Handle Electronic Repo Man With Care

September 26, 2014 at 8:42 am 2 comments

Let me start this morning’s blog by announcing that I am dedicating it to Derek Jeter and formally throwing my weight behind his beatification at the earliest possible opportunity.  However, let me remind Yankee fans that Derek is not dead, life will go on, and yes, the Yankees will win championships without him.

Now for today’s blog.  One issue that got a surprising amount of attention recently was highlighted in a New York Times article about the increasing use of GPS-based technology that allows lenders to freeze vehicles in place.  According to the Times, with the growth of so-called subprime car lending, lenders have increasingly turned to technology that allows them to stall a vehicle being driven by a delinquent driver.  As one financer happily explained that without the technology, “we would be unable to extend loans because of the high risk nature of the loans.”

First, there is nothing in state or federal law that would prohibit the installation of these ignition freeze devices.  In fact, right now the field is wide open.  I say right now because it is the type of technology that state legislators, in particular, will scrutinize to ensure that it is implemented consistent with a state’s general repossession requirements.  Does this mean that anything goes when it comes to using this technology?  Absolutely not.  In fact, aspects of the way it is already being used make the hair on the back of my lawyer’s neck stand up. 

For example, if the paper is correct that lenders are disproportionately using this technology for subprime borrowers, then what we have is an Equal Credit Opportunity Act lawsuit in waiting.  Remember that under federal law, you can’t have policies that have either the intention or effect of imposing higher lending standards for applicants based on their race, sex, and other types of protected classifications.  If a lawyer can prove that a bank or credit union disproportionately conditions the granting of car loans to African-Americans, for example, on agreeing to the installation of GPS technology, then he has proven a violation of federal lending law.  One easy way to avoid this problem is to simply make GPS technology a condition of all your car loans.  Here’s some advice for you:  if you can’t justify using this technology on all of your members, then don’t ask any of them to agree to have it installed.

Another legal landmine to be avoided has to do with negligence.  In a nutshell, make sure you have common sense policies in place to protect you.  For example, the article highlights delinquent borrowers whose cars were frozen in the middle of the day.  Simply put, any money that the credit union recoups as a result of repossessing a delinquent owner’s vehicle is going to be miniscule compared to the damage award it will pay out when a jury hears that a credit union member was broadsided in the middle of the day after their vehicle was frozen in the middle of an intersection or that a member’s infant was locked inside a vehicle on 100 degree day.  Let’s use common sense here.  First, the use of the technology should be reserved only for car loans that are at least 30 days delinquent.  Secondly, members should be called and told in advance that they are in danger of having their car frozen.

Third, a tremendous amount of information can be derived about a member’s personal life from tracking their movements.  For instance, New York’s Court of Appeals examined a case in which a state employee’s extramarital affair was exposed tracking his whereabouts in a state vehicle.  Have strict policies in place about who can access the GPS technology and under what circumstances.  This is one of the few areas where there are things you are better off not knowing.

Finally, reserve your right to use this technology explicitly in your lending documents.  The use of tracking devices on someone’s personal vehicle understandably raises privacy concerns.  The more members are put on notice about the use of the technology, the better off everyone is going to be.

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A lot of people disagreed with my blog yesterday assessing the impact that Walmart’s entrance into banking will have on the credit union industry.  This article in today’s CU Times provides further arguments for those of you who mistakenly think that I have exaggerated the impact.

Entry filed under: Compliance, Legal Watch. Tags: , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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