May 04, 2020
Credit and Finance

Auto Controllers

New technologies are giving auto lenders more sophisticated ways to bleed borrowers dry.

Emma Weil


This piece originally appears in Logic's issue 10, "Security".

T. Candice Smith was driving to work in the express lane of a Las Vegas freeway in 2012 when her car suddenly malfunctioned. Her steering wheel froze and the car shut off. When it rolled to a stop, she and her friend got out and pushed the car to the shoulder. Once she was out of the way of traffic, she noticed a chirping sound coming from inside her dashboard. It was coming from a machine installed by her auto lender: a “starter interrupt device” (SID) that was programmed to make that sound before it disabled her car as punishment for missing a payment. It was then that she realized why she had almost died in a car crash: her lender must have tried to remotely disable her car. So she sat in the immobilized, chirping vehicle on the side of the freeway and called him.

Having her car break down on the freeway was terrifying. Having to wait on the phone with her lender to get her car operable again made her feel even more helpless. When she told him what had happened, the lender insisted that the device wasn’t meant to stop a moving vehicle, only to prevent it from starting, and refused to admit any responsibility. Her lender went on to disable her car at least four more times, including once again while she was driving, and then took her to court for not making payments—which later investigations showed the company had actually received but had failed to put in her account. In reality, Smith was never more than a couple of days late on her payments, and never even close to defaulting, which Nevada state law defines as being thirty days past due. And even though it’s illegal for creditors in Nevada to repossess a car before the borrower defaults, disabling a car via SID didn’t clearly count as a repossession because it doesn’t technically “seize” the collateral.

A year after her near-crash on the freeway, Smith testified about her experience to the Nevada Assembly Committee on Commerce and Labor. Her testimony sparked a wave of national media coverage on SIDs. Calling them “kill switches” and invoking “Big Brother,” reporters from the New York Times and Mother Jones highlighted the cruelty of lenders who would disable a car after just a day without payment. Even the Daily Mirror proclaimed, “Heartless creditors LOCKED T. Candice Smith's steering wheel and stopped her engine as she drove down a busy Las Vegas highway.” 

Smith’s testimony was crucial for exposing SIDs to people outside of the auto finance industry, which had already been using them for more than a decade. But her experience was somewhat unique: she was fortunate enough to be able to make the majority of her payments on time, and she experienced an absolutely indefensible near-death collision because of her SID. For these reasons, the media was particularly sympathetic to her.   

But there are over two million drivers with SIDs in their cars today, and most of them are not in Smith’s situation. They can’t always afford to keep up with their payments, and their experience with SIDs aren’t nearly as dramatic. Their stories rarely make the headlines, yet these are the people we need to focus on to understand how SIDs really work, and the insidious problem they represent. 

SIDs are not just a potential safety hazard—they are also ruthless tools of financial extraction. Lenders prey upon an increasing number of vulnerable borrowers who can’t pay back a loan, but who can be squeezed for irregular payments under the coercion of a device that can shut off their car. Lenders see themselves as providing a utility like a phone company, but if anything they’re more like the mob. As one dealer remarked, “It’s amazing how people manage to pay when they know their car won’t start.”

There’s an App for That

SIDs debuted in the world of auto lending in the late 1990s under the name On Time, offered by a company called Payment Protection Systems. Mel Farr, a running back for the Detroit Lions who became a well-known businessman, helped make On Time devices famous, using them in thousands of his business’s auto loans. At its peak, his group of fourteen car dealerships grossed nearly $600 million annually. Farr’s business was divisive: he was praised by then-president Bill Clinton for building the nation’s largest Black-owned business and “[bringing cars] to every community in this country,” but also criticized by others, like consumer protection activist Ralph Nader, for charging incredibly high interest rates—even on cars with the On Time devices.

At the time, the devices followed a simple schematic. There was a small computer, about the size of a billfold wallet, connected to a switch between the ignition and the starter motor, with a voltage monitor on the engine, and small keypad. The computer was preprogrammed with a schedule and a list of numeric codes, which borrowers would receive from the lender when they made their weekly or bi-weekly payments. If they didn’t enter an acceptable code, either a light would flash or a sound would play, signalling that the car would soon be disabled. The voltage monitor on the engine was supposed to ensure that the car wasn’t in motion before the computer switched off the starter. In August 1999, On Time’s creator, Frank Simon, estimated there were about 15,000 to 20,000 of these devices on the road.

The next generation of SIDs arrived in the mid-2000s, which is when the technology really took off. In 2006, Stanley Schwartz, cofounder of a competing SID company PassTime, filed a patent for a combined SID-GPS device. It took advantage of newly robust GPS infrastructure following the launch of the first modernized GPS satellite in 2005. The updated SIDs also utilized a wireless modem, which meant that lenders could communicate with the device in real time through an online portal—and later, on a dedicated smartphone app. Lenders could now disable cars outside of the set schedule, and could even set up geographic boundaries outside of which the car would automatically have its ignition disabled. By 2013, PassTime had sold 1.5 million of these devices—a hundred times as many as the old model.  

The new SIDs made disabling a car incredibly easy, both logistically and emotionally. One collections agent told the New York Times that he could monitor the location of 880 borrowers’ cars from his computer or phone, and that he once casually disabled someone’s car from his phone while he was shopping at Walmart.

