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Illinois Suspends Vehicle Repossession by Auto LendersThe COVID-19 pandemic has affected all areas of commercial lending, including automotive loans. With millions of Americans out of work, consumers may have more difficulty paying off the loan on their vehicle. Auto lenders have ways to handle clients who have fallen behind on loan payments, whether it is modifying the terms of the loan to give the client leeway or pursuing debt collection. However, repossession of the vehicle may not be an option right now, depending on where the client lives. You must examine recent laws and executive orders to ensure that you are not committing a violation when repossessing a vehicle.

Temporary Freeze on Repossession

Since the start of the crisis, states have differed on whether they will continue to allow vehicle repossession when a debtor is unable to make loan payments. Some states have strictly prohibited it, while others are merely recommending a pause on repossessions. In Illinois, Gov. J.B. Pritzker issued an executive order that suspended vehicle repossessions for as long as the state’s disaster proclamation is in effect. As of May 29, the disaster proclamation has been extended until June 27. The executive order cited several reasons for suspending vehicle repossessions:

  • Many Illinois residents are facing financial hardship because of the lockdown imposed by the state.
  • Having a vehicle is essential to public safety in order to obtain supplies and travel in the event of a medical emergency.
  • Essential workers rely on their vehicles in order to get to their workplaces.
  • Individual vehicles allow residents to travel while practicing social distancing.

Your Options as a Lender

Illinois’ executive order states that the pause on vehicle repossession does not affect your client’s obligation to continue paying the loan. Once the order is lifted, you may be able to move forward with repossession efforts if that is the stage you are at in the debt collection process. Until then, you can communicate with your clients to make sure they understand the consequences of missing loan payments and decide whether to allow deferments on payments in some cases.

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Possession Can Perfect Security Interest in Collateral VehicleWhen repossessing a property from a debtor, having a perfected security interest in the property helps you prevent other interested parties from gaining possession of it. According to the Uniform Commercial Code, a security interest is created when:

  • The property has been given value;
  • The debtor has a right to the property; and
  • The debtor agrees that the creditor shall attach a security interest to the property.

The security interest gives the creditor the right to possess the property if the debtor cannot meet the debt obligation, and perfecting the security interest gives the creditor priority over other parties who may claim ownership of the property. A recorded financing statement is a common means of perfecting a security interest. However, actual possession of the property can be sufficient with properties such as vehicles.

Recent Example

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Law Protects Servicemembers During Vehicle RepossessionBefore repossessing a vehicle, an auto lender must confirm whether the owner is a U.S. military member on active duty. The Servicemembers Civil Relief Act includes a section protecting active servicemembers who default on their auto loans. The auto lender must obtain a court order to repossess the vehicle. The order may include forms of financial relief not normally given to vehicle owners. Failing to comply with the SCRA can be a criminal offense.

Qualifications

The SCRA applies to people who are away from home while serving as:

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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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