Ever had the feeling you were being watched? If you've taken out an auto loan in recent years, your hunch may have been correct, and now, the U.S. government is investigating.
It's not uncommon for lending institutions to require that borrowers equip their new vehicles with GPS devices and other gadgetry. These devices keep tabs on cars, which are, in fairness, the lenders' property until loans are paid off. If a car goes missing, lenders can use GPS to locate it, and in some cases, even disable the ignition.
As you might guess, the practice is most commonly used on subprime borrowers, who statistically have highest risk of falling behind on payments and defaulting on loans. However, the Federal Trade Commission is concerned that some lenders take the practice too far, gathering too much irrelevant data on borrowers and violating their privacy.
And so, it's launched an investigation into the matter. At least one company, Credit Acceptance Corporation, has admitted that the FTC has asked for details about its policies regarding the use of tracking and disabling devices.
To track or not to track?
Those devices come with a range of pros and cons. On the pro side, they allow many Americans to take out car loans that they might not otherwise be able to get. They do so by giving lenders some degree of certainty that they'll be able to get their property back, should someone stop paying her monthly note.
On the con side, as we've previously discussed, there aren't many established policies and procedures with regard to the use of GPS tracking devices. That lack of regulation means that lenders set their own rules for installing the devices on cars, tracking vehicles, what kind of data to gather from the devices, how and when to dispose of it, when to disable vehicles, and systems of appeals from borrowers whose cars have been disabled.
Apart from the privacy concerns, which are significant, there are often more pressing concerns related to the deployment and use of the devices. More than a few borrowers have found themselves in emergency situations where they've needed to get to a hospital or escape an abusive spouse, only to learn that their vehicle has been disabled.
And of course, there's a stubborn catch-22 to consider: if you take away someone's ability to get to her job, how is she supposed to earn the money to pay back the loan you've authorized?
Naturally, the problem is most common among poorer borrowers. Though the FTC hasn't commented on the true focus of its investigation, it's reasonable to assume that they want to know whether lenders are using the devices fairly among vulnerable borrowers and whether lenders take into account factors like race or sex when deploying them.
We have no idea what the FTC might find, but we know that the investigation comes at a crucial time in the auto lending industry. As we reported just yesterday, auto loan delinquencies are on the rise in the U.S., and as sales are poised to remain strong, demand for auto loans will, too--especially subpriime loans. Now would be a good time to determine whether those borrowers are getting a fair deal.