Back in the old days, if you couldn’t make your car payment, you had to watch out for the repo man.
Now, the repo man is a robot that rides around in a little device under your dashboard.
Miss a payment, and the car becomes a hunk of useless metal – immobilized by a starter-blocking device triggered from cyberspace.
The owner then has a choice – pay up and get use of the car again, or wait until the human repo man eventually rolls up. He’ll be guided right to the spot by a GPS tattletale in the device.
“Automated Collection Technology,” as it’s known in the business, is becoming a common part of the “deep subprime” auto lending market. That’s the market that finances old used cars for people with little income and poor credit. The industry charges high interest – often more than 20 percent.
The devices, which prevent cars from starting, are sparking a challenge from Legal Services of Eastern Missouri. The legal aid nonprofit agency, which serves the poor, contends they’re dangerous – stranding motorists far from home, sometimes at night and in crime-ridden neighborhoods.
“I call it stranding technology,” said Rob Swearingen, the legal services attorney who recently filed a lawsuit against the practice. The devices don’t stop a car while moving. But once the engine is off, they stop it from restarting.
“I had a client who was in an intersection with a child,” Swearingen said. The car stalled, and when she tried to restart it, the starter was blocked. “She had to roll the car to the side of the road, get the child out and beg somebody for money to get on a bus.”
The industry says the devices are a public service. By encouraging prompt payment, the devices help consumers rebuild their battered credit scores, the industry contends. By reducing losses for lenders, it allows them to make bigger loans to borrowers so they can buy better cars.
The devices can also foil car thieves by guiding police to the stolen car.
Hosea Robinson said the device did him no favors.
He was working as a security guard at a housing project in Wellston, Mo.
“I was a little behind in my payments. They kept calling and I told them I was going to make a payment when I got paid,” Robinson said.
Leaving work at night, he found his 1997 Sunfire wouldn’t start. “I called them, and they said that unless I made a payment, they wouldn’t turn it on.”
Robinson got his brother out of bed to give him a ride home. When he returned the next day, the car’s windows had been smashed and the car was dented. “There was $400 or $500 damage to the car. It pretty much wound up being junked,” he said.
Auto dealers think the devices ease their biggest headache – people who pay late, or don’t pay at all.
About a third of subprime customers default on their loans, said Ken Shilson, founder and president of the National Alliance of Buy-Here-Pay-Here Dealers. As a result, the industry spends a lot on collectors, who call customers when payments are late.
The devices reverse that process. Fearing that their cars won’t start, people who are going to be late call the collectors to beg for extra time to pay.
Some of the devices beep at customers just before payments are due, and whistle when they’re a day away from being shut off.
In a survey by the National Alliance, 91 percent of dealers said the devices cut their collection expenses, and 81 percent think the devices reduce the risk of default.
“There are two types of operators – those that are using the devices and those that should be using the devices,” Shilson said.
His surveys show that 40 percent to 60 percent of subprime lenders and dealers are using some type of device. Some simply track the car by GPS, but most can both track and disable it.
“It’s the No. 1 business model in use in deep subprime,” Shilson said.
Some customers aren’t happy about riding with a repo robot.
Rachael Ward, a dental assistant from Fenton, Mo., bought her 2003 Mitsubishi Galant in October 2010 at Auto Credit Mart in St. Louis. She put $700 down and borrowed $5,382 from Western Funding.
Western Funding is a major subprime lender, financing cars through 3,000 car lots. It charges an average interest rate of 23 percent, according to the company website.
The dealer explained the device and that the lender could freeze the starter if she fell behind.
“They said, ‘It’s a benefit to you. If it’s ever stolen, we can track it down and shut it off,’ ” she recalled. Customers usually sign a paper acknowledging the device.
Ward, a married mother of two, didn’t think much about it until one day that winter.
“I got into my car to leave for the doctor, and the car wouldn’t start. When I tried, the key it would make this beeping noise,” she said. “I’m freaking out because I have to get the kids from school.”
She wasn’t behind on her payment, she said. She called Western Funding, and they gave her control of the car again after a 30-minute wait. It happened again in March 2011, she said. This time it took more than an hour to restore.
By August 2011, however, she says she was two weeks behind on her car payment. She left work in Des Peres, Mo., and found her starter frozen.
“Your payment was due on the 1st,” said the representative at Western Funding, according to Ward. “You’re late.”
At the time, she lived about 25 miles away. After some begging, they let her drive home before shutting it off again.
She fell behind again and was shut off again in November, while out shopping with her family. This time they wouldn’t unfreeze the starter until she paid. In December, her car was disabled again while she was at work.
“They laughed at me,” she said. “They said the policy had changed. Now instead of 10 days to pay, you have five days. My husband came with the kids and picked me up.” She later wired in the money to the lender.
After all that, she’s frightened by the device. “It’s a hassle, and I’m constantly nervous,” she said. “What will happen if I have the kids with me and it’s the middle of winter?”
But it does concentrate her mind on making on-time payments. “I’m a day late and I’m paranoid. It’s a constant worry,” she said.
That’s the value of a cutoff device from the dealer’s perspective – it keeps customers paying on time. Swearingen, the legal services lawyer, says dealers don’t really want to repossess the cars, which tend to be old and high-mileage with little value. They’d rather have the money.
“Of course you cut delinquencies. People are scared out of their wits,” Swearingen said.
The lending industry takes pains to prevent such events, Shilson said. “They try to shut them off in the middle of the night so to be minimally disruptive.”