Feds Open ‘Kill-Switch’ Inquiry

WASHINGTON – Federal regulators are investigating whether remote shut-down or “kill-switch” devices unfairly violate a borrower’s privacy.

The auto lender Credit Acceptance Corp. said this month in a securities filing that it had received a civil investigative demand from the Federal Trade Commission (FTC) asking for its “policies, practices and procedures” related to the devices that are used to disable an ignition when a borrower falls behind in their car payments.

Industry lawyers say the action is part of a broader inquiry by the agency into tracking technologies used in the subprime auto lending market.

If the federal agency determines that the devices are being used unfairly or deceptively, it could force companies to stop certain practices and establish procedures and monitoring to ensure that customer privacy is protected.

In determining whether to take action, the FTC must first decide whether the benefit to consumers—in this case the availability of auto loans—outweighs the privacy problems.

The auto finance industry says the benefits of the devices are clear. Without them, many sub-prime borrowers would not be able to buy cars that they need to get to work.

So far, there is no widespread evidence that lenders are misusing information they track from a vehicle’s whereabouts, information that is similarly exposed simply by carrying a cell phone.

But privacy experts and many borrowers who have the devices in their cars say there is great potential for abuse, particularly because the devices fall outside traditional state and federal lending laws.

The New Jersey Legislature has revised legislation, conditionally vetoed by Gov. Chris Christie, which would strengthen the disclosure requirements and add consumer protections to the devices. Initially proposed as a prohibition, the NJCUL successfully worked with the sponsors on standards as an alternative to an out-right ban. The Assembly has passed an amended bill reflecting changes the governor wanted. The Senate must add its concurrence for the measure to become law.

The Federal Trade Commission has brought several regulatory actions against businesses in recent years over privacy violations.

Automobiles, the federal agency has said, are part of the ballooning “internet of things” that is constantly transmitting potentially sensitive data across the Web. The agency had been urging auto manufacturers among many other industries to come up with new safeguards for personal data.

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