Stop Before You Start

Companies offering some sort of payment assurance technology lined the exhibit hall at the recent conference of the National Alliance of Buy Here Pay Here Dealers in Las Vegas. I spoke on two different legal compliance panels answering questions from the audience and spent a ton of time answering questions at the CounselorLibrary booth. Many of the questions I was asked had to do with starter interrupt and GPS tracking devices. The questions addressed disclosures required prior to installation and use, sales of GPS tracking devices, the ability to use the devices for collections, tampering, disabling, removal, etc. You name it, someone asked it.

While all users seemed to recognize the utility of the devices as payment reminders, effective collection mechanisms, and useful skip tracing tools, many didn’t understand the legal issues involved in the installation and use of the devices. I am sure Tom Hudson or some other attorney at Hudson Cook has written about this subject before – but the questions I received tell me it’s time for a refresher. So, here are a few things you might want to consider when installing and using a starter interrupt and/or a GPS tracking device.

Don’t sell a starter interrupt device. Most dealers know this. You can’t charge a customer for a starter interrupt device that is required in order to finance a vehicle through your dealership. Actually, you might be able to do so under state law, but federal disclosure laws would require that you treat the charge for the device as a finance charge and include the charge in your APR calculation. The charge might also be considered a finance charge under state disclosure and/or usury laws. We’ve never seen a dealer treat the charge this way, and the failure to do so would violate the law.

A disclosure in the contract that you can use a GPS tracking device installed on the vehicle to locate the vehicle for collection purposes does not give you the authority to install a GPS tracking device. Several of the industry “standard” retail installment contracts contain a provision allowing a dealer or creditor to use a GPS device installed on the vehicle to locate the vehicle in the event of default. A couple of folks I spoke with thought this disclosure gave them the authority to install the GPS device on the vehicle without telling the customer. They are wrong. While many states don’t expressly regulate the installation of a GPS device on a vehicle, some do.

For example, in Texas it is a crime for a person to knowingly install an electronic or mechanical tracking device on a motor vehicle owned or leased by another person. However, a person who installs the electronic tracking device is not subject to criminal penalties if the person obtained the effective consent of the owner or lessee of the motor vehicle. So, in Texas you can go to jail (or at least be fined) for installing a tracking device without the buyer’s consent. Even if states don’t have criminal provisions, installing the devices without consent could be a violation of a privacy law or be considered an unfair or deceptive act or practice.

Know your vendor. If you’ve been paying attention, now you know not to sell a starter interrupt device and you know that you have to obtain consent to install the device, and by now you are probably guessing that you should have some meaningful disclosures as part of the consent process. So, which devices should you use, and which vendor should you buy them from? As I said, starter interrupt and GPS technology vendors lined the exhibit hall at NABD. Since we represent some of the largest and smallest companies, I know that many of those vendors are committed to compliance. I also know that many of them belong to the Payment Assurance Technology Association, a group dedicated to developing standards for the payment technology industry.

Before you decide which devices your dealership should use, consider investigating the vendor selling the devices. Does the vendor have a good reputation? Does the vendor provide you with a form of disclosure that you can give to your buyers? Has that disclosure form been reviewed by counsel and will the vendor prove it? Does the vendor provide customer support and coverage for your dealership and surrounding area? Does the vendor have enough liquidity that it won’t go out of business at the next sign of an economic crisis? You’d hate to pay for a device to find a vehicle, and not be able to use it because the vendor selling the device didn’t pay its telecommunications bill and “went dark.” Make sure you know about the device you’re getting and from whom you’re getting it.

Restrict employee access to codes or other technology to avoid having a disgruntled employee randomly or completely shut down your customers. So here’s an actual ripped-from-the-headlines horror story. A dealership using starter interrupt devices allows access to the device controls to most of its employees. The dealership fires a technologically-savvy employee for stealing dealership funds. The disgruntled employee, knowing full well how to access the dealership’s starter interrupt control system, hacks the system and disables all of the dealership’s customers’ vehicles. The dealer’s phone starts ringing off the hook. A mother with an infant is stuck in a dark parking lot. A groom is late for his wedding. An on-call volunteer fireman can’t get to a fire at the local daycare center. Oh, no!

Dealers can avoid this horror story by providing starter interrupt access only to those employees who absolutely need to have it, and by having a policy that changes the access protocol every time an employee leaves.

When customers go into bankruptcy, give them their codes freely, and for Pete’s sake, don’t activate their starter interrupt devices. Finally, let me tell you about a recent case, in a long line of cases, that addresses the use of payment assurance technology in connection with a bankruptcy.

RSY Corporation, doing business as Rick’s Auto Marketing Center, financed Charles Garner’s purchase of a 1997 Dodge Ram 350. At the time of the sale, RSY installed an system that would prevent Garner from starting the truck without a numeric code that RSY would withhold if Garner failed to make a timely payment.

After Garner and his wife filed a Chapter 13 bankruptcy petition and a plan that provided that the trustee would make payments, the Garners’ attorney wrote to RSY requesting that it remove the protection system. RSY did not remove the system until more than three weeks after the Garners’ bankruptcy filing, and Garner was required to call RSY to get codes to continue to be able to start the truck. The Garners moved for sanctions against RSY for violating the automatic stay.

The U.S. Bankruptcy Court for the Middle District of North Carolina granted the motion, noting that RSY controlled the truck and attempted to collect on a claim by requiring Garner to contact it every two weeks in order to continue to use his vehicle. The court ordered RSY to pay nominal damages for Garner’s lost wages (due to Garner’s failure to provide any evidence of a specific amount of lost wages) and $1,500 for his attorneys’ fees.

So, take note – if a debtor in bankruptcy has to make any effort to ensure that his or her car operates free from interference by a starter interrupt device, the creditor has violated the automatic stay. We suggest providing codes by mail to those folks. Even think about going one step further by disabling the device immediately after the bankruptcy filing to avoid any argument that, through use of the starter interrupt device, you are exercising control over the car and/or attempting to collect amounts owed by the debtor.

So there you have it—five things for you and your lawyer to ponder as you contemplate using starter interrupt and/or GPS devices in connection with your collection activities. You have talked to your lawyer and your insurance company about the devices, right? Right?