As the subprime auto lending sector continues to inflate across the country, the use of starter interrupters has increased with it, potentially exposing lenders to SCRA compliance risks.
Many subprime borrowers are expected to allow the installation of a so-called "starter interrupter" in their car as a condition of their loan, according to Law360. These devices are used to remotely stop the car from being started in the event of non-payment, hence the name.
These devices have become extremely popular, as they help to facilitate the repossession of cars when borrowers are delinquent, the news source explained. Rather than being forced to track down the car, which may be in use or even hidden by a borrower who knows that he or she is behind on payments, lenders can manually trigger the starter interrupter. Some interrupters can even be set up to automatically trigger through a program that tracks the borrower's payments. While creditors usually provide borrowers with emergency codes to bypass the interrupter, there have been complaints that codes don't work or expire.
Starter interrupters serve an important purpose. By making the repossession process more efficient, they help creditors to feel more secure in lending to subprime borrowers. Without these devices, many of the borrowers in whom's cars they are installed would simply be unable to afford a vehicle. This has allowed the subprime auto lending market to increase significantly in recent years with considerably less risk. A New York Times article cited by Law360 found that starter interrupters have been installed in about one-fourth of cars purchased with subprime auto loans in recent years, coming to approximately 2 million cars.
However, there are also serious concerns that have been raised about their use, according to the news source. There have been complaints that borrowers have been left stranded on the highway, in bad parts of town or simply far away from alternative forms of transportation.
SCRA compliance issues
While the issue appears not to have been challenged in court yet, there are concerns that these devices may pose a compliance issue regarding the Servicemembers Civil Relief Act, according to Law360.
The Servicemembers Civil Relief Act is a law that is designed to protect the civil interests of members of the uniformed services while they are serving their country. One element of the act in particular – Section 532 – could pose serious issues in the right situation.
The section's full name is "50 US Code App 532: Protection under installment contracts for purchase or lease." It dictates that a contract by a party protected under the SCRA for the purchase or lease of real or personal property – including that of a motor vehicle – may not be rescinded or terminated for breach of terms while the party is on active duty status. Repossession for a breach cannot be carried out without a court order.
Those who fail to comply with the act can be fined according to the provisions of title 18, USC, or imprisoned for up to one year. Past cases have demonstrated that prosecutors are not afraid to pursue the latter option in some cases. The full text of section 532 can be read here.
While there is no specific language in the section that applies to remote starter interrupter devices, Law360 noted that it is possible their use would be considered repossession. There are good arguments on both sides of the issue, but barring further clarification, creditors should be extremely wary of using these devices in SCRA cases.
Those that use starter interrupters broadly, especially those that activate automatically, should avoid litigation by regularly performing a military records search. The Servicemembers Civil Relief Act Centralized Verification Service can help.