Miss a Payment?

Good Luck Moving That Car - The New York Times 1/14/20, 5)56 PM

Miss a Payment? Good Luck Moving That

Car
By Michael Corkery and Jessica Silver-Greenberg September 24, 2014 9:33 pm

The thermometer showed a 103.5-degree fever, and her 10-year-old’s asthma

was flaring up. Mary Bolender, who lives in Las Vegas, needed to get her daughter
to an emergency room, but her 2005 Chrysler van would not start.

The cause was not a mechanical problem — it was her lender.

Ms. Bolender was three days behind on her monthly car payment. Her lender,
C.A.G. Acceptance of Mesa, Ariz., remotely activated a device in her car’s
dashboard that prevented her car from starting. Before she could get back on the
road, she had to pay more than $389, money she did not have that morning in
March.

“I felt absolutely helpless,” said Ms. Bolender, a single mother who stopped
working to care for her daughter. It was not the only time this happened: Her car
was shut down that March, once in April and again in June.

This new technology is bringing auto loans — and Wall Street’s version of Big
Brother — into the lives of people with credit scores battered by the financial
downturn.

Auto loans to borrowers considered subprime, those with credit scores at or

below 640, have spiked in the last five years. The jump has been driven in large
part by the demand among investors for securities backed by the loans, which offer
high returns at a time of low interest rates. Roughly 25 percent of all new auto

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loans made last year were subprime, and the volume of subprime auto loans
reached more than $145 billion in the first three months of this year.

But before they can drive off the lot, many subprime borrowers like Ms.
Bolender must have their car outfitted with a so-called starter interrupt device,
which allows lenders to remotely disable the ignition. Using the GPS technology on
the devices, the lenders can also track the cars’ location and movements.

The devices, which have been installed in about two million vehicles, are
helping feed the subprime boom by enabling more high-risk borrowers to get
loans. But there is a big catch. By simply clicking a mouse or tapping a smartphone,
lenders retain the ultimate control. Borrowers must stay current with their
payments, or lose access to their vehicle.

“I have disabled a car while I was shopping at Walmart,” said Lionel M. Vead
Jr., the head of collections at First Castle Federal Credit Union in Covington, La.
Roughly 30 percent of customers with an auto loan at the credit union have starter
interrupt devices.

Now used in about one-quarter of subprime auto loans nationwide, the devices
are reshaping the dynamics of auto lending by making timely payments as vital to
driving a car as gasoline.

Seizing on such technological advances, lenders are reaching deeper and

deeper into the ranks of Americans on the financial margins, with interest rates on
some of the loans exceeding 29 percent. Concerns raised by regulators and some
rating firms about loose lending standards have disturbing echoes of the subprime-
mortgage crisis.

As the ignition devices proliferate, so have complaints from troubled

borrowers, many of whom are finding that credit comes at a steep price to their
privacy and, at times, their dignity, according to interviews with state and federal
regulators, borrowers and consumer lawyers.

Some borrowers say their cars were disabled when they were only a few days

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behind on their payments, leaving them stranded in dangerous neighborhoods.

Others said their cars were shut down while idling at stoplights. Some described
how they could not take their children to school or to doctor’s appointments. One
woman in Nevada said her car was shut down while she was driving on the
freeway.

Beyond the ability to disable a vehicle, the devices have tracking capabilities
that allow lenders and others to know the movements of borrowers, a major
concern for privacy advocates. And the warnings the devices emit — beeps that
become more persistent as the due date for the loan payment approaches — are
seen by some borrowers as more degrading than helpful.

“No middle-class person would ever be hounded for being a day late,” said
Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, in St. Louis.
“But for poor people, there is a debt collector right there in the car with them.”

Lenders and manufacturers of the technology say borrowers consent to having

these devices installed in their cars. And without them, they say, millions of
Americans might not qualify for a car loan at all.

A Virtual Repo Man

From his office outside New Orleans, Mr. Vead can monitor the movements of
about 880 subprime borrowers on a computerized map that shows the location of
their cars with a red marker. Mr. Vead can spot drivers who have fallen behind on
their payments and remotely disable their vehicles on his computer or mobile
phone.

The devices are reshaping how people like Mr. Vead collect on debts. He can
quickly locate the collateral without relying on a repo man to hunt down
delinquent borrowers.

