Starter interrupt devices are gizmos that dealers and finance companies — primarily those operating in the subprime part of the market and frequently those doing buy-here, pay-here financing — attach to financed and leased vehicles to encourage customers to make their payments on time.
The devices first came to the attention of most of us in the late '90s when consumers sued a Detroit-area dealer, claiming that the devices stopped their cars while they were running. The suit was quickly settled. Fewer than 10 reported suits have been filed since, most of which dealt with the “automatic stay” provisions of the U.S. Bankruptcy Code.
There have been no reported cases dealing with whether the devices are legal under state law ("reported cases" are federal trial court cases, some state trial court cases, and appellate cases resulting in published opinions). Nor has there been much significant legislative or regulatory activity concerning the devices.
Does the fact that most states have been silent concerning the devices mean that there’s now a "green light" for their use as far as their legality goes? Hardly. Some state authorities really dislike the devices and have issued letters saying they are illegal to use in their states. Other state authorities have determined that dealers can use the devices legally if certain safeguards are met. Consumer advocates, however, denounce the use of the devices, darkly hinting that they may be used in dangerous, illegal or discriminatory ways.
With all that in mind, consider the following "dos" and "don’ts" for the use of starter interrupt devices:
Do determine what your state consumer protection authorities and/or your state attorney general have to say before you use a device.
Dobe sure the manufacturer has done its legal homework. Some companies are far up the curve on legal issues while others are just beginning to grapple with them.
Do alert your insurance carrier that you intend to use the devices and get its confirmation in writing that risks arising from the use of the devices are covered by your policy.
Do have your personnel properly trained or use qualified third party to install the devices.
Do have the use of the devices and all related paperwork reviewed by your lawyer. Have him or her check that the use of the devices complies with state and federal law.
Do consider using an arbitration agreement in connection with your financed sales and leases. It will go a long way toward keeping you out of class actions and reduce your exposure to runaway jury verdicts.
Do educate your state legislators, consumer protection authorities and dealers association on how the devices work and how they benefit you and your customers. Tell the authorities that you want to be alerted if any relevant regulations or legislation is introduced.
Don't try to pass the cost of the device along to your customers or try to market it as an anti-theft system.
Do disclose to the customer that the device is on the vehicle, its exact purpose, emergency procedures and anything else your lawyer tells you to disclose. Be wary of other legal snags as well. For example, courts in some states have held that car dealers who find financing for their customers or offer to help them improve their credit ratings fall within so-called “credit repair” statutes, triggering disclosure, licensing and other requirements.
Don't discriminate in requiring the devices in a manner that violates federal or state anti-discrimination laws. Be alert to the possibility that at least under the federal Equal Credit Opportunity Act, discrimination on a "neutral" basis — such as credit scores —can violate the ECOA if such discrimination has the "effect" of discriminating on a protected basis.
If starter interrupt devices are used with care and in connection with finance and lease programs that are fair in every sense, they may well become more widely accepted. However, if operators use the devices in ways that are overreaching or are perceived to be overreaching, look for courts and regulatory authorities to seek to curb or prohibit their use.
Thomas B. Hudson, Esq. (thudson@special-finance.com) is the author of several books, available at www.counselorlibrary.com. He is also the publisher of Spot Delivery, a monthly legal newsletter for auto dealers, and CARLAW, a monthly report of legal developments in all states for the auto finance and leasing industry. He is also a partner in the Maryland office of Hudson Cook LLP.
