Auto loans to Americans with poor credit have been booming, and many finance companies, credit unions and auto dealers are using technologies to track the location of borrowers’ vehicles in case they need to repossess them.
Such surveillance, lenders say, allows them to extend loans to more low-income Americans, knowing that they can easily locate the car. Lenders are also installing devices that enable them to remotely disable a car’s ignition after a borrower misses a payment.
Now, federal regulators are investigating whether these devices unfairly violate a borrower’s privacy.
The auto lender Credit Acceptance Corp. said this month in a securities filing that it had received a civil investigative demand from the Federal Trade Commission asking for its “policies, practices and procedures” related to so-called GPS starter interrupter devices, which are used to disable an ignition.
Industry lawyers say the action is part of a broader inquiry by the agency into tracking technologies used in the subprime auto lending market.
An agency spokesman declined to comment on the investigative demand.
If the federal agency determines that the devices are being used unfairly or deceptively, it could force companies to stop the behavior and devise procedures and monitoring to ensure that customer privacy is better protected.
In determining whether to take action, the Federal Trade Commission must first decide whether the benefit to consumers — in this case the availability of auto loans — outweighs the privacy problems.
The auto finance industry says the benefits of the devices are clear. Without them, many low-income Americans would not be able to buy cars that they need to get to work.
So far, there is no widespread evidence that lenders are misusing information they track from a vehicle’s whereabouts.
Manufacturers of the devices note that they have clear guidelines in place to protect privacy. The GPS capabilities, they say, are intended to help lenders locate a car once a borrower goes into default, not as a surveillance tool.
As an added protection, some manufacturers said, they built their devices so that the GPS is not activated until a borrower defaults.