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"But before they can drive off the lot, many subprime borrowers like Ms. Bolender must have their car outfitted with a so-called starter interrupt device, which

"But before they can drive off the lot, many subprime borrowers like Ms. Bolender must have their car outfitted with a so-called starter interrupt device, which allows lenders to remotely disable the ignition." Such technology enables subprime borrowers to get car loans at interest rates that are lower than they would be otherwise, because it reduces delinquency rates.

deleted 6y ago
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jonnycomputer 6y ago
Two assertions made without data backing it up: (1) that this reduces the effective delinquency rate (2) that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates. (1) depends on whether unavoidable, but temporary, delinquency will not have knock-on effects that will exacerbate the likelihood of default, such as losing one's job because you're unable to get to work. (2) I believe that many subprime lenders are counting on being able to repossess the car; it's part of their business model. But I might be wrong about that. (3) in a functioning market, lower delinquency rates might translate into reduce interest rates, but it is not clear to me that it is a functional market, rather than one built explicitly on exploiting subprime borrowers with limited avenues for between lender competition for subprime borrowers.
- rufus_foreman 6y ago
  >> that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates What are the barriers to entry for subprime auto lending? Those lenders are ubiquitous in the inner city, so I don't think there is much of a barrier to entry, maybe I'm missing something. If there is no barrier to entry, and reduced delinquency rates aren't being used to reduce interest rates, then that is a problem poor people have that I could help solve by getting rich. In my experience, those type of problems do not exist. For the first assertion, there are some numbers in the article, but beyond that, why would lenders pay for this if it didn't reduce delinquency rates? It would be easy to run the numbers to see if it was worth the price, even a mom and pop shop could A/B test it.
  - jonnycomputer 6y ago
    Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around. If you cannot do price comparison, then there really is no effect on prices of competition. Firms will compete in other ways, for example, by making themselves more accessible, or limiting access to competitors. Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering. And if they are doing that, its probably some shady corner dealership anyway.
    - rufus_foreman 6y ago
      >> Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around Everybody's got a phone. And everybody can ask around, places get reputations. If you offer significantly better rates than the competition, you will get a good reputation. >> Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering That's not what I did when I was poor, and it isn't what the other poor people I knew did.
- SilasX 6y ago
  That's the great part about markets: If you think the terms are unfair or overestimate the default risk, you can offer car loans at the same or lower rates without such odious restrictions! (Or invest in someone who does &c.) If no one's willing to do it, then maybe they're actually calibrating the risk correctly?
  - jonnycomputer 6y ago
    Or there are market frictions that limit the ability of subprime borrowers from actually shopping around.
    - SilasX 6y ago
      That would be a hard case to make: https://www.google.com/search?q=auto+loan https://www.google.com/search?q=auto+loan
arrosenberg 6y ago
In that case, it seems like there is a social problem with a system that creates "subprime borrowers" that both need a car to survive, and can only get one under feudal conditions.
- oh_sigh 6y ago
  It can be a social problem, it can also be an individual problem. A lot of people want a nicer car than they can afford. I make well into 6 figures as a programmer, and drive a year 2000 Civic which cost me ~4 days of my salary. A friend of mine makes 40k/yr as a bike mechanic and drives a 2017 Civic and it cost him ~6 months of his salary. In a more rational world our car ownership would be swapped.
  - Xcelerate 6y ago
    Isn’t there also a pretty big difference in crash safety though between the 2000 and 2017 Civic? I’d rather work a few more days for a higher chance of surviving a crash.
    - throwawayboise 6y ago
      Somewhat, but by 2000 cars were pretty safe. At least, some were. You could look for brands that were leading the way on safety, such as Mercedes or Volvo.
  - arrosenberg 6y ago
    Not really an individual problem, even then. Usury is one of the most legislated-on topics in history, and allowing solutions like the one described in the article is a societal choice. Your anecdote aside, most of the people borrowing on these terms are doing it out of necessity, and the ones who aren't should be told No.
nulbyte 6y ago
I assure you, disabling one's transportation and, thus, reducing one's likelihood to arrive to work on time does not reduce delinquency. Neither are subprime lenders interested in reducing delinquency; rather, they rationalize such abhorrent practices that increase the likelihood of delinquency because it generates more revenue.
- modularform123 6y ago
  I assure you there are many liberals who won’t pay despite having money in the bank, unless they are forced to do so. It is literally a human right to them.
- goldcd 6y ago
  Sorry, how is their provoking of delinquency in any way more profitable than getting that 29% APR on an overpriced piece of junk, hitting their bank account each month?
- rsync 6y ago
  "I assure you, disabling one's transportation and, thus, reducing one's likelihood to arrive to work on time does not reduce delinquency." You are correct, of course, for any one particular borrower. However, I suspect the aggregate delinquencies drop as marginal "delinquents", aware that their car is going to cease functioning, adjust their behaviors throughout the month, etc., to make absolutely sure the car payment is made. I'm not defending the practice, I merely suggest that your (correct) observation about individual borrowers doesn't negate a net-positive result for the lender.
- polishdude20 6y ago
  Yeah you better believe that if I can't pay off my car and you disable it. It'll make it an order of magnitude more difficult to now pay for the car. People don't miss payments because they have the money but choose not to pay. They miss payments because they can't afford them. Preventing job access is a quick ticket to poverty town.
  - sokoloff 6y ago
ByteJockey 6y ago
I doubt it reduces delinquency rates that much. If you don't have the money, you don't have the money. But I bet it makes it much more likely for the lender to be able to get the car back in the event of a default (and probably cheaper to recover). This probably does result