A Financial Engine Shut-off Switch

AOL Autos has a great article on new technologies that shut off your engine if you fail to make payments on your car loan.

The devices, which are required by a growing number of subprime loan contracts, are the product of a revolution in telematics — the blending of telecommunications and wireless technology.

The devices are usually controlled remotely by the dealer or lender and are linked to the vehicle’s powertrain. They usually cut out the power several days after the payment is due. Before the deadline, the driver is treated to a concert of tones and flashing indicators signaling that the deadline is approaching. There are also warnings after the deadline has passed.

Sounds like a good idea to me. But then again Barry Nalebuff and I got into trouble a few years back defending Acme Rent-A-Car (its real name) for automatically penalizing renters $150 if (GPS showed) they drove the cars faster than 80 m.p.h.

Both technologies are examples of commitment devices, which help drivers commit to particular behaviors. Both should only be used with abundant ex ante disclosure so that the drivers know what they’re signing up for.

One concern with the financial cut-off switches is that they might leave a driver high and dry when she really needs the car — say, to drive to the hospital in an emergency. But the AOL article says:

Numerous safeguards are built in, the manufacturers say. The devices won’t shut down the engine while the vehicle is moving, and consumers can extend the car’s operation in an emergency. Contracts spell out that the device is present on the vehicle. “We have customers sign a disclosure before they get into the car, saying the unit is on the car and how it is going to function,” Schwarz said. “The disclosure form is four or five pages long, and the customer checks off every box.”

(Hat tip: Steve Salop)


Fred T.

Method for bypassing the shut-off switch available online in 3, 2, 1...

Mack

I'm not sure exactly why this is new, except for the telematics angle. A dealer near Detroit got in hot water for doing it -- although not by remote -- about 10 years ago.

http://findarticles.com/p/articles/mi_hb5251/is_199911/ai_n20129900/

Xauri'EL

What's next, a device that burns down your house if you miss a mortgage payment? A device that kills you if you default on your credit card?

haoest

Unless you can convince the whole auto industry to implement this rule, you probably don't want to be the first. Why would I want to buy a car or get a loan from you if your policies are against me?

TJ

Wow, this will sure stick it to those jerks who lose their jobs and waste their money on groceries for their kids instead of paying the 27% interest that the kind people at SubPrimeAmerica gave them. I mean, if they didn't want to get stranded after several days of financial hardship, why didn't they just move to a city with decent public transportation? They'll sure learn their lesson while they're walking to job interviews!

Mike

Fred - it's probably trivial to bypass it, but I'm sure that the device also phones home periodically, so if you bypass it, it will know and tell the lender. Then through the magic of GPS, they know where you are and come get you. It's more of a convenience device for the lender than an actual hard-to-bypass enforcement device.

Tim Cullen

I'm sure within weeks talented hackers will figure out how to mimic the dealer's remote control signals so they can get in on the disabling fun as well. Remote kill switches on devices are always a Bad Idea.

Mike

"Unless you can convince the whole auto industry to implement this rule, you probably don't want to be the first. Why would I want to buy a car or get a loan from you if your policies are against me?
- haoest"

It will probably be first used in the used car industry with customers who have no other choice.

Shaun G

What method could possibly used to allow the consumer to operate the vehicle in case of an emergency (e.g. to get to the hospital) but not otherwise?

There would have to be some sort of human on the other hand making split decisions: Does situation X qualify as an emergency? How do I know that this person is really in situation X and not lying to me?

Man, I would hate to be the person on the hook for making the wrong decision and denying someone access to transportation in a true emergency.

Igor

Speaking of credit cards, I have to chuckle at the implied blackmail the credit card companies are issuing; that they won't be able to give out new credit if the government regulates what they can charge, and how they conduct their business.

I say the US Government should issue low interest credit cards to everyone in the country who has a good credit score, or who has never missed a payment with their existing creditor.

To insure against losses, they can do like they do with student loans, and dock pay or tax refunds until it is paid back.

That would effectively eliminate the credit card as everyone rightly defects from Citi, Chase, Advanta, Cap One, BofA and all the other swindlers who are screwing with people's livelihoods.

Matthew

Mike hit this dead on. The customer for this product is the Buy here/Pay here type used car dealer. People who must go to one of these often don't have any choice and a dealer who does implement this technology can probably charge slightly lower rates because their loan is more secure. People who are that hard up for a source of credit will often accept terms that people with more flexibility would refuse outright.

Witty Nickname

I just bought a house, and I read and understood everything I signed. Yup, sure did.

Bill

A lo-jack type system in every care seems to make a lot more sense to me. Although I have no idea if their costs are even remotely similar.

Y11

YES!
Incentives!

there even is an alarm clock that donates money to a charity you really don't like every time you hit the snooze button!

adrienne

Sounds great, a customer service rep in Springfield pulls up the wrong account and suddenly my paid-in-full car stops working with an infant and toddler in tow.

Heaven forbid the master server fails: national gridlock.

Eric M. Jones

I suppose the idea has some merit. Having a pool of cars and a pickup truck or two (but no personal vehicle) would be great. This would be a way to ensure that the car gets back to the barn. But a kill switch would be problematic.

Brian

I think a lot of people are bringing up some good points about reliability. If the system even has a small flaw it could be have far reaching negative consequences. This just seems too stupid to me, why not just lo jack the cars so repo men can find them when they default on the loan, that's a no lose situation for either party. Sure they have to pay a repo man to get the car back but there is an exhaustive documentation pathway that you have to go through to get property repossessed so that would form a type of "due process" for borrowers in this case rather than just having their car summarily and unilaterally disabled.

Fred

Igor,

Amen! It is ever American's God-given right to spend on credit. That's why our founding fathers enshrined this right in the constitution!

SpeedFreak

On the GPS angle, I once finished a road trip to the ALMS at RoadAmerica where my GPS registered a top speed of 380MPH. I was driving fast, but not that fast... The car was speed limited to 155MPH. LOL.

Silvina

The speed alarm should be part of every car.