Lawmakers considering Assembly Bill 228 were so intent this week on shielding consumers from the uncomfortable realities of the credit market, they were blind to a technology that’s helping people rebuild their credit histories.
For almost a decade, Nevadans have willingly entered into auto loan agreements requiring them to install an on-board device that remotely disables the car if they fail to pay. Ultimately, if lender and borrower reach no resolution, the car can be located via GPS and repossessed. AB 228 was brought by the Payment Assurance Technology Association, which says it wants to incorporate the industry’s best practices into the law. PATA represents several manufacturers of the starter interrupt devices, and lenders who use them.
The devices have proven useful even before the repo man gets involved. Lenders say the delinquency rate on car loans drops to 5 percent among borrowers who get an electronic signal reminding them to pay after a ten-day lapse. The rate is 27 percent among the same class of borrowers without the devices, according to the PATA. Repossessions drop from 15 percent to 4 percent with a starter interrupt device.
Is this the most desirable credit arrangement? Only if you’re cool relinquishing some of your privacy and paying interest rates that push 30 percent. But for many subprime borrowers, it’s the only way to get a car.
Even a privacy hawk recognizes “intelligent tradeoffs,” a phrase used recently by legal scholar Richard Epstein to discuss the balance between privacy and national security. Car buyers with a credit score of 680 or lower are in a position to make an intelligent tradeoff, and put themselves in the driver’s seat.
The Assembly Commerce and Labor committee was predictably unconcerned with privacy, but visibly distressed by a bundle of secondary issues, including the interest rate – the absence of a Nevada usury law was lamented – and customer demographics (percentage of minorities and women, that is). Do the lenders jump to repossess before they’ve made a reasonable attempt to collect? Who holds the finance company accountable for collection and repossession practices? Is the electronic device a means to bully the slow payers?
The answers can be found in the market. Starter interrupt devices are already widely deployed across Nevada and the 49 other states. The customer profile is obvious, and it’s built on credit history, not race or gender. Yes, a tarnished credit record costs you money. Lots of money, regrettably. No, lenders aren’t running madly through the streets smacking their lips as they seize devalued assets to haul away and list on their balance sheets. They prefer granting extra time or coming up with an alternative payment plan, if only a borrower with a problem would contact them.
The starter interrupt device encourages communication between lender and buyer, with positive results for both, according to PATA. It’s a fact that fell on the deaf ears of lawmakers who called for usury laws on behalf of single mothers plagued by high interest rates.
Where do single mothers turn when they lack money for life’s necessities? To extend the stereotype, which has become the last refuge of politicians making dubious arguments, women have been known to turn to men for money, leading to arrangements that sometimes prove more costly than a bad car loan. PATA says the starter interrupt device keeps interest rates lower than they might otherwise be, and it makes some loans possible, period.
The market has validated this particular intelligent tradeoff. Time to unclasp those wringing hands, and use them instead to applaud an industry that’s come forward to promote best practices.