Call it the high-tech repo man: The starter interrupt device, a small piece of technology that can disable a car if a borrower is just one day late in making a payment.
The rise in the devices, as detailed in The New York Times, comes amid a surge in auto loans given to subprime borrowers, or people with credit scores below 640. About one-third of all auto loans are now given to subprime borrowers, up from slightly more than one-quarter in 2010, according to Equifax.
In an effort to protect their assets and minimize delinquencies, dealers and lenders are increasingly outfitting cars with starter interrupt devices and GPS trackers. Given the euphemistic name of "payment assurance devices," the technology allows the repo man to shut down a car if a subprime borrower is even one day late in making a payment.
Many starter interrupt devices require a borrower to enter a code provided by the dealer each month, after they've made an on-time payment. If the payments are missed, the lender can remotely shut off the car's starter, and then use the device's GPS to track down the vehicle and repossess.
While the devices have been around for years, they are increasingly being installed in cars amid the subprime auto loan boom, with about 2 million vehicles now equipped with the devices, The Times notes.
But as they've proliferated, complaints are arising, with some borrowers saying their cars have been shut off while idling and even while driving on the freeway, according to The Times. On social media, some criticized the practice as "Big Brother" and "the darker side of tech."
The ability for lenders to shut off cars remotely may strike some consumers as unethical, and some examples cited in The Times raise questions about the safety of the devices.
"No middle-class person would ever be hounded for being a day late," Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, told the publication. "But for poor people, there is a debt collector right there in the car with them."
Yet the devices appear to be legal in most of the country. In a white paper from October, Wolters Kluwer Financial Services wrote, "Currently, there is no reported case law dealing with whether payment assurance devices are legal under state law."
A few states, including Connecticut and Colorado, have provisions that "appear to endorse" the devices in some situations, the white paper notes. California has legalized the use of GPS devices and starter interrupt devices by so-called "Buy Here, Pay Here" dealers, which are dealers who themselves lend credit to borrowers.
Only one state -- Wisconsin -- appears to have openly frowned on the practice, with a 2012 opinion that the devices are illegal. "The act of disabling a vehicle has the same result as taking possession of the vehicle," according to a memo from the state's Department of Financial Institutions. Shutting down a car before a creditor has the right to actually physically repossess the car represents "an improper repossession," it added.
The benefits of the devices, supporters argue, is that they allow some consumers to buy cars when they might not have qualified previously. According to the Wolters Kluwer white paper, customers are able to finance their purchases with smaller down payments, while more vehicles are being sold to people who wouldn't have otherwise qualified for a loan.
A survey from the National Alliance of Buy Here, Pay Here Dealers found "that only one percent of respondents said their customers had balked at the installation of the payment assurance device at the time of sale."
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