Even after the economic downturn of 2007 and 2008, lenders keep offering loans to subprime borrowers. In fact, 25 percent of auto loans made in 2013 were made to borrowers with credit scores below 640. However, lenders have a new tool in the fight against default: GPS technology. Although GPS helps with collections, it also puts borrowers at extreme risk.
Cars: The Starter Interrupt Device
When subprime borrowers walk away from the dealer with a new car, they’re increasingly walking away with what dealers call “starter interrupt devices.” If a borrower gets behind on a loan, the bank sends a remote signal to disable the car’s starter. In most cases, starter interrupt is an inconvenience. In other cases, it’s life or death.
Mary Bolender, a Las Vegas resident, had a 10-year-old daughter who had a fever of 103.5 and symptoms of an asthma attack. Bolender was three days behind on her car loan, and because of the starter interrupter device, her van wouldn’t start when she needed to take her daughter to the hospital. Obviously, Bolender could have called 9-1-1 to secure transportation for her daughter, but she felt panicked because of her daughter’s condition and the state of her vehicle. Some drivers have reported losing car functionality at stoplights, on the way to their children’s schools, and even in the middle of the interstate.
Lenders use the GPS technology on starter interrupter devices to track a borrower’s location and movements. In exchange for the privilege of borrowing, subprime borrowers often pay interest rates as high as 29 percent, and they have to agree to carry starter interrupter devices in their vehicles. On one hand, subprime borrowers get access to loan money. On the other hand, they lose access to their vehicles even if they’re just a few days late making a payment.
Privacy Issues
In an ideal world, all merchants could collect credit card payments anywhere and would offer plenty of options for subprime borrowers to pay their loans on time. The idea of tracking subprime borrowers in a way that middle class borrowers would never be tracked has some privacy advocates crying foul against the debt collection industry.
For debt collectors, GPS tracking means no more scouring neighborhoods and towns to find delinquent borrowers. Collectors can monitor their targets on a map and remotely disable their vehicles when needed. Many collectors claim to be scrupulous, like Lionel M. Vead, Jr., head of collections for First Castle Credit Union in Covington, Louisiana. Vead says that he always attempts to contact vehicle owners who are behind on payments before shutting down their vehicles.
Vead claims that for borrowers experiencing an emergency, like Mary Bolender, he would always enable the vehicle. Still, even though these devices extract more payments from subprime borrowers, and some lenders like Vead demonstrate benevolence, there are many questions about whether starter interrupt devices violate driver privacy and safety.
When GPS Tracking Puts Drivers in Danger
Amy Clark Kleinpeter, an attorney for a Texas subprime auto loan borrower, had a client who decided to leave her abusive husband and move to a shelter. As a condition of her subprime auto loan, Kleinpeter’s client technically couldn’t take her vehicle beyond a four-county radius.
When she attempted to breach the radius to reach the shelter, her lender sent a tow truck to confiscate the vehicle. Kleinpeter’s client feared that her husband could extract her new location from the towing company that took away her car.
Lenders defend starter interrupt devices anyway, arguing that they have the right to track their subprime borrowers. For example, lenders can establish geo-fences that tell them when borrowers no longer report to their place of work, indicating that they might not be able to make future payments.
The problem isn’t giving lenders the power to coerce payments; the problem is that borrowers have no protections against unscrupulous lenders. According to payment records obtained by The New York Times, Mary Bolender wasn’t in default for her car loan during any of the four times that her lender disabled the vehicle.
Starter Interruption Puts Everyone in Danger
In Nevada, a 31-year-old drive named T. Candace Smith careened across three interstate lanes after her lender shut down her car’s ignition. Smith received a settlement from her lender, and no one was hurt. Innocent travelers might not get so lucky next time.
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