Installing GPS and Starter Interrupters in Vehicles Is a Legal Gray Area for Dealers and Lenders

“Don’t let customers drive off with your profits!”

“Our easy-to-use tracking apps make it easy for car dealerships and auto finance companies track their assets.”

“Sell with confidence that you can locate your asset.”

The ads marketing GPS devices to vehicle dealerships are numerous. It seems like a good idea, on balance. If you’re financing or leasing a vehicle, you have a strong incentive to want to know where that vehicle is should the payments cease. The issue is a little different from a customer’s perspective. Dealers installing GPS in vehicles are regular fodder for local news exposés.

“Drivers, you may want to read your fine print, because it’s possible that there could be a GPS tracker on your car that’s mapping your every move,” reported Memphis’ WREG News Channel 3.

In truth, the installation of GPS to track vehicles is not uncommon, particularly for sub-prime borrowers, and the right to do so is (or should be) in the paperwork signed by the customer. (But who reads the fine print?)

Some dealerships go further than GPS by making use of starter interrupter technology, which allows them to disable the ignition if a customer gets behind on payments. Coupled with GPS, it’s a pretty good way to ensure that sub-prime borrowers, for example, continue to make payments.

It’s not a popular technology with car buyers and drivers, however. Even customers who acknowledge that they probably signed legal paperwork often feel uneasy about being tracked. There are viral media stories of cars being disabled while desperately ill people were trying to get to treatment, or families were cut off from their cars while transporting children. (There’s even at least one story of a car being disabled on an interstate.) Borrowers are sometimes provided with codes that will restart the car in an emergency for a 24-hour period, but often, they’re not given these codes, or they’re given codes that don’t work.

Legal or not, these anecdotes never look good for dealers or lenders.

The New York Times told the story of a subprime lender who used the technology to track a woman to a shelter where she had moved to escape an abusive husband.  The move to the shelter – since it was outside the four-county radius she was restricted to by the terms of the loan – violated her vehicle agreement. When the tow truck arrived to repossess the car, the woman wondered what was stopping her husband from using the same technology to locate her.

The difference between ethical use of GPS and starter interrupters is in disclosure and advance warning as well as emergency safety procedures. Drivers must be notified when a shut-off is about to happen.

“State laws governing repossession typically prevent lenders from seizing cars until the borrowers are in default, which often means that they have not made their payments for at least 30 days,” according to the New York Times story. “The devices, lawyers for borrowers argue, violate those laws because they may effectively repossess the car only days after a missed payment.”

Former Phoenix car dealer Michael Fischer, who now sells starter interrupter equipment, told CBS News that dealers using the devices should do so responsibly.

“The dealership should at least know where the vehicle is at when they’re shutting it off,” he said.

All state laws permit GPS device in financed cars as long it’s disclosed in the purchase or financing paperwork. (An honest dealer will verbally highlight the device at point of sale to eliminate future bad feelings.)

Where the gray areas begin, however, is in how the GPS device is used. Some lawyers have argued that while it’s legal to place the device in the vehicle, it’s not legal to track the vehicle if the customer is making payments. Privacy advocates also worry that data collected by the tracking system is being poorly guarded, which puts the onus on dealers and lenders to secure the information in compliance with contemporary data privacy laws.

The Federal Trade Commission is currently investigating whether installing the devices on vehicles violates consumer privacy. A quick Internet search for lawyers eager to represent buyers in these cases is a good indication that the legality of the issue is far from settled.