No Go: How Lenders Can Shut Off Borrowers’ Engines Without NoticeFebruary 2, 2015
We have all heard radio or TV advertisements for car dealerships that sound something like the following: “Low credit? No credit? No problem!” Due to the fact that bad credit tends to prevent one from getting a loan, the option of purchasing a car has often been foreclosed to individuals with poor credit that are unable to afford high down payments. The opportunity for these individuals to get an auto loan can be essential and it is important that they are able to do so, but at what cost?
Loans to those with credit ratings under 640 (known as “subprime” because lenders pay a higher amount of interest than the prime rate) have experienced a recent surge in popularity, which has made a lot of money for certain financial institutions and investors, as well as caused fears of a new subprime crisis, similar to the mortgage crisis. However, these loans are still considered to be very risky, as subprime borrowers are more likely to miss payments. The costs of traditional repossession can be high, and lenders have turned to a technological solution to this problem.
Known as a “starter interrupt device” (or “SID”), this gadget allows lenders unprecedented control over borrowers that are late on payments by giving them the ability to remotely turn off the engines of their cars. The SID is combined with a GPS, which lets the lender know where the car is, allowing for easier recovery. These devices are installed by car dealers but control is handed over to the lenders. Currently, there are approximately two million cars in the United States that have these devices. For obvious reasons, many have questioned the legality of SID use and Wisconsin has prohibited them within its jurisdiction.
Not only are these devices an invasion of privacy (aptly described as a “privacy tax” for having poor credit), but they are also potentially dangerous to borrowers. Often, car owners do not realize that the SID is in their car until it turns off, at times stranding people in dangerous places or trapping them in the middle of the street, while idling at streetlights.
T. Candice Smith alleges that she was on a Las Vegas highway when her car turned off while she was driving it, almost causing an accident and requiring her friend to quickly push her car off the road. SID manufacturers deny that the device causes cars to turn off while driving.
As stated by Marc Rotenberg, president of the Electronic Privacy Information Center, “The key public policy issue is procedural fairness from the consumer perspective. This is a consumer fairness issue about whether people are being properly notified.” Currently, a borrower with a SID installed in her car may have it rendered undriveable in a mere three days after the payment due date, which is hardly enough time for most people to make alternative transportation arrangements. Additionally, individuals carrying out repossessions are governed by a common law principle stating that they may not “breach the peace” in the process. Arguably, shutting off a person’s car while they are driving or idling, or leaving them stuck in an unsafe place is a breach of the peace.
The cruel irony is that borrowers whose cars are equipped with a SID have usually consented to its placement, as such a request for such permission is typically hidden in the mountain of paperwork that must be signed to complete the transaction, often buried in fine print. Since freedom of contract is such an important principle in this country, it is likely that this would be considered a defense to any claim against the lender, as the Supreme Court held that consumers could be forced to submit to binding arbitration based on such clauses in the fine print of a contract. However, there is evidence that cars have been shut off even when the borrower was current with her payments, which obviously means that she had not breached her contract, and would thus have no reason to realize that her lender had shut off her car, especially if she was unaware of the SID.
Individuals that have poor credit should not be treated unfairly and subject to both invasion of privacy and creation of unsafe conditions if they want any opportunity to receive a car loan. State laws should protect borrowers from having their rights to use their vehicles denied without any kind of notice, so that they are able to prepare and minimize potential danger. Requirements that the SID be explained to any consumer that has it placed in her vehicle and that she must be given adequate notice when her car is going to be turned off would be a good place to start, if SID use is to be allowed at all.