CACC and DriveTime Tapped in FTC Kill Switch Inquiry

The Federal Trade Commission sought information regarding the use of kill switches from Credit Acceptance Corp. and DriveTime Automotive Group Inc., both companies reported in separate securities filings late last week.

Kill switches and GPS technology are used by some lenders to more accurately identify and track down the vehicles of delinquent borrowers and potentially disable the car remotely before it is repossessed. The devices can also make noises to remind borrowers to pay.

DriveTime doesn’t install kill switches of any kind, but it does often finance vehicles with pre-installed GPS systems, spokesman Chris Piper told Bloomberg. Credit Acceptance has made no public comment to date about the FTC inquires and both companies did not respond to Auto Finance News’ request for comment.  

It’s estimated that somewhere between 35% and 70% of subprime borrowers may have a kill switch in their vehicle, Corinne Kirkendall, vice president of compliance and public relations at the device manufacturer PassTime, told Bloomberg.

Currently, there is no evidence that lenders are violating laws around kill switches, but it is now clear that the FTC is investigating the matter.  

According to lawyers and sources familiar with the matter cited by Bloomberg and The New York Times, the FTC could be investigating two separate regulatory matters: privacy and fair collection practices.

There is concern among regulators that this GPS data is being misused by lenders to unfairly tap into consumers’ private data. However, manufacturers of the devices say they have privacy protections in place to ensure it isn’t used as surveillance. That includes an added function which only allows GPS to be enabled once a borrower defaults on a payment.

Lenders also argue that the kill switches allow them to extend loans to lower-credit borrowers by reducing risk in the repossession process.

Ultimately, the FTC will be deciding whether the consumer interest of more subprime loan availability outweighs the privacy concerns.

There is also the matter of whether the technology is being used to violate fair collection laws. Regulators are investigating whether lenders are threatening to shut down vehicles remotely even when there is not legal ground to do so.

In 2014, the FTC settled with Consumer Portfolio Services for $5.5 million alleging similar intimidation strategies around calls to delinquent borrowers such as saying, “the tow truck is around the corner,” when in fact it was not. CPS neither admitted nor denied the allegations.

Losses among auto lenders have not tracked to the record-high delinquencies being reported, and that’s in part because calling isn’t as effective as it use to be, Charles Bradley, president and chief executive of CPS, said during his latest earnings call. Consumers now have smartphones that tell them who is calling and they ignore it, so “customers pay you when you’re going to take their car,” as opposed to paying when the lender starts calling, he said.  

“We’ve gotten used to that, we’ve redone the way we collect and certainly part of that is the regulatory environment: the way you now have to speak to customers, and how often you can call them — things like that,” Bradley said. “That whole thing is now settled,  as our culture has changed, and so we’re really happy with that.”