The Federal Trade Commission has started an investigation into the practice of auto lenders equipping new vehicles with GPS and other devices. A payment assurance device attached to a vehicle’s ignition allows finance companies to remotely and instantly disable the vehicle and prevent it from being driven. If a car goes missing, lenders can use GPS to locate the vehicle. The devices keep tabs on vehicles until loans are paid off.
Here is an example of an enthusiastic pitch to car dealers and lenders for “GPS tracking and asset management solutions.”
The practice is most commonly used on subprime borrowers who have little or no credit history and who have the highest risk of falling behind on payments and defaulting on loans. Borrowers feel they have no choice but to agree to the installation of these devices if they want auto financing.
The tracking/shutdown devices give auto lenders extra control over borrowers. Due to a lack of legislation on either a federal or state level, payment assurance devices allow lenders to:
· Set their own rules for installing these GPS devices on vehicles
· Track the vehicles
· Determine what kind of privacy data to gather from the devices
· Decide on how and when to dispose of the devices
· Develop rules when to disable the vehicle if the borrower stops payment
· Decide whether or not to have a system of appeals for borrowers whose cars have been disabled
This month, New Jersey lawmakers moved to restrict the use of payment assurance devices. Both the Assembly and Senate have passed A756 a second time after Governor Chris Christie made a number of recommendations in a conditional veto on February 13.
Bill sponsors say A756 would prohibit the activation of a payment assurance device while the vehicle is in motion. They explain that the bill would allow a creditor to install a payment assurance device if the following criteria are met:
· The installation of the device must be accompanied by an enhanced written disclosure acknowledged in writing by the consumer.
· The consumer cannot be charged a fee for installation of the device.
· The consumer receives at least a 48 hour warning before the vehicle is disabled.
· The consumer has the ability to start the vehicle for 48 hours after it has been disabled (in case of emergency).
Currently, New York, Pennsylvania, Rhode Island and Virginia are considering similar legislation. An estimated two million devices have been installed nationwide.
Since auto sales are poised to remain strong, vehicle financing will continue to be a growth industry, often attracting borrowers with little or no credit history and emboldening lenders to subject their clientele to invasive monitoring.