What about the claim from borrowers like Smith that the SID stopped their car while they were driving? There is no simple answer. But car engines can stall, and if the starter motor is off, then the engine can’t restart. Considering the low quality of cars usually offered by no-credit-check used car dealers, it’s not hard to believe that the SID could trigger latent engine issues. Or the SID itself could be faulty or improperly installed. Of course, there’s a huge legal incentive for lenders to deny these possibilities so they can continue using the devices, because electronically disabling equipment is only legal when it doesn’t cause physical harm.

Target Acquisition 

Ever since Mel Farr helped popularize the first generation of SIDs, lenders have stood by the claim that SIDs allow them to fill the crucial role of extending credit to people who would otherwise not qualify for the cars they desperately need to get to work—the so-called “subprime” market. According to Mother Jones, in 2016 about 70 percent of these loans used “payment assurance” devices, which includes SIDs in their early and later forms, as well as GPS trackers without SIDs.

This is a multi-billion-dollar market. Auto dealers target these millions of borrowers with low or non-existent credit scores for loans even without SIDs because, despite the potential for default, they can still make money both by inflating car prices and by charging high interest rates. And the market is growing: In 2019, a record seven million Americans were over three months late on their auto payments, largely due to the increasing number of subprime borrowers. 

Theoretically, SIDs could benefit borrowers by helping reduce these interest rates, which should be based on the risk for lenders. But in reality, interest rates are “not [reduced by] installation of the [SID],” according to testimony by Sophia Romero of Legal Aid of Southern Nevada. Instead, SIDs encourage lenders to offer larger loans on higher value vehicles, with the highest possible interest rates. In a 2012 survey of 1,300 dealers, “nearly 70% of respondents indicated that they believed the use of devices allowed them to sell higher value… vehicles with less risk.” This belief comes from the fact that lenders can continually threaten to remotely disable the vehicle while keeping drivers in their cars, paying for as long as possible until they default—at which point, the lender can quickly repossess the car and sell it to someone else. And in the background, lenders package and sell these predatory loans as asset-backed securities to banks. This should sound familiar—in housing, it’s what caused the 2008 financial crisis. And just like in 2008, it’s the borrowers, not the banks, who suffer. 

So, it’s true that SIDs reduce risk so lenders can extend credit to borrowers who otherwise wouldn’t get it. But SIDs have nothing to do with someone’s actual ability to pay, which means borrowers’ pockets are drained while lenders jump indiscriminately from one borrower to the next. Keeanga-Yamahtta Taylor describes a similar dynamic in the housing market as “predatory inclusion,” where mortgage lenders in the 1960s targeted previously excluded, mostly Black borrowers, with home loans that were federally insured to reduce lender risk. Instead of actually supporting these borrowers, they raked in as much money as possible until borrowers—who were portrayed as unintelligent and irresponsible—foreclosed.

Privacy-Respecting Predators

So what should we do about SIDs? To date, the legislative responses have been woefully inadequate. They have failed to address the deeper issues of economic justice, and have largely accepted the lenders’ basic argument that expanding access to credit is necessary even as it becomes predatory.

For example, in 2017, the FTC started investigating a number of finance companies on their use of SID-GPS tracking devices in the name of consumer privacy. The same year, Nevada passed SB 350, which is one of the strongest state bills regulating SIDs in the country to date. Initially written as a complete ban on SIDs as “deceptive trade practices,” the bill was amended to allow SIDs as long as lenders follow certain rules. These rules include requiring written consent from borrowers and certifying proper installation, banning vehicle disablement until thirty days of overdue payment or of operating vehicles, supplying emergency restarts for consumers, and deleting GPS data once it’s 180 days old. 

These regulations mainly address security, safety, and privacy—which all must be addressed if SIDs are on the road. But they’re not nearly enough to prevent lenders from using SIDs to scale their operations beyond people who can reasonably pay. 

One solution would be to force more risk back onto the lenders. For example, states could require lowering interest rates in conjunction with the SIDs. Another would be to restrict their usage overall. States could ban SIDs as a condition for granting a loan—which California actually did, but only for GPS devices, not SIDs. There’s also the model of the Consumer Financial Protection Bureau’s Payday Lending Rule, which has been indefinitely stalled after its introduction in 2017, but would have required lenders to determine whether a borrower is reasonably able to pay back a loan before granting it. 

The path forward is not simple or obvious. Ultimately, the problem with SIDs is that they broaden and intensify a predatory system, so even with laws like SB 350, vulnerable borrowers will still end up trapped in cycles of debt or declaring bankruptcy. As one woman interviewed by CBS News about her experience with SIDs explained her reason for taking out an auto loan at a predatory dealership: “I had to get to dialysis. I have to get there or I don’t live.” We can imagine a world without SIDs, but it’s harder to imagine a world without the system they belong to. Even if we banned the devices, people would still depend on credit for access to life’s necessities—and that dependency will always attract lenders trying to make quick money. 

Introducing better privacy protections for the data they gather, or ensuring they are safely installed, will do nothing to prevent that. Perhaps we need to “rethink credit as social provision” as the scholar Abbye Atkinson argues, and develop more direct ways of fulfilling people’s needs. Perhaps we need to reduce our dependence on cars by providing better public transportation services that make mobility a social right. The fact that people need cars to get to work or the doctor shouldn’t be an argument for letting lenders rip them off. It should be a sign that we need a renewed program of investment in our social and physical infrastructure, one that supplies kinder and more creative solutions.

Upturn Authors