Are Starter Interruption Devices Legal for Late Payments and/or Repossession?

Starter Interruption Devices (SIDs), commonly referred to as “kill switches,” can prevent drunk driving. Those SIDs are called a Breath Alcohol Ignition Interlock Device (BAIID). It’s a breathalyzer that’s installed in a vehicle’s ignition system. The BAIID prevents the vehicle from starting if the driver’s blood alcohol content (BAC) is too high. BAIID’s can be a good thing: refusing drunk drivers any part of the road.

It is the second type of SIDs that are controversial and utilized by several financial institutions on auto loans. These SIDs allow lenders to remotely disable a vehicle’s starter if the borrower is delinquent on loan payments. Worse, most states allow SIDs as a transaction between borrower and lender.

Several states have not yet weighed in on the legality of their use within that state. Illinois has attempted to do so twice recently. But both efforts failed.

California put into place a model for the use of SIDs, but California’s measures fall short of protecting the borrower who needs their vehicle to get to work or for an emergency that can only be recognized by the lender after contact with the lender and making the case of an emergency. However, that contact needs to be done during working hours and not on the weekend when a borrower needs the vehicle.

The use of SIDs raise serious questions about consumer rights, privacy, and the appropriate limits of power that several sub-prime lenders wield over their borrowers.

This article explores the regulatory landscape of SIDs, the regulations that Illinois and other states should consider for SID use, and why consumer protection should take precedence for all SID use. Furthermore, we have witnessed instances of SID use that amount to a wrongful repossession, highlighting the urgent need for strict regulations and greater oversight.

What Are Starter Interruption Devices?

SIDs are electronic devices installed in vehicles that allow lenders to remotely disable the car’s ignition system. These devices are typically used as a condition for loan approval, particularly for subprime borrowers with lower credit scores. In many instances, SIDs are paired with GPS trackers, enabling lenders to disable the vehicle as well as to locate the vehicle for repossession if necessary.

When a borrower misses a payment, the lender activates the SID, preventing the vehicle from starting until the account is brought current. Some SID devices provide audible warnings, such as beeping, to alert the driver that their loan also overdue.

Illinois Has Neither Prohibited Nor Adopted a Standard

The legality of SIDs varies across the United States, and one would expect that their use would be governed by state laws, federal regulations, and contractual agreements. That is not the case.

In Illinois, there have been at least two attempts to regulate the use of an SID. The first attempt to regulate SIDs was in January, 2021, with HB 4166. HB 4166 sought to prohibit any “starter interrupt device” to be “…installed or activated in any vehicle solely as a means to secure payment on the vehicle.” HB4166 died when the State legislature failed to enact it.

The second time the issue of the use of an SID came before the Illinois legislature was in HB 3216 in January 2023. In HB3216, the legislature discussed SID use in greater detail. HB3216 would have allowed SID installation and allow for “…the remote inactivation of the vehicle by law enforcement at the request of the vehicle owner.” HB3216 sought to reintroduce the prohibition from 2021 HB4166, “that no starter interrupt device shall be activated in any vehicle solely as a means to secure payment on the vehicle.” Again, however, the SID regulation contained in HB3216 died when the State legislature again failed to enact it.

While Illinois has not yet specifically prohibited SIDs, be aware that several financial institutions have been advised by their lawyers that they can, and those lenders do. It is a common practice in Illinois for the sub-prime lenders, that they will only lend on a car loan on the condition of the installation of a SID.

A survey of other states reflects a varied approach to the application of a SID:

1. State-Specific Laws

California

California law imposes strict conditions on the use of Starter Interruption Devices. Lenders must provide borrowers with a series of advance warnings before disabling any vehicle, including a five-day notice for weekly payment contracts and a ten-day notice for other contracts. Moreover, a final warning must be issued at least 48 hours before activation of the SID that disables the vehicle.

