The United States Court of Appeals for the Seventh Circuit
has ruled that the question of whether a repossession company has a right to
possess the property at the time of seizure must be determined by state law under
the Federal Fair Debt Collection Practices Act (the "FRCPA"). Richards v. PAR, Inc., 954 F.3d 965 (7th
Cir. 2020).
In this case, the appellant, namely Nicole Richards, defaulted on
her automobile loan. Appellee PAR, Inc.
was hired to repossess the car but subcontracted to a towing company, which
attempted to repossess the car. Richards
protested and demanded that they leave her property. The towing company called
the police, who handcuffed Richards until the car was towed.
While admitting that there was a valid lien and default, Richards
sued PAR and the towing company in district court for trespass and replevin
under Indiana state law and for violations of the FDCPA. The court granted summary judgment in favor of
PAR and the towing company and held that any alleged improper conduct is independently
a matter of state law such that the FDCPA is not an appropriate enforcement
mechanism.
But Richards appealed, and the Court of Appeals reversed, finding that
her complaint alleged a plausible claim under the FDCPA. The FDCPA broadly governs debt collection
practices and sets forth certain prohibited acts, including prohibiting debt
collectors from taking or threatening to take any nonjudicial action to effect
dispossession or disablement of property if there is no present right to
possession of the property claimed as collateral through an enforceable
security interest.
The FDCPA des not define “present right to possession.” The district court found that the repossessors
had a present right to possession because there was a valid security interest
(a lien against the automobile). But the
Seventh Circuit found this to be in error because state law determines whether there
is a present right to possess property.
Moreover, Indiana law permits nonjudicial repossession only if the
process does not breach the peace.
Here, a breach of peace could have occurred once Richards
protested and demanded that the repossessors leave her property. Accordingly, Richards’ allegations were
sufficient to state a claim under the FDCPA and to survive summary judgment. Likewise, it is important to note that California
law permits a secured creditor to repossess collateral only if it can be done
without breach of the peace. Cal. Com.
Code § 9609.