Federal Trade Commission (FTC) Investigating Subprime Auto Lender for GPS-Tracking Kill Switches
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Federal Trade Commission (FTC) Investigating Subprime Auto Lender for GPS-Tracking Kill Switches

The switches allow the lender to track the vehicle's location and to prevent it from being started

February 23, 2017

The Federal Trade Commission (FTC) is conducting an investigation into an auto lender requiring subprime loan borrowers to have GPS starter-interrupter devices, known as kill switches, enabled on vehicles they buy.

Ars Technica reports that the switches are able to monitor a vehicle's location, as well as shut it off and prevent it from starting. Although this makes it easier for lenders to repossess the vehicle for missed payments, it also raises safety and privacy concerns.

In a Securities and Exchange Commission filing, the Credit Acceptance Corporation disclosed that it had received a civil investigative demand from the FTC "seeking information on the Company's policies, practices and procedures in allowing car dealers to use GPS Starter Interrupters on consumer vehicles. We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation."

More than two million such devices are attached to vehicles driving on U.S. roads. They are frequently hidden, and borrowers with poor credit scores are required to have them on their vehicle as a condition for their auto loan.

It is likely that the agency's inquiry focuses on whether or not buyers receive proper notice that the vehicles they're buying can track their location and whether or not this is acceptable as a business practice.

The New York Times(NYT) describes how a mother in Los Vegas couldn't drive her sick child to a hospital because she had missed a payment on the car and the lender had shut it off as a result.

"Other borrowers have complained in interviews of being stranded, marooned in dangerous neighborhoods and cut off from their cars when they needed it the most,s" the newspaper writes. "In Nevada, one woman testified to the Legislature that her car had been shut down on a freeway."

Physical safety is not the only issue people are concerned about. They are also worried about privacy, as The Atlantic writes.

"Access controls ensure that the possessions you lease or rent don't belong to you, even as you bring them into the most intimate parts of your life," the magazine explains. "The controls make sure that the privacy and security of the debtor come second to the property rights of the lender."

To date, there is no widespread proof that the tracking devices are being used to turn off moving cars or watch the every move of borrowers who are in good standing on their loans. Some don't activate until the borrower defaults.

According to the lending industry, consumers who earn low incomes would be unable to buy cars if it weren't for the devices.

"This is a registered vehicle," said Jack Tracey, executive director of the National Automotive Finance Association, in response to privacy concerns. "It has a license plate, and you can see where it is traveling. You are driving something that isn't private anywhere."

It is uncertain whether or not these devices are legal. Proposed federal legislation would make the secret tracking of an adult's movements using an electronic device illegal. The legislation also says that companies may not share geolocation information about customers with a third party without the consent of the customer or a court warrant.