Auto loan lenders disregard borrower’s privacy, safety
It’s a car owner’s worst fear: going out to the car in a hurry to go work, school or to get somewhere in an emergency, only to find that the car won’t start. Recently, some drivers have experienced just that, only to find the problem goes beyond the physical car.
Auto loan lenders have started installing devices that allow lenders to remotely disable the ignition in the cars of subprime borrowers or those with a credit score of 640 or lower. These devices, known as starter interrupt devices, can be used to shut down the car and to track the car’s location using GPS in order to extract late payments from borrowers.
According to The New York Times, the devices have been installed in about two million vehicles and are used in about one-fourth of subprime auto loans nationwide. The article also reported several instances of borrowers having their car disabled without warning and being left without a car in a medical emergency or stranded in a dangerous neighborhood
Undeclared freshman Bill Nguyen said he thinks the use of the device is a good idea, as the consequences are very similar to a lender repossessing a car.
“It’s basically the same thing if they came to your house and then towed it away,” Nguyen said. “Basically, it’s just a step further than going up to your house or mailing something, saying, ‘Hey, we need you to pay this.’ ”
However, if these devices are simply an electronic form of repossession, that would mean the same state laws that govern repossession should govern their use. In most states, the law only allows lenders to seize a car after the borrower is in default, which often means their payments are at least 30 days past due. Some of the borrowers mentioned above had their cars disabled when they were only a few days late on their payments.
Even so, the start interrupt devices are different from physically repossessing the car in that repossession does not create the same safety risks. Properly functioning devices can only disable the vehicle when the engine is off, at worst, potentially leaving drivers stranded and without transportation.
One woman in Nevada filed a lawsuit when, despite having made all of her payments on time, a faulty device caused her car to shut down while she was driving on a three-lane highway, nearly causing an accident.
Public relations freshman Jatoriyae Dupree-Jones said she thinks the risk of danger like this outweighs any potential usefulness of the device in getting payments.
“(The device) is dangerous if the person is driving the car at the time that it stops,” Dupree-Jones said. “If nobody’s getting in accidents, then they can do whatever they want … If it becomes dangerous, they should just take (the devices) out altogether.”
Nguyen said he believes that if the borrower does not fulfill their agreement to make their payments on time, lenders should be allowed to take measures such as utilizing the tracking capabilities on the device to investigate.
A part of this issue may be the responsibility of borrowers who make unwise financial decisions.
Accounting junior Eddie Gonzalez said he thinks that the best way to avoid a situation where one is left with a disabled car is simply to make the payments on time.
“People should be paying their payments every month. They shouldn’t slack,” Gonzalez said. “A lot of people just basically wait until the last minute to make their payment, which I don’t think is a good idea.”
According to USA Today, consumers are getting longer terms on their car loans, with the current average new car loan at 66 months. Though it may seem like a short-term fix, these longer terms can make paying off the car even more difficult because of the added interest over time.
Though it is the responsibility of consumers to pay off their loans and not sign up for those which they will not be able to pay, it can be hard to avoid the allure of a new or better car when many salesmen have an additional incentive to get even the highest-risk borrowers into a car and saddled with a loan.
In what The New York Times calls a “subprime bubble,” the number of auto loans to borrowers with low credit has risen more than 130 percent in the last five years, and the volume of subprime auto loans increased to $145.6 billion.
This spike has been driven by alarming behavior reminiscent of that seen in subprime mortgage market before the 2008 financial crisis. Just like in the years preceding the financial crisis, increased demand by investors for securities backed by the loans has caused lenders to loosen their standards and draw in more borrowers.
Some experts are already beginning to notice and show concern. A report in June by the Office of the Comptroller of the Currency said that “these early signs of easing terms and increasing risk are noteworthy.”
Although it’s nowhere near to where the subprime mortgage market was at its peak, this subprime auto loan bubble is not without its potential consequences for investors and the financial system as a whole. For now, those experiencing the brunt of this so-called bubble’s impact are the subprime borrowers themselves. Lenders may grant them auto loans, but it is at the price of their dignity, safety and privacy.
Opinion columnist Eileen Holley is an English literature senior and may be reached at [email protected].