component, the bulletin summarizes present steerage as earlier observed from the Bureau, and it confirms the sort of compliance methods adopted by numerous auto finance businesses over the previous a number of many years. But the release of the bulletin, and the now-normal strongly worded press launch evaluating inadvertent repossessions to owning a auto “stolen” and asserting that “[a]uto mortgage servicers need to make sure that each individual repossession is lawful,” should serve as a reminder that the subject matter of inadvertent repossessions will continue being an region of intensive scrutiny by the CFPB.