About a decade ago, when Erin Hayes was in her late teens, she bought a used car with a subprime loan from one of those “buy here, pay here” car lots close to her home near Raleigh, North Carolina.
One day in 2013, having forgotten to make her payment, she got into her 2006 Kia Optima at work and turned the key, but instead of starting so she could go home, the car made a loud beeping noise and wouldn’t go anywhere.
The lender, without her knowledge, had installed a “kill switch” and triggered it remotely after Hayes missed a payment.
“I was very anxious,” Hayes said recently, recalling being stranded with her first car. “They cut the car off, and I was 20 minutes from home. I told them I would try to pay them, and they cut it on for an hour. If I didn’t have the payment to them in an hour, they’d cut it off again.”
A couple of years later, the same thing happened with her next car, a 2008 Hyundai.
Rudimentary kill switches have long been sold to the public as anti-theft devices for less than $50 apiece. But many subprime auto lenders across the country are using more sophisticated versions to ensure that car buyers make their payments.
In recent years, though, amid consumer horror stories ranging from inconvenience to outright danger, a few states are restricting or banning the kill-switch tactic as unfair and potentially unsafe.
New York is the latest, with a law that took effect in October requiring lenders to disclose in writing by certified mail when they install the devices on vehicles.
Nevada’s and New Jersey’s similar laws took effect in 2017. Lawmakers in at least two other states, Illinois and Rhode Island, are considering legislation.
Hayes, now 27, acknowledges her credit wasn’t very good back then; that’s why she had the high-interest loans and the kill switches in the first place. But she says having a kill switch on her cars led to her being stranded more than once.
At least her cars didn’t stop in the middle of a trip. That’s what happened to T. Candice Smith from Las Vegas. Smith in 2013 testified to the Nevada legislature that her car’s kill switch activated as she was driving down Interstate 15.
“All of a sudden the steering wheel locked up and the car shut off,” she testified. “I was barely able to make it to the left shoulder. I was scared and shaking and had no idea what just happened.”
Lenders and switch makers contend that the switches are less embarrassing than the traditional “repo man” showing up on a car owner’s doorstep to take the car. They argue that the switches make getting the car operational again faster and easier than going to an impound lot.
“They do serve a purpose, and there are benefits to them,” said Michael R. Guerrero, consumer finance attorney at Ballard Spahr, a California law firm that specializes in advising companies on how to comply with consumer law, in an interview. “They reduce repossession costs, and they permit the consumer to cure the default and restart the vehicle when it’s cured. They also give some consumers access to credit who otherwise might not qualify.”
Guerrero tracks the handful of states that have passed laws that rein in the use of kill switches by requiring disclosure when the devices are placed on the cars and allowing borrowers who are in arrears to make a payment that will get the cars to start again. Some states also require an emergency override code that can be sent to a borrower if an urgent need arises.
Jeff Karg, director of marketing and communications for PassTime in Colorado, said that the automobile starter interrupt devices — as kill switches are also known — that his company manufactures can help consumers avoid repossessions by buying time to negotiate a payment plan with the lender.
His company conforms to state laws, he said. “We do have best practices in terms of how we think that the industry should operate with the consumer in mind and being respectful and taking proactive action to keep the consumer in the vehicle.”
But only half a dozen states have enacted regulations on kill switches, including California, Colorado, Connecticut, Nevada and New Jersey. The laws vary, but all, at the least, require telling the borrower that the devices, which also have GPS tracking, are installed.
The Colorado law specifically prohibits stopping the vehicle if doing so would pose a danger to its occupants, such as when it’s in motion. Most of the other laws call for 24 or 48 hours’ notice before the vehicle is disabled, and many allow grace periods or emergency overrides.
Sophia Romero, staff attorney in the Consumer Rights Project at the Legal Aid Center of Southern Nevada, said it took years and a series of lawsuits for the law in her state to catch up with the practice of installing the devices on cars.
One of the unnoticed problems, she said, was that many of her clients’ pay schedules were not coordinated with their car payment schedule, leaving them with little money at the end of the pay period to make the car payment.
“Their cars were off most of the time,” she said. “Obviously it hurts the consumer because these people can’t get to work.”
Nevada bills in 2013 and 2015 to restrict kill switches failed. The state legislature finally approved legislation last year that took effect in July 2017.
North Carolina, where Hayes lives, does not have a specific kill-switch law. However, under the state’s repossession law, a lender is permitted to render a car inoperative if payments are missed, according to Laura Brewer, spokeswoman for the North Carolina Department of Justice.
Separately, the Federal Trade Commission is looking into whether installing the devices on cars violates consumers’ privacy, as was reported last year in Bloomberg and other news outlets. The FTC, citing a policy not to comment on open cases, would not confirm the inquiry when asked about it this month.
The Electronic Privacy Information Center, a privacy rights group based in Washington, D.C., also filed a complaint last year with the Consumer Financial Protection Bureau, asking the agency to look into the devices as invasions of privacy.
“You basically have systems where private companies are not only tracking the locations of vehicles on which they have lent money, but they also have the capability to remotely turn the vehicles off,” said Alan Butler, senior counsel at the Electronic Privacy Information Center. “That is a question of privacy and safety and abuse of the lender.”
The CFPB has not ruled on the complaint.
Nicole Munro, a partner in the Maryland law office of Hudson Cook and a compliance lawyer who advises clients such as kill-switch manufacturers, said that used car dealers who do their own financing use the devices to “reduce the risk associated with providing financing to consumers with subprime credit or no credit history. It offers them the opportunity to put someone in a better car, or in a car at all.”
Munro, who said she and her clients have met with the FTC on potential kill-switch regulation, also pointed out that with the exception of Nevada, where the law defines a technological shutoff as a repossession, shutting off a car until the payment is made does not “show as a repossession on a consumer’s credit report.”
“That’s really important from the consumer’s point of view,” she said. “We’re not trying to use the technology to harass consumers. It is really to reduce risk and keep consumers in their vehicles.”
But John Van Alst, an attorney with the National Consumer Law Center, based in Boston, sees the devices as a threat to consumers, especially those whose credit may not be stellar.
“They are like the doomsday device in ‘Dr. Strangelove,’” he said. “They are a looming threat and they change the balance of power.
“The problem may be for many consumers that there aren’t a lot of options or that they are misled by dealers who make them think they wouldn’t qualify for a loan anywhere else,” he said. “Unfortunately, they don’t have the choices many of us do when deciding how to finance a car.”
And that can lead to embarrassment, he said.
“You can imagine if you are out on a date and your car starts telling you that you are behind on your payments.”