Additionally, borrowers must have the ability to restart the vehicle for at least 24 hours in emergencies. However, the ability to restart the vehicle appears to be at the lender’s discretion. California requires that the lender must outline the “emergent” conditions, and notification methods must comply with California Civil Code § 2983.37.

New York

New York requires “creditors” to obtain explicit borrower consent before installing a Starter Interruption Device and then only if they have given written notice of the possible remote disabling of the vehicle in the method and timetable agreed upon by the consumer and the creditor in the initial contract for services. The notice must be mailed by registered or certified mail to the address at which the debtor will be residing on the expected date of the remote disabling of the vehicle. That could take three to five days depending on when and where it 3 is mailed and delivered.

Interestingly, New York calls the use of an SID an alternative name, a “payment assurance device.” New York has proposed further legislation, such as AB 7855, that may outline more detail but that has not yet been enacted.

Florida

In Florida, financial institutions may face restrictions when installing and using starter interruption devices to disable a vehicle due to late payments. Florida case law suggests that financial institutions must adhere to fair practices when dealing with late payments. For example, in Ford Motor Credit Co. v. Waters, 273 So. 2d 96, the court emphasized the importance of notifying the buyer of any changes in the pattern of accepting late payments before repossessing a car. This principle could extend to the use of starter interruption devices, requiring financial institutions to provide adequate notice and follow due process. Further, Borrowers must be informed about the device’s presence and its potential activation pursuant to Florida’s Deceptive and Unfair Trade Practices (FDUTPA).

Texas

The use of starter interruption devices by financial institutions to disable a vehicle when the monthly payment is late is not explicitly addressed by a specific Texas statute. Texas statutes provide guidelines on the penalties and charges for late payments, but do NOT explicitly authorize or prohibit the use of a SID in Texas. However, any gross use, or shocking consequence of use by a lender of a SID might require that Borrowers receive reasonable advance notice before activation or the lender will have caused a violation under Texas’ Deceptive Trade Practices Act (DTPA).

New Jersey

New Jersey, like New York, identifies SIDs as a “payment assurance device.” New Jersey allows a “creditor” to install a “payment assurance device” on if the borrower acknowledges in writing about the device at the time of purchase or lease. The lender must also inform the borrower of notification that the vehicle is equipped with a device that can remotely disable the vehicle, information about the grace period, and a warning provided before the vehicle is disabled. New Jersey appears to also discuss notice and operation of a SID in greater detail than other states.

New Jersey mandates that the borrower must not be charged for the installation of the device. Importantly, New Jersey prohibits a lender from remotely disabling the vehicle until the Borrower is in default for at least five days on a weekly payment loan or ten days for all other loans. The Borrower must also receive a warning at least 72 hours before the vehicle is disabled and be transmitted through at least two modes of communication. And the lender cannot disable the vehicle while it is being operated. These measures aim to safeguard consumer rights while allowing lenders to manage delinquent payments responsibly. The New Jersey Consumer Fraud Act (CFA) further protects borrowers against deceptive practices.

2. Federal Regulations

While no federal law currently regulates SIDs, the Federal Trade Commission (FTC) has the authority to investigate unfair or deceptive practices related to their use. For example, lenders could face penalties for failing to disclose SID installation or for improperly using the device. We have not found any FTC or CPFB report or guideline that authorizes or prohibits the use of an SID.

3. Contractual Agreements

It has been sub-prime borrowers who will only lend money to borrowers and also demand the installation of SIDs as part of a loan contract. However, courts have occasionally invalidated such agreements if they are deemed unconscionable or if the lender’s actions violate state or federal laws.

Example of Lawsuit Involving SIDs

CFPB v. USASF Servicing, LLC (2024)

In a recent lawsuit, the Consumer Financial Protection Bureau (CFPB) fined USASF Servicing, LLC $42 million for violations related to auto loans, including improper use of SIDs. The company was accused of failing to provide adequate disclosures and misusing the devices to harass borrowers. This lawsuit highlights the potential for abuse when lenders use SIDs without sufficient oversight or compliance with regulations.

