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Right to Repossess Under Fair Debt Collection Practices Act Determined by State Law, 7th Circuit Says

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.