Lenders Disabling Cars Remotely: The New Face of Subprime Auto Loans

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Auto-lenders have found new weapons to use against consumers believed to be in default: ignition interruption devices and GPS tracking. These weapons allow creditors to prevent consumers’ cars from starting. Jessica Silver-Greenberg (author of an outstanding series of articles on debt collection, here) and Michael Corkery report here.

Traditionally, if auto-lenders wanted to repossess a car, they had to do so physically, with a tow-truck. Such “self-help” repossessions are subject to legal limitations including notice requirements to the consumer.

However, new technology appears to have relieved some auto-lenders of the need for physical repossession and allowed them to side-step state laws intended to protect borrowers. By pressing a button on a smartphone, a lender’s employee can effectively switch off a borrower’s car. As Greenberg and Corkery report, many consumer lawyers regard this as a kind of repossession, since it effectively deprives the consumer of the use of his or her car. LoanPlus, which sells ignition interrupters to lenders, boasts that its devices reduce physical repossessions by 50%.

Remote disabling of cars is dangerous and harmful on many levels.  For example, getting stranded late at night or in a dangerous neighborhood could expose a person to physical danger.  Likewise, suddenly losing the ability to drive to work may cost consumers their jobs. LoanPlus claims that most lenders reported that the use of interrupters (euphemistically called “Collateral Management Systems”) reduced loan delinquency by 10%.