Arguments for and Against the Use of an SID

Arguments in Favor of the Use of an SID

• Risk Mitigation for Lenders: Lenders argue that use of an SID helps to mitigate the risk of loan defaults, particularly for subprime borrowers. By providing a means to enforce payment compliance, lenders can offer financing to individuals who might otherwise be unable to obtain a loan.
• Lower Interest Rates: Some proponents claim that the use of an SID allows lenders to offer lower interest rates to borrowers, as the devices reduce the likelihood of default.

Arguments Against the Use of an SID

• Consumer Privacy and Autonomy: Critics argue that use of an SID infringe on consumer privacy by enabling constant monitoring and control of their vehicles. Additionally, the ability to disable a vehicle undermines a borrower’s autonomy and can lead to disproportionate consequences for minor payment delinquencies.
• Safety Concerns: The use of an SID can pose safety risks, particularly if a vehicle is disabled in an unsafe location or during an emergency. For example, disabling a car in heavy traffic or during severe weather could endanger the driver and other road users.
• Predatory Practices: Consumer advocates have raised concerns about predatory practices, such as using SIDs to intimidate or harass borrowers. In some lawsuits, 4 lenders have been accused of disabling vehicles without sufficient notice or cause.

The Lawsuit for Limiting SID Use

While SIDs may provide benefits to lenders, their potential for abuse necessitates stronger consumer protection. Here are several arguments for limiting the use of SIDs:

1. Proportional Response to Loan Delinquency

Disabling a vehicle is an extreme response to a missed payment, particularly when
alternative remedies are available. Lenders should prioritize less invasive methods, such
as renegotiating payment terms or providing temporary payment relief.

2. Balancing Interests

The use of SIDs creates an imbalance of power between lenders and borrowers. While lenders have legitimate interests in recovering loan payments, these interests must be balanced against the borrower’s need for transportation to work, school, or medical appointments.

3. Strengthening Regulatory Oversight

Existing regulations do not go far enough to protect consumers from the potential harms of SIDs. States should adopt stricter laws governing their use, including:

• Mandatory advance notice before disabling a vehicle.
• Prohibitions on disabling vehicles in emergencies or unsafe conditions.
• Clear disclosure requirements for borrowers.

Proposed Reforms

To further protect consumers, lawmakers and regulators should consider the following reforms:

• Uniform National Standards: The federal government should establish uniform standards for the use of SIDs, ensuring consistent protections for borrowers across all states.
• Enhanced Disclosure Requirements: Lenders should be required to provide clear, detailed information about the installation and use of SIDs, including potential risks and borrower rights.
• Penalties for Misuse: Strict penalties should be imposed on lenders who misuse SIDs, such as disabling vehicles without proper cause or failing to provide adequate notice.
• Alternative Solutions: Policymakers should encourage lenders to explore alternative solutions for managing loan delinquencies, such as financial counseling or flexible payment plans.

Conclusion

The use of Starter Interruption Devices highlights a critical tension between lender interests and consumer rights. While the use of an SID may offer benefits to lenders, their potential for abuse and the disproportionate impact on borrowers necessitate stricter regulations. By prioritizing consumer protection and limiting the use of an SID, policymakers can ensure that borrowers are treated fairly and that their safety and autonomy are respected. Clearly, if an SID is installed, two modes of communication and notice is paramount.

Ultimately, the law should come down on the side of the consumer, recognizing that access to reliable transportation is a necessity, not a privilege. Borrowers deserve fair treatment and reasonable protections, even when they face financial difficulties.

If you feel that you have been affected by the improper use of Starter Interruption Devices, such as having your vehicle wrongfully disabled without notice or being subjected to predatory lending practices, contact FS CORPS immediately. Our experienced legal team is dedicated to holding financial institutions accountable and securing compensation for consumers who have been harmed by unfair auto loan practices. Let us help you protect your rights and seek the justice you deserve.