Your Car Won't Start. Did You Make The Loan Payment?
For borrowers in default, the repo man is no longer the one to fear — it's Big Brother. Growing numbers of lenders are getting tech savvy, remotely disabling debtors' cars and tracking customer data to ensure timely payment of subprime auto loans. The practice has created problems for consumers and raises privacy concerns.
Lenders use the starter interrupt device, which has been installed in about 2 million vehicles, according to The New York Times, to deactivate car ignitions remotely if borrowers are late on payments. Lenders can also track cars' movements using the GPS on the device, and the device emits beeps when a payment due date is approaching.
"The use of the devices has increased, and it worked its way up the credit chain a bit," says Tom Hudson, a partner at Hudson Cook LLP and founder and editor-in-chief of CARLAW, a monthly review of developments in automobile finance. "Suddenly these things seem to have grabbed the attention of the media, but they have been around for many years."
Hudson says he first heard of the devices in 1997, when they were largely used by "buy here, pay here" dealerships. Now, more subprime lending companies have taken to using them too.
Many borrowers with bad credit are required to have the starter interrupt device installed on their cars before driving off the lot. The device has helped feed into the growing subprime auto loan market, as it allows lenders to extend subprime loans with greater confidence.
Newly originated subprime auto loans, through June, were at an eight-year high $70.7 billion, according to Equifax. The Times reported that Lender Systems, a California company that makes a variety of starter interrupt devices, has seen its revenue more than double this year.
"You can see two sides of it. On one hand, look, if you're the kind of person who really needs a drastic prod to pay your bills, then it's probably as good as anything else. The thing is, it can be one of those things where it could be construed as somewhat undignified," says Bill Visnic, senior editor at Edmunds.com. "We all know how it goes with fine print, but the fact is that you've entered a legal arrangement with the dealer."
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The devices have put consumers in situations ranging from inconvenient to life-threatening. One woman says her lender remotely shut down her car while she was driving on a three-lane highway in Las Vegas, according to the Times report. Others in the report said that their cars were shut off when they needed to travel for medical attention, or that they had only been a few days behind on payments when lenders disabled their cars.
"The key public policy issue is procedural fairness from the consumer perspective," says Marc Rotenberg, president of the Electronic Privacy Information Center. "This is a consumer fairness issue about whether people are being properly notified."
The practice also raises privacy concerns. The Times reported that a subprime lender used a device to track down and repossess a woman's car when she left her abusive husband to seek residence in a shelter. The woman feared that her husband would find out her location from the tow truck company.
"When [GPS tracking] is being done on the actual owner without their knowledge, we would object to that," Rotenberg says. "People should know the circumstances under which they are being tracked."
Hudson, the CARLAW editor, says he had initially expected to see several lawsuits surrounding the devices, but says he has seen fewer than 10 cases since he first learned of the devices in the late 1990s.
Most states allow starter interrupt devices, so long as consumers are informed of the installation. But restrictions have been placed in some states, Wisconsin being the strictest among them. A statement released by the Department of Financial Institutions in Wisconsin notes that the devices leave consumers responsible for vehicles but without control over the vehicle, possibly leading to parking tickets or blockages of driveways or garages. The statement also takes issue with the fact that vehicles may be disabled prior to the time the creditor is entitled to physically take possession of the vehicle.
Yet Hudson argues that these devices offer an alternative that is less painful for subprime borrowers.
"This is a much more consumer friendly approach to encouraging payment — there is no repossession," says Hudson. Instead of having to go down to the repo yard to pay a repossession fee, consumers can have their car turned back on just by paying what is due, he says.
Other auto repossession technologies have raised data security concerns. In March, The Boston Globe reported that Texas-based company Digital Recognition Network installs automated readers in "spotter cars" around the country that capture images of every license plate they pass. Each picture is sent, along with the time and GPS location at which it was taken, to a database that already contains more than 1.8 billion scans.
Law enforcement has used this technique for decades, but not without its own problems. Boston police suspended their license plate scanning efforts in December 2013 in the wake of news that data on more than 69,000 license plates had been accidentally released.
Subprime borrowers have also been subjected to tracking when purchasing other products with a loan, such as personal computers. In 2012, the Federal Trade Commission charged that several rent-to-own companies had spied on consumers by remotely taking screen shots, tracking computer keystrokes and taking webcam pictures, all without consent. The software, licensed by DesignerWare, also enabled the stores to disable the computer if the renter was late on payment.
Apartments might be another area where technology will begin to play a role when consumers are behind on payments, according to Rotenberg. Electronic lock systems are beginning to be used, and renters could be remotely or automatically locked out of their apartment if they are behind on rent.
"That's where I think it's going to get really interesting," Rotenberg says.
For now, starter interrupt devices remain legal in most states. But as the practice grows, the ways by which it is implemented will very likely continue to have a significant impact on consumers.
"It's not a small decision to say that when someone puts the key in to turn on the car, that it's not going to turn out the way they expected," Rotenberg says.
Robert Szypko is an intern on NPR's business desk.