With the car financing sector already embroiled in a scandal surrounding loans to customers who can’t afford them, another controversial practice has now been uncovered. Lenders are fitting ‘kill switches.’ The devices can potentially leave drivers of financed vehicles at the side of the road if they fail to make their repayments on time.
According to the Daily Mail, lenders are offering the scheme to people who need a car but have a poor credit score. This demographic makes up 10% of the £35 billion lent for car buying each year. The strategy is a win-win for lenders, opening up new revenue streams by offering loans to customers who were previously regarded as too high risk. If they fail to pay on time, their vehicles can quickly be immobilised and seized.
(Credit – Craig Sunter)
How the kill switch works
The lender installs the switch behind the dashboard, attaching it to the ignition. If the customer pays their standing order each month, the lender sends them a code to enter via a remote control. This keeps the car working. If the customer fails to make a monthly repayment, then the lender doesn’t send the code and thus immobilises the car.
The scheme has raised concerns that if a driver is unable to pay, they could end up stranded at any time of day or night. However, one provider of the kill switch scheme, Car Finance Company, says that being stranded can’t actually happen. The system allows for the lender to send an emergency code out at the customer’s request. This allows them to move the vehicle to their home or another secure location. The company has also stated that cars cannot be turned off while they are in motion.
Serious concerns remain
Despite the sector’s assurances, legal experts remain unconvinced. The National Association of Commercial Finance Brokers believes that kill switches could be illegal. Meanwhile, Andrew Leakey of Stephensons Solicitors told the Daily Mail that in some cases it could be argued that customers are victims of an ‘unfair relationship’ under the Consumer Credit Act. As for lenders, he says,
“They shouldn’t have the power to stop the car there and then. That is before you get into data-protection issues with the box recording your movements.”
So contentious is the technology that kill switches are believed to be part of the car loans market review that the the Financial Conduct Authority (FCA) is undertaking. The FCA is fearful that another credit crisis could be looming on the horizon because of unscrupulous car loan practises.
Where the US leads, the UK follows
The kill switch is nothing new in the American car loan market. The technology, known as a ‘payment assurance device,’ first hit the US market at the tail end of the 1990s, before lenders rolled it out extensively in the 2000s.
Perhaps unsurprisingly, the tech has left a path of controversy in its wake. In some cases, lenders weren’t even telling their customers that kill switches had been installed until after they had received downpayments on the cars. Such shady practices have led to some states banning the technology outright.
Whether the UK will follow in the same footsteps remains to be seen. However, with the car finance market being probed for potential mis-selling already, kill switches look set to plunge the industry into yet another controversy of its own making.
Should lenders be blamed for introducing such technology? Or are they justified in wanting to ensure they are paid on time each and every month? Let us know your views below.