Repossession of a motor vehicle is an unsettling moment, whether you witness the tow truck driving away or discover that your car is gone. Modern technology has added a more sinister method to prevent drivers from operating cars when a subprime loan is delinquent.
Kill switches allow debt collectors to remotely disable a vehicle’s starter and/or GPS devices. The gadget first provides an “audio reminder” for the borrower to make a payment on the car loan. If the borrower fails to do that, the car automatically shuts down.
Lenders claim that these devices reduce losses when loans default. They see kill switches and GPS devices are valuable tools in securing cars that are rapidly depreciating assets.
The Federal Trade Commission is looking for answers. The consumer protection agency wants information from subprime lenders on their high-tech tactics. Their probe focuses specifically on lenders potentially violating fair collection practice laws. They are concerned about debt collectors acting prematurely in threatening to trigger kill switches.
The FTC’s request comes as auto finance companies are already under pressure for their lending practices. The Department of Justice and state attorneys general are also looking into their credit practices.
Subprime lending has garnered the attention of U.S. authorities due to its significant growth. Total car loans outstanding at the end of the year were at $1.16 trillion, an increase of 45 percent since the fourth quarter of 2008.
Delinquencies have grown alongside the loans. As 2016 ended, five percent of subprime auto loans were at least 60 days past due, a number that has steadily risen since 2010 when 2.95 percent were delinquent.