US probes possible abuse of ‘kill switches’

LOS ANGELES - APRIL 24: Rows of Toyotas are parked in a line at the world's largest auto dealership, Longo Toyota, which enjoys continued strong sales after a record quarterly report for Toyota April 24, 2007 in El Monte, California. Japan-based Toyota has announced that it has overtaken American auto giant General Motors (GM) with worldwide sales reaching 2.35 million cars and trucks in the first quarter of 2007. GM announced its total for the same period was 2.26 million. As Toyota increased sales in every major market, GM gained market share in China but continued to struggle at home and in Europe and has never penetrated far into Japanese market. Toyota's achievement marks another milestone in the long decline of industrial dominance by U.S. car makers. (Photo by David McNew/Getty Images)

 

Bloomberg

A US regulator is looking at whether auto finance companies that use sophisticated technology like ignition kill switches are illegally harassing subprime borrowers that have fallen behind on their payments.
The Federal Trade Commission, a consumer protection agency, has asked for information from at least two lenders, according to securities offering documents from both companies this month obtained by Bloomberg. The probe is part of a larger investigation into subprime auto lenders’ collection practices, said a person with knowledge of the matter. A spokesman for the FTC declined to comment. The investigation adds to the pressure that auto finance companies are already facing after a massive wave of lending to borrowers with blemished credit. They are under investigation by the Department of Justice and state attorneys general. And more borrowers are falling behind on their bills.

KILL SWITCHES
To make it easier to repossess cars when loans go bad, finance companies have been using technology like ignition kill switches, which allow debt collectors to remotely disable a vehicle’s starter, and GPS devices, which can allow them to track down an automobile or truck. The devices can also make noises to remind borrowers to pay. Somewhere between 35 and 70 percent of cars financed with subprime loans may have one of these gadgets installed, according to Corinne Kirkendall, vice president of compliance and public relations at PassTime, which sells the devices.
The Federal Trade Commission has asked for information about the devices from Credit Acceptance Corp. and DriveTime Automotive Group Inc., according to separate securities offering documents from both companies. DriveTime doesn’t install kill switches of any kind, but the cars it finances usually have pre-installed GPS systems, spokesman Chris Piper told Bloomberg in an e-mail. The company’s general counsel, Jon Ehlinger, characterized the request for information as “routine.” A representative for Credit Acceptance didn’t return calls seeking comment.
The FTC’s probe is generally looking at whether lenders using the devices are violating laws about fair collections practices, said the person with knowledge of the matter. For example, the regulator is concerned that debt collectors could be threatening to trigger kill switches even if it’s legally premature to take back the car, the person said, without identifying any specific lender. Credit Acceptance’s shares were down 5 percent at $192 on Friday at 9:55 a.m. in New York.

FAST GROWTH
Auto finance companies have been censured in the past for lower-tech forms of violating collections laws. In 2014, the FTC settled with Consumer Portfolio Services for $5.5 million over allegations that it was harassing and threatening delinquent customers, illegally telling struggling borrowers that, “the tow truck is around the corner,” or, “we’re coming to get your car,” even when repossessions weren’t imminent or likely, the FTC’s complaint said. CPS neither admitted nor denied the allegations in the complaint.

Leave a Reply

Send this to a friend