By: Luke Trompeter
The Federal Trade Commission (“FTC”) has begun investigating whether auto finance companies’ use of controversial repossession technology, including “kill switches” and GPS trackers, violates borrowers’ privacy rights and their protections against unfair collection. This probe is a just a piece of a larger federal investigation into the subprime auto loans industry. Subprime auto lending, or loans to Americans with bad or non-existing credit, has reached its highest levels since 2007. As the number of risky loans has increased, the number of delinquent payments has increased as well.
Auto lenders, concerned that their borrowers will fail to pay them back, have increasingly turned to technology to help them find and repossess cars. Auto lenders install devices on loaned vehicles dubbed “kill switches” by consumers, which allows the lender the remotely disable the car’s ignition after the borrower misses a payment. The auto finance industry prefers to call the devices “starter interrupters,” and insists the devices only prevent the vehicle from being started and cannot turn off a car that is running or moving. Additionally, lenders have installed GPS trackers on vehicles, enabling them to quickly locate the car of a delinquent borrower. The industry maintains that these devices are used legally, and are necessary protections for them to lend to the riskiest consumers, who would not receive an auto loan otherwise.
Despite the industries’ insistence, consumer protection groups have argued that these devices violate privacy rights of borrowers and the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA prohibits lenders from using abusive, unfair, or deceptive collection methods while collecting debts from consumers. Increasing concerns led the FTC to request policies and procedures information from Credit Acceptance Corporation, one of the largest auto lenders in the Country. The FTC has yet to comment on the investigation, but it would likely focus on whether lenders give adequate notice to consumers that their cars can be tracked and remotely disabled, and whether this practice is legal as a whole. The FTC has previously brought privacy actions against businesses, including a 2013 action against a rent-to-own companies for spying on customers that purchased laptops. Congress has also demonstrated the importance of protecting the privacy rights of borrowers by proposing legislation that would make it illegal to covertly track individuals’ movements using electronic devices. The bill would ban GPS companies from sharing geolocation information with third parties, including auto lenders.
While federal action remains uncertain, some consumers have turned to class action lawsuits to begin combating these controversial debt collection methods. In 2014, the Legal Aid Center of Southern Nevada filed suit against CAG Acceptance, arguing the company violated state law and breached its own contracts by triggering the devices on consumers who were not in default. If consumers continue to shed light on malpractices in the subprime auto loan industry, it may push lawmakers to enact change at the federal level.
Any regulatory action stemming from the FTC investigation will likely hinge on whether the benefits to consumers, access to auto loans, outweigh the privacy concerns. For now, consumers should be aware the next time they have trouble starting their car, it might not be a bad battery, but instead, a bad lender.
 See Matt Scully, FTC Looks for Abuses in Auto Lenders’ Use of Kill Switches, Bloomberg (Feb. 16, 2017, 7:19 PM), https://www.bloomberg.com/news/articles/2017-02-17/u-s-regulator-looks-for-abuses-in-auto-lenders-repo-gadgets.
 See David McLaughlin, Auto Loan Securitization Probed by U.S., States, Yates Says, Bloomberg (Feb. 24, 2015, 1:14PM), https://www.bloomberg.com/news/articles/2015-02-24/justice-department-probing-auto-loan-securitization-yates-says.
 See Michael Corkery & Jessica Silver-Greenberg, Federal Agency Begins Inquiry Into Auto Lenders’ Use of GPS Tracking, N.Y. Times (Feb. 19, 2017), https://www.nytimes.com/2017/02/19/business/dealbook/gps-devices-car-loans.html?_r=1.
 Id. (reporting loans that were at least 90-days delinquent increased in 2016 from 3.6 percent in the third quarter to 3.8 percent in the fourth quarter).
 See James R. Hood, Feds investigating auto lenders’ use of kill switches, Consumer Affairs, (Feb. 17, 2017), https://www.consumeraffairs.com/news/feds-investigating-auto-lenders-use-of-kill-switches-021717.html.
 See Jim Henry, Words Matter: Starter Interrupt Or Kill Switch, Forbes, (Feb. 28, 2017, 8:37 PM), https://www.forbes.com/sites/jimhenry/2017/02/28/words-matter-starter-interrupt-or-kill-switch/#2f55bb3876a2.
 See Sarah Jeong, How Technology Helps Creditors Control Debtors, The Atlantic, (Apr. 15, 2016), https://www.theatlantic.com/technology/archive/2016/04/rental-company-control/478365/.
 See Henry, supra note 6.
 See Ross MacDonald, Wait, Banks Can Shut Off My Car?, Mother Jones, (Mar. 2016), https://www.motherjones.com/politics/2016/04/subprime-car-loans-starter-interrupt.
 See Fed. Trade Comm’n, Consumer Information: Debt Collection (2015), https://www.consumer.ftc.gov/articles/0149-debt-collection.
 Credit Acceptance Corp., Current Report (Form 8-K) (Nov. 7, 2016) (disclosing that Credit Acceptance received a civil investigative demand from the FTC seeking information on the Company allowing car dealers to use GPS Starter Interrupters on consumer vehicles).
 See David Kravets, Subprime auto lender facing FTC inquiry over GPS-tracking kill switches, ARS Technica, (Feb. 21, 2017, 1:28 PM), https://arstechnica.com/tech-policy/2017/02/subprime-auto-lender-facing-ftc-inquiry-over-gps-tracking-kill-switches/.
 See Corkery & Silver-Greenberg, supra note 3.
 See Geolocational Privacy and Surveillance Act, S.395, 115th Cong. § 2602 (a)(1)(A) (2017).
 Id. at § 2602 (a)(1)(D)(i).
 See Gibbs-Bolender v. CAG Acceptance, L.L.C., No. 2:14CV01684 (D. Nev. filed Oct. 10, 2014).
 See Corkery & Silver-Greenberg, supra note 3.