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AUTO LOANS WITH A CATCH: AN OFF SWITCH

Some subprime borrowers find themselves stranded by lenders that can track and disable cars remotely if payments are missed.

By MICHAEL CORKERY and JESSICA SILVER-GREENBERG

New York Times

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.

Bolender was three days behind on her monthly car payment. Her lender, CAG Acceptance, 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 Bolender, a single mother who stopped working to care for her daughter. Her car was also shut down 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 past 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. About 25 percent of all new auto loans made in 2013 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 Bolender must have their car outfitted with a so-called starter interrupt device, which allows lenders to remotely disable the ignition. Using the devices' GPS technology, the lenders can also track the cars' location and movements.

The devices, which have been installed in about 2 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.

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

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 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.

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

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

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