by Eric L. Johnson and Corinne Kirkendall
We’ve all heard the horror stories about repossessions. The latest “repo gone bad” story we read concerned a mother in Maryland who tried to drive her Cadillac Escalade, carrying her three children, onto a lawn and into other vehicles, in an attempt to throw off a tow truck that had attached itself to her vehicle. Her SUV was “jerking violently” and pulled the tow truck toward an occupied vehicle. She did this in broad daylight, in front of a state office building, with lots of witnesses, including a Sheriff’s deputy. The Sheriff’s deputy drew his gun and ordered her to stop. She was arrested and handcuffed. One of the children in the vehicle, her eight year old daughter, suffered a neck injury as well.
Now, contrast this “repo gone bad” story with how the use of a GPS/Starter Interrupt Device (SID) might have occurred in the situation above. After missing the payment due date, the device would provide an audible tone signaling a payment has been missed and if it is not made the device will prevent her from starting the vehicle. After this warning period, when she turned off her vehicle, an activated SID would have prevented her from starting the vehicle. If she had an emergency, most reputable systems would permit her to phone for a code or for a signal to the device that would allowed her to start the vehicle. Using a SID in this scenario would have been helpful to her: no humiliation or reputational damage, no breach of the peace, no towing to an impound lot, no costly towing and storage charges to pay, and no damage to her credit rating for the repossession.
The GPS and SID landscape affects many or most members of the National Automotive Finance Association and the industry as a whole. One quarter of all new retail installment contracts issued are to consumers with subprime credit. Subprime credit scores do not just affect people impacted by the financial downturn and those in the lower economic tiers. We are talking about people from all walks of life, all economic statuses. GPS/SID devices help creditors mitigate risk on subprime credit, allowing them to offer credit to consumers who otherwise might not qualify. There was a time when a subprime credit history would nearly automatically disqualify a consumer for automotive credit. By using devices, automotive creditors have more options when it comes to who may be approved for credit. When evaluating a credit application, an automatic “no” can be turned into an “I think we can make this work”. While it is an unfortunate event that consumers fall behind in their payments to the extent that the vehicle is rendered unable to start, it is very likely that without the device, that consumer may not have qualified for the credit in the first place.
It is more important than ever to use these devices correctly.
How GPS Devices Work:
A GPS device is typically installed at the point of sale or at post repossession reinstatement. Not all GPS devices have payment assurance capabilities. Many are geolocation-only devices. A GPS device provides operational maintenance reporting. Manual locations are available as needed. A GPS best practice is to track with a purpose. Alternative available features may include: payment reminder (e.g. device tones or email), low power notification, anti-theft, starter-interrupt, and tow-detection notification.
How SID Devices Work:
Starter Interrupt Devices (SID) are typically installed at origination or as a condition of post repossession reinstatement. Devices can provide payment reminders (e.g., a series of tones) as scheduled by the creditor and disclosed to the consumer. Not all SIDs have payment reminders. If a payment is not received on its scheduled due date, the SID will send a command to prevent the vehicle from starting. (Note – the Payment Assurance Technology Association (PATA), the Association that serves the SID/GPS industry, recommends compliance with state right to cure notice and waiting periods prior to disablement.) Assuming proper installation, the device will not shut off the vehicle while driving. Emergency backup systems are also in place (based on the provider). Some examples are 1-800 numbers, emergency codes, etc.
- Do have the personnel who will install the devices properly trained, or use properly trained third-party installers.
- Do have the use of the devices and all paperwork dealing with the devices reviewed by your lawyer. Have your legal counsel check that the use of the devices complies with both state and federal law.
- Make sure the consumer receives full written disclosure that the device is on the vehicle, how the device works, emergency procedures, if any, and anything else your lawyer tells you should be disclosed. Failure to disclose the use of a SID/GPS device by the lender/dealer/device owner violates industry best practice standards and may be unlawful in some states.
- Do contact your state legislators and consumer protection authorities and educate them on how the devices work, how you intend to use them and how they benefit you and your customers – if you let the consumer advocates tell the story, you won’t like the result.
- Make sure the dealer isn’t trying to pass the cost of the devices, airtime renewal, installation or any other cost related to the consumer obtaining the extension of credit, along to the customers whose cars are to be equipped with the devices. The dealer should treat the cost as a general item of overhead -like an electricity bill.
- Make sure the dealer doesn’t discriminate in requiring the devices in a manner that violates federal or state anti-discrimination laws (e.g. only requiring the devices on the cars of single women).
- Do track complaints and complaint resolution related to the devices.
- Do include your product provider in compliant tracking and resolution process.
- Do your “due diligence” on the company selling the devices -see if they have done their legal homework.
- Do alert your insurance carrier that you intend to use the devices and get confirmation in writing that risks arising from the use of the devices are covered by your policy.
- Do determine before you start to use the devices what your state consumer protection authorities and/or your state attorney general have to say about the devices.
The NAF Legal Committee will continue to keep you informed about legal and regulatory changes of interest to the subprime auto finance industry.
Eric L. Johnson is a partner in the Oklahoma City, OK office of Hudson Cook, LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Prior to pursing his legal career, he spent many years working in various departments for his family’s car dealership. Eric can be reached at (405) 602-3812 or email@example.com.
Corinne Kirkendall is the Vice President of Compliance and Public Relations at PassTime. PassTime has developed a robust GPS and payment assurance technology compliance training for dealers, lenders and credit unions. As a supplier to those industries we see the need to ensure accurate and consistent information about state and federal laws surrounding GPS and payment assurance devices. For more information Corinne can be reached at (303) 962-4102 firstname.lastname@example.org.
This article is provided for informational purposes and is not intended nor should it be taken as legal advice.
© Copyright 2015 Eric L. Johnson and Corinne Kirkendall. All rights reserved. Single print publication rights National Automotive Finance Association.