Editorial: Auto lender tactics call for government action

If you have a bad credit score, and you try to take out an auto loan, there’s a chance you’ll end up as a test subject for a new technology lenders are using — whether you like it or not.

Auto lenders are outfitting vehicles they loan out to subprime borrowers with “starter interrupt devices.” 

Through these devices, lenders electronically disable the ignition if the borrower misses a payment. They also use GPS technology on the device, allowing lenders to track their borrowers’ locations and movements. The goal is to eliminate the need for repo people to hunt down those who miss a payment.

But, other than the job security of repo people, what actually is at stake is the borrower’s dignity. 

These devices are a constant reminder to drivers of the financial stress they are under — the devices even emit warning beeps that become more and more persistent as the due date of the loan payment approaches. 

As Robert Swearingen, a lawyer with Legal Services of Eastern Missouri in St. Louis told the New York Times, it’s like “there is a debt collector right there in the car with them.” 

It’s an incredibly dehumanizing experience for these borrowers whose lenders can affect not only their finances, but their lifestyles. 

Imagine suddenly not being able to start your car before going to work. What do you tell your boss? That you missed a loan payment, so you couldn’t make it to work that day? 

Or, imagine not being able to make it to a doctors appointment because you missed a loan payment.

The bottom line: Lenders should not have this much power over a borrower’s life. Yes, borrowers are contractually obligated to make payments, but there is a fine line between financial and personal punishments. 

While these devices are an unnecessary burden on borrowers’ lives, there is a way to keep lenders from resorting to using them: stop giving out high-risk loans. 

Of course, it’s unlikely that lenders will stop giving out high-risk loans. They reel in substantial profits because the lower the borrower’s credit score, the higher interest rate the lender can charge. Thus, lenders can accumulate more and more interest every time a borrower misses a payment. Meanwhile, they can make money from these high-risk borrowers by keeping them on a financial hook for the rest of their lives.

Because of this financial appeal, lenders aren’t likely to stop doing this. But the government can step in and more effectively regulate the industry — setting a lower limit on the amount of interest lenders charge, disincentivizing them from giving out high risk loans. Right now, annual subprime interest rates average 14 percent and, according to The Economist, it is not uncommon for lenders to charge up to 25 percent interest.

Until the government sets a lower limit on private lenders’ interest rates, they’ll continue to seek as much money as possible. 

Look for actual cameras to appear in leased vehicles in the near future.