Gone are the days when Mr. Vead, a debt collector for nearly 20 years, had to
hire someone to scour neighborhoods for cars belonging to delinquent borrowers.
Sometimes locating one could take years. Now, within minutes of a car’s ignition

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being disabled, Mr. Vead said, the borrower calls him offering to pay.

“It gets their attention,” he said.

Mr. Vead, who has a coffee cup that reads “The GPS Man,” has been
encouraging other credit unions to use the technology. And the devices — one
version was first used to help pet owners keep track of their animals — are catching
on with a range of subprime auto lenders, including companies backed by private
equity firms and credit unions.

Mr. Vead says that first, he tries reaching a delinquent borrower on the phone
or in person. Then, only after at least 30 days of missed payments, he typically
shuts down cars when they are parked at the borrower’s house or workplace. If
there is an emergency, he says, he will turn a car back on.

None of the borrowers or consumer lawyers interviewed by The New York

Times raised concerns about the way Mr. Vead’s credit union uses the devices. But
other lenders, they said, were not as considerate, marooning drivers in far-flung
places and often giving no advance notice of a shut-off. Lenders say that they
exercise caution when disabling vehicles and that the devices enable them to
extend more credit.

Without the use of such devices, said John Pena, general manager of C.A.G.
Acceptance, “we would be unable to extend loans because of the high-risk nature of
the loans.”

The growth in the subprime market has been good for the devices’
manufacturers. At Lender Systems of Temecula, Calif., which sells a range of
starter interrupt devices, revenue has more than doubled so far this year, buoyed
by an influx of new credit union customers, said David Sailors, the company’s
executive vice president.

Mr. Sailors noted that GPS tracking on his company’s devices could be turned
on only when borrowers were in default — a policy, he said, that has cost it
business.

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The devices, manufacturers say, are selling well because they are proving
effective in coaxing payments from even the most troubled borrowers.

A leading device maker, PassTime of Littleton, Colo., says its technology has
reduced late payments to roughly 7 percent from nearly 29 percent. Spireon, which
offers a GPS device called the Talon, has a tool on its website where lenders can
calculate their return on capital.

Fears of Surveillance

While the devices make life easier for lenders, their ability to track drivers’
movements has struck a nerve with a number of borrowers and some government
authorities, who say they are a particularly troubling example of personal-data
gathering and surveillance.

At its extreme, consumer lawyers say, such surveillance can compromise

borrowers’ safety. In Austin, Tex., a large subprime lender used a device to track
down and repossess the car of a woman who had fled to a shelter to escape her
abusive husband, said her lawyer, Amy Clark Kleinpeter.

The move to the shelter violated a clause in her auto loan contract that
restricted her from driving outside a four-county radius, and that prompted the
lender to send a tow truck to take back the vehicle. If the lender could so easily
locate the client, Ms. Kleinpeter said, what was stopping her husband?

“She was terrified her husband would be able to find out where she was from
the tow truck company,” said Ms. Kleinpeter, a consumer lawyer in Austin, who
said a growing number of her clients had the devices installed in their cars.

Lenders and manufacturers emphasize that they have strict guidelines in place
to protect drivers’ information. The GPS devices, they say, are predominantly
intended to help lenders and car dealerships locate a car if they need to repossess
it, not to put borrowers under surveillance.

Spireon says it can help lenders identify signs of trouble by analyzing data on a

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borrower’s behavior. Lenders using Spireon’s software can create “geo-fences” that
alert them if borrowers are no longer traveling to their regular place of
employment — a development that could affect a person’s ability to repay the loan.

A Spireon spokeswoman said the company takes privacy seriously and works
to ensure that it complies with all state regulations.

Corinne Kirkendall, vice president for compliance and public relations for
PassTime, which has sold 1.5 million devices worldwide, says the company also
calls lenders “if we see an excessive use” of the tracking device.

Even though the device made her squeamish, Michelle Fahy of Jacksonville,
Fla., agreed to have one installed in her 2001 Dodge Ram because she needed the
pickup truck for her job delivering pizza.

Shortly after picking up her four children from school one afternoon in
January, Ms. Fahy, 42, said she pulled into a gas station to fill up. But when she
tried to restart the truck, she was not able to do so.

