All technologies considered: NPR

A borrower enters a code into a starter interrupt device installed in a car in Limerick, Pennsylvania.

Rick Smith/AP


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Rick Smith/AP


A borrower enters a code into a starter interrupt device installed in a car in Limerick, Pennsylvania.

Rick Smith/AP

For borrowers in default, the repo man is no longer the one to fear – it’s Big Brother. A growing number of lenders are embracing technology, remotely disabling debtors’ cars and tracking customer data to ensure timely payment of subprime auto loans. This practice has created problems for consumers and raises privacy concerns.

Lenders are using the ignition interrupt device, which has been installed in about 2 million vehicles, according to The New York Times, to disable car ignitions remotely if borrowers are late on payments. Lenders can also track car movements using on-device GPS, and the device beeps when a payment due date approaches.

“Device usage has increased, and that’s moved up the credit chain a bit,” says Tom Hudson, partner at Hudson Cook LLP and founder and editor of CARLAW, a monthly review of automotive developments. finance. “Suddenly these things seem to have caught 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 widely used by “buy here, pay here” dealerships. Now, more and more subprime loan companies are using them as well.

Many borrowers with bad credit need to have the start interrupt device installed on their car before driving off the lot. The device has helped fuel the growing market for subprime auto loans because it allows lenders to extend subprime loans with greater confidence.

Newly originated subprime auto loans, through June, hit an eight-year high of $70.7 billion, according to Equifax. The Times reported that Lender Systems, a California-based company that makes a variety of starter interrupt devices, has seen its revenue more than double this year.

“You can see both sides of it. On the one hand, listen, if you’re the kind of person who really needs a drastic boost to pay your bills, then that’s probably as good as any. what else. The thing is, it can be one of those things where it could be construed as somewhat undignified,” says Bill Visnic, editor at Edmunds.com. “We all know how it goes with little ones. characters, but the fact is that you have entered into a legal agreement with the dealer.”

The devices have placed consumers in situations ranging from discomfort to death. A woman said her lender turned off her car remotely while she was driving on a three-lane freeway in Las Vegas, according to the Times report. Others in the report said their cars were turned off when they needed to travel for medical treatment, or that they were only a few days behind on payments when lenders turned off their cars.

“The primary public policy issue is procedural fairness from a consumer perspective,” said Marc Rotenberg, president of the Electronic Privacy Information Center. “It’s a matter of fairness to consumers as to whether people are properly informed.”

The practice also raises privacy concerns. the Time 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 at a shelter. The wife was worried that her husband would find out her location from the tow truck company.

“When [GPS tracking] is done on the actual owner without their knowledge, we will oppose it,” Rotenberg says. “People should know the circumstances under which they are being followed.

Hudson, the editor of CARLAW, says he initially expected to see several lawsuits surrounding the devices, but says he’s seen fewer than 10 cases since he heard about the devices at the end of the 1990s.

Most states allow start interrupt devices, as long as consumers are instructed to install them. But restrictions have been imposed in some states, with Wisconsin being the strictest of them. A statement released by the Wisconsin Department of Financial Institutions notes that the devices leave consumers responsible for vehicles but without control over the vehicle, which can result in parking tickets or blocked driveways or garages. The statement also disputes that vehicles can be deactivated before the creditor is entitled to take physical possession of the vehicle.

Still, Hudson argues that these devices offer a less painful alternative for subprime borrowers.

“It’s a much friendlier approach to encouraging payment – there’s no repossession,” says Hudson. Instead of having to go to the depot to pay a repossession fee, consumers can get their car restarted simply by paying what’s owed, he says.

Other failover technologies have raised data security concerns. In March, the Boston Globe reported that the Texas-based company Digital Recognition Network is installing automated readers in “observation cars” across the country that capture images of every license plate they pass. Each photo is sent, along with the time and GPS position at which it was taken, to a database that already contains more than 1.8 billion scans.

Law enforcement has been using this technique for decades, but not without its own problems. Boston police suspended license plate scanning efforts in December 2013 after learning that data on more than 69,000 license plates had been accidentally leaked.

Subprime borrowers were also tracked when purchasing other products with a loan, such as personal computers. In 2012, the Federal Trade Commission accused several rent-to-own companies of spying on consumers by remotely taking screen shots, tracking computer keystrokes, and taking webcam photos, all without their consent. The software, licensed from DesignerWare, also allowed stores to disable the computer if the tenant was late in payment.

Apartments could be another area where technology will start to play a role when consumers fall behind on payments, according to Rotenberg. Electronic locking systems are starting to be used and tenants could be remotely or automatically locked out of their apartments if they are behind on rent.

“This is where I think it’s going to get really interesting,” Rotenberg said.

For now, starter interrupt devices remain legal in most states. But as the practice grows, the terms of its implementation will most likely continue to have a significant impact on consumers.

“It’s no small decision to say that when someone puts the key in to turn on the car, it’s not going to go as planned,” Rotenberg said.

Robert Szypko is an intern in NPR’s business office.

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