I think the draft could benefit from revision in these areas:

1. This is a low-cost and efficient form of self-help repossession for secured lenders. If the lender would be legally entitled to repossess the car, why is its disabling in any way different?

2. Neither the regulation of interest rates nor the regulation of personally-identifiable information acquired in the course of business is unique to this situation, or analytically different here from other settings. Whatever rules are appropriate in related areas are appropriate here, and they are aside your immediate point.

3. The cyber-security risks to the automobile here are on the same order as a very large (and often more dangerous) range of cyber-security risks related to automobiles as their technology changes rapidly to involve more autonomous activity and more interaction with monitoring infrastructure. You don't really touch on these issues by referring to the GPS-based navigation technologies, because GPS is not a monitoring system, and only a stupid set of decisions about where to get maps or traffic data from results in monitoring. But automobiles that cannot operate without network-accessible computers and even ones that are not designed to be overridden by human occupants are in the immediate future. Regulatory decisions that are dispositive of the small issues you are raising will need to be made on the basis of a much broader and more dangerous overall social situation. Why is this problem analytically worthy of special treatment?

It is strongly recommended that you include your outline in the body of your essay by using the outline as section titles. The headings below are there to remind you how section and subsection titles are formatted.

Do Auto Lenders have the Right to Track Borrowers?

-- By Gabriel Unger - 23 Oct 2014

Introduction

In a recent New York Times article entitled, Miss a Payment? Good Luck Moving That Car, Michael Corkery and Jessica Silver-Greenberg outline a growing phenomenon whereby auto lenders have been able to compel borrowers to repay their auto loans by tracking and controlling the transmissions of their cars. These relatively new technologies and the innovative ways that lenders are using them to control borrowers pose substantial challenges in the realm of the right to privacy.

Following the financial crisis in 2008, the poor found themselves in a market that was virtually unwilling to provide them with auto loans. Lenders insisted that they simply could not afford to make loans to subprime borrowers and pointed to the recent financial meltdown for support. However, in the past five years, backed in large part by investors demanding the high interest rates provided by subprime mortgages, subprime loans have skyrocketed. However, to avert a catastrophe reminiscent of 2008, lenders have taken steps to ensure that these loans are repaid promptly.

Lender Responses

Many lenders now condition the grant of an auto loan to a subprime borrower on the insertion of a small machine called a starter interrupt device inside the dashboard of the car. The device serves the dual purpose of tracking the car to ensure that the borrower makes no attempt to run away before repaying the full balance of the loan and second, to prevent the car from starting if the borrower is late on their payments. Lenders and the producers of the device insist that the machines are only capable of preventing the car from starting. They cannot activate the device while the car is running, alleviating concerns that shutting down a car in mid-drive would be hazardous to the borrower as well as the other drivers on the road. Nonetheless, the control that lenders now exert over vulnerable borrowers has raised many red flags.

Arguments Against the Devices

On one hand, borrowers are placed in an extremely vulnerable position where they are compelled to agree to near usurious terms (NYT article cites one example where interest rates were as high as 29%) because they require a car for work or family related concerns. Thus, they frequently have little to no bargaining power in negotiations with lenders. They are essentially obligated to give lenders the power to monitor and control their movements at will and at all times from the comfort of their phone. For example, Lionel M. Vead Jr. monitors the movements of roughly 880 subprime borrowers from his phone. He admits to shutting down cars by simply clicking a button while shopping at Walmart. The ability to control a person’s movements from a mere smartphone is a terrifying idea. First, unscreened auto lenders can stalk and trap unsuspecting borrowers. There are currently few laws regulating who can and cannot be responsible for activating the devices. Furthermore, even in the event that those controlling the devices have noble intentions, there may very well be hackers out there with fewer moral constraints who might hack the phones and use the technology to stalk and attack victims. This invasion on the privacy and control is virtually unprecedented and poses a substantial threat to borrowers.

Arguments For the Devices

However, there are persuasive arguments in favor of the new technologies. First, the concerns of abuse have not been substantiated by fact. Jonathon Welsh, in Late on a Car Loan? Meet the Disabler, in the Wall Street Journal, published an expansive article documenting the new technologies and their potential impacts as early as 2009, yet we have heard little in the way of abuses of these powers. Further, there are already many technologies which track their users such as Waze. The ability for an auto lender to track the movements of borrowers when using their car is by no means a new idea. In fact, millions of people voluntarily distribute their information to obtain better traffic information. The right to privacy in the world of information sharing is currently being heavily debated in light of the recent success of web sharing such as Wikipedia, Facebook, and the like.

There are also substantial benefits in keeping the devices. In light of the recent financial meltdown, lenders simply cannot grant loans to subprime borrowers without some external guarantee of payment. The ability to track and prevent borrowers from absconding with their cars renders the loans safer and thus can potentially increase the availability of auto loans to subprime mortgages as well as reduce interest rates. The technology has yielded undeniable success in terms of obtaining payments from borrowers. The devices have cut the need for ‘repo men,’ as borrowers almost instantaneously make their payments once their cars are stopped, reducing costs for lenders. Furthermore, in the age of information sharing, the ability to track and monitor borrowers provides lenders with more information regarding potential borrowers and characteristics of people who more frequently default on their loans, creating a more efficient market. Greater availability of information may help allocate funds to those who are most likely to repay it. Overall, it is an extremely reliable service which nearly guarantees lenders the return of their loans without the threat of force or prison.

Conclusion

While the starter interrupt device has undeniable benefits, I would argue that the very real danger that lenders or hackers can stalk and isolate a vulnerable borrower outweigh those benefits. Until there is some legal framework to determine who can operate the device and when they can activate it, the risk is too great. In fact, the market has responded accordingly on its own through information sharing. A mere google search for “deactivating starter interrupt device” yielded clear and precise instructions on how to deactivate the device on one’s own. However, there may be plausible justifications for allowing lenders to track borrowers without being able to control access to their cars. The additional information provided could potentially allow for more efficient markets and allocation of funds for auto loans.

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