Then she looked at her cellphone and noticed a string of missed calls from her
lender. She called back and asked, “Did you just shut down my truck?” and the
response was “Yes, I did.”

To get her truck restarted, Ms. Fahy had to agree to pay the $255.99 she owed.
As she pleaded for more time, her children grew confused and worried. “They were
in panic mode,” she said. Finally, she said she would pay, and within minutes she
was able to start her engine.

Borrowers are typically provided with codes that are supposed to restart the
vehicle for 24 hours in case of an emergency. But some drivers say the codes fail.
Others say they are given only one code a month, even though their cars are shut
down more often.

Some drivers take matters into their own hands. Homemade videos on the
Internet teach borrowers how to disable their devices, and Spireon has started

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selling lenders a fake GPS device called the Decoy, which is meant to trick
borrowers into thinking they have removed the actual tracking system, which is
installed along with the Decoy.

Oscar Fabela Jr., who said his 2007 Dodge Magnum was routinely shut down
even when he was current on his $362 monthly car payment, discovered a way to
circumvent the system.

That trick came in handy when he returned from seeing a movie with a date,
only to find his car would not start and the payment reminder was screaming like a
burglar alarm.

“It sounded like I was breaking into my own car,” said Mr. Fabela, 26, who
works at a phone company in San Antonio.

While his date turned the ignition switch, Mr. Fabela used a screwdriver to rig
the starter, allowing him to bypass the starter interruption device.

Mr. Fabela’s car eventually started, but it was their only date.

“It didn’t end well,” he said.

Government Scrutiny

Across the country, state and federal authorities are grappling with how to
regulate the new technology.

Consumer lawyers, including dozens whose clients’ cars have been shut down,
argue that the devices amount to “electronic repossession” and their use should be
governed by state laws, which outline how much time borrowers have before their
cars can be seized.

State laws governing repossession typically prevent lenders from seizing cars
until the borrowers are in default, which often means that they have not made their
payments for at least 30 days.

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The devices, lawyers for borrowers argue, violate those laws because they may
effectively repossess the car only days after a missed payment. Payment records
show that Ms. Bolender, the Las Vegas mother with the sick daughter, was not in
default in any of the four instances her ignition was disabled this year.

PassTime and the other manufacturers say they ensure that their devices
comply with state laws. C.A.G. declined to comment on Ms. Bolender’s
experiences.

State regulators are also examining whether a defective device could endanger
the borrowers or other drivers on the road, according to people with knowledge of
the matter who spoke on the condition of anonymity.

Last year, Nevada’s Legislature heard testimony from T. Candice Smith, 31,
who said she thought she was going to die when her car suddenly shut down,
sending her careening across a three-lane Las Vegas highway.

“It was horrifying,” she recalled.

Ms. Smith said that her lender, C.A.G. Acceptance, had remotely activated her
ignition interruption device.

“It’s a safety hazard for the driver and for all others on the road,” said her
lawyer, Sophia A. Medina, with the Legal Aid Center of Southern Nevada.

Mr. Pena of C.A.G. Acceptance said, “It is impossible to cause a vehicle to shut
off while it is operating,” He added, “We take extra precautions to try and work
with and be professional with our customers.” While PassTime, the device’s maker,
declined to comment on Ms. Smith’s case, the company emphasized that its
products were designed to prevent a car from starting, not to shut it down while it
was in operation.

“PassTime has no recognition of our devices shutting off a customer while

driving,” Ms. Kirkendall of PassTime said.

In her testimony, Ms. Smith, who reached a confidential settlement with

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C.A.G., said the device made her feel helpless.

“I felt like even though I made my payments and was never late under my
contract, these people could do whatever they wanted,” she testified, “and there
was nothing I could do to stop them.”

DRIVEN INTO DEBT Articles in this series are examining the boom in
subprime auto loans.

In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates

By JESSICA SILVER-GREENBERG and MICHAEL CORKERY

Millions of Americans are receiving auto loans they cannot possibly afford, in a lending
climate marked by some of the same lack of caution seen in the housing industry before
its 2008 implosion.

A version of this article appears in print on 09/25/2014, on page A1 of the NewYork edition
with the headline: Miss a Payment? Good Luck Moving That Car.

© 2017 The New York Times Company

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