FTC Hunting for Abuse in Auto Lenders' Implementation of Kill Switches
Finance companies have begun using ignition kill switches and tracking devices, which allow them to disable and then easily locate vehicles for repossession. Some of the devices even remind borrowers when they’ve missed a payment. According to PassTime, a company that sells such devices, somewhere between 35 and 70 percent of cars financed on subprime loans have some variant of the hardware installed.
Now the the Federal Trade Commission is looking into whether these automotive finance companies are illegally harassing consumers with poor credit by imposing the hardware onto their vehicles — potentially violating their privacy while also garnering unnecessary intimidation from banks.
Currently under the consumer protection agency’s microscope are the Michigan-based Credit Acceptance Corp., and Arizona’s DriveTime Automotive. Bloomberg reported that the FTC has asked for information from both companies about the devices. DriveTime spokesman Chris Piper claimed his company doesn’t use kill switches but that most financed vehicles have a pre-installed GPS system.
For the FTC, the issue isn’t so much that the devices themselves are being illegally installed but that debt collectors might threaten using them to prematurely deactivate or repossess a vehicle before they have the legal grounds to do so. It’s a problem that has already arisen without the new devices. In 2014, Consumer Portfolio Services settled with the FTC for $5.5 million over allegations that it had been harassing delinquent customers by calling them and saying they were coming to repossess the vehicle long before those actions could be authorized.
Credit Acceptance has been issued five subpoenas or regulatory demands for information since 2014, including one from the Maryland attorney general requesting specific information over its repossession policies. The Department of Justice has also subpoenaed other lenders, including General Motors’s finance unit and the auto lender Santander Consumer USA.
Most companies have lowered their lending standards in recent years and and number of loans, and delinquencies, have increased as a result. According to the Federal Reserve Bank of New York, roughly 6 million people are over three months late on their car payments as of last December. That accounts for $1.16 trillion in outstanding payments, a 45 percent increase since the final quarter of 2008.
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Another article I read about these a few years back talked about how some dealers neglected to disable the kill switches after the loans were paid off, resulting in some buyers having their cars shut down mistakenly, not to mention electrical problems related to hacking up the wiring during installation.
What disturbs me the most is seeing finance companies and lots hitting people with good credit with bad loans just because they can. I had a buddy at work who got hit with a bad loan. We looked up his credit score and history, and there was no reason beyond shear greed and chicanery for his interest rates and payments. He qualified for multiple discounts and incentives that they just didn't bother applying. They didn't even bother trying to stretch out the loan terms to make it "look" like a good loan. They jacked up his rates to sky high on a 66 month term on a new T&C. He managed to refinance with better terms, but it was shocking to see. Basically he walked in, negotiated good terms, went home with his van. A week later they called back, said financing had fallen through, but they had found a new finance company that was close to his original figures. He came back sign a few extra papers to finalize. They rigged the new papers without all his discounts and previously agreed to terms, and trusted that he wouldn't catch all the changes, wouldn't remember everything he previously fought for. When he noticed a a few things were off they hit him with, "these are the changes the new finance company insisted on,". Finally they trusted that'd he'd just sign the papers instead of trying to turn in a van that he'd already been driving for two weeks, that had already picked up about 1000 miles and a couple kid-spills and small scratches. This is becoming a very common thing; people driving off in a new car, only to be called in a week or two later and told that the financing had fallen through, had to be modified. If I ever buy a new car, I'm going to leave it parked in front of the dealership door until ALL paperwork is signed and finalized. If they so much as look at me wrong, "Here's your car back, shrinkwrap and all. Piss off and die."