Legal Geek No. 24: Electronic Car Repo Man

Welcome back to Legal Geek. This week, we take a look at the rise of subprime auto loans and the legality of electronic devices that lenders are using to ensure timely payments from these high-risk borrowers.

https://archive.org/details/LegalGeekEp24

According to a report this week in the New York Times, subprime auto loans, which are car loans made to those with low credit scores below 640, are accounting for nearly 30% of all auto loans in 2014. This represents the biggest boost for selling cars to people with bad credit since before the market crash of 2008.

But in about a quarter of those loans, the lenders are installing electronic devices called starter interrupters, which disable a car's ignition when the borrower is late to make a payment. This is effectively a new technological form of electronic repossession of the vehicles, and lenders say these devices are critical to negating the risk usually associated with subprime auto loans.

Of course, reports are out there which say the lenders use the devices to track the borrower's movements Big Brother style and that some lenders disable cars at highly inconvenient times, such as when stalled out at a stoplight. But are the lenders breaking consumer laws by extorting payments in this manner?

Some lenders are employing virtual repo men who actually give borrowers a chance by calling them multiple times and waiting 30 days before using the starter interrupter. But others are acting far more quickly, and many times without notice. These types of lenders would likely be breaking some old laws in many states giving rights to borrowers to have a chance to settle debts before the repo man is allowed to come.

Although state laws vary, the terms of auto loan contracts are typically forced to allow for at least 30 days of being behind on payments before the right to repossess is allowed. And any repossession cannot include a breach of the peace, meaning use of physical force or opening a closed garage, for example. It could be argued these devices do breach the peace when used away from a home or workplace setting.

Of course, the device manufacturers and lenders believe this disabling of the vehicle is not actually a repossession. It will be interesting to see how that theory works out if challenged many times in court.

Bottom Line: This is a gray area of law, but states will eventually be forced to define exactly how these new technologies are governed in the auto loan context. One would expect that the largely defenseless struggling consumers will win the day eventually, but for now, the banks hold all the power and wield it heavily, whether actually legal or not.

Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy or in the comments below.