The Daily Journal interviewed Manatt's Ellen Marshall, a partner in the firm's Financial Services and Banking practice, for an article on the rising popularity of a decades-old California state law imposing strict disclosure requirements on auto lenders after repossessing a vehicle. Attorneys are using the statute to successfully wipe out remaining debt balances on loans, providing relief to cash-strapped borrowers and resulting in losses for financiers.
The Rees-Levering Act requires car buyers to be served with a statutory notice within 60 days after repossession that clearly states the full amount of money needed to reclaim the vehicle as of 15 days after the notice is mailed, as well as information on where and to whom the debt can be paid, where the car is being held, and any other information necessary to be able to reclaim the car without further inquiry. Any deviation from the statute means the debt left over after selling the repossessed car cannot be collected.
Marshall said that from a legal standpoint, securities issuers are not required to specifically list state-by-state statutes in the prospectus documents detailing risk to investors, though they typically assume that one in four subprime borrowers will default, according to several investor pitch booklets.
"They do disclose generally the existence of state laws on repossessions, as well as the [distribution of auto loan assets] among the various states, but they don't get into state-by-state specifics," Marshall said.