The New York Times has a big story out on the dangers of subprime lending—and in this case, those dangers aren't just financial. In the article, Michael Corkery and Jessica Silver-Greenberg examine the lengths to which auto lenders are going to ensure that the riskiest of borrowers make their payments on time. For many, the technique of choice is installing a "starter interrupt device" in the borrower's car that allows the lender to track the car and remotely disable its ignition.
If this sounds a tad bit problematic, that's because it is. From the Times:
Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in dangerous neighborhoods. Others said their cars were shut down while idling at stoplights. Some described how they could not take their children to school or to doctor’s appointments. One woman in Nevada said her car was shut down while she was driving on the freeway.
Lenders defend the use of starter interrupt devices as allowing them to make loans to the millions of Americans who otherwise would not qualify. In 2013, around 25 percent of all new auto loans were made to borrowers with credit scores below 620. The recent surge in this kind of lending—fueled by Wall Street's appetite for high-risk, high-return investments—has sparked fears that subprime auto loans are the new subprime mortgages. Yet again, the iffy assets are being pooled, sliced, packaged, and repackaged almost beyond recognition. Some banks have loosened credit standards so much that they are helping people who have lost their jobs or recently declared bankruptcy to take on loans for thousands of dollars.
In August, economists at the Federal Reserve Bank of New York examined data on subprime auto lending and concluded that the boom was not too concerning. They noted that while auto finance companies have ramped up their lending to subprime borrowers, banks remain more cautious. "Subprime lending is definitely on the rise in absolute terms, although the increase in prime auto lending over the same period makes the relative increase in the subprime share less pronounced," they wrote.
What the Times story makes clear is that questionable financials are only the tip of the iceberg with subprime auto lending. In addition to safety concerns, the geotracking starter interrupt devices have prompted ethical questions about surveillance and debt collection. One woman told the Times that when her daughter developed a high fever, she could not drive her disabled vehicle to an emergency room. Another feared the tow truck used to repossess her vehicle would lead her abusive husband to the shelter she was hiding at. And while many states prevent lenders from seizing cars until borrowers miss payments for 30 days, some consumers claim their vehicles have been shut off with little warning only a few days after a deadline passes.