Regulation

FTC Inquiry Looks At Use Of Kill Switches By Auto Lenders

The Federal Trade Commission is investigating the use of kill switches by auto finance companies to get subprime borrowers who have missed payments to catch up or repossess their vehicles.

According to a report by Bloomberg, citing a person with knowledge of the matter, the FTC is requesting information from two lenders and potentially more. The inquiry is part of a bigger investigation into the collection practices at subprime auto lending firms. The industry is under pressure after tons of lending to subprime borrowers who have less-than-stellar credit. Bloomberg noted the subprime auto lenders are facing inquiries from the U.S. Department of Justice, as well as attorney generals in certain states.

Auto finance companies have been embracing cutting-edge technology to make it easier to take back cars when borrowers don’t pay their loans. Some of the technology includes kill switches, which enable the debt collectors to remotely prevent the vehicle from starting. Coupled with GPS devices, the debt collector can find the car or truck and repossess it. The kill switches can also make noises as a way to remind borrowers to pay their bill. Anywhere from 35 percent to 70 percent of vehicles that are being financed by subprime borrowers have one of these devices installed in the car, Corinne Kirkendall, vice president of compliance and PR at PassTime, told Bloomberg. PassTime sells the devices used by the subprime auto lenders.

The companies the FTC is requesting information from include Credit Acceptance Corp. and DriveTime Automotive Group Inc., reported Bloomberg, citing securities offering documents from both companies. DriveTime doesn’t install kill switches, although the cars and trucks it finances typically have preinstalled GPS systems, a spokesman told Bloomberg, with the company’s general counsel, Jon Ehlinger, saying the request by the FTC for information was “routine.” Credit Acceptance didn’t return calls to Bloomberg. A person with knowledge of the matter said the FTC’s inquiry is looking at if the use of the devices violates laws covering fair collection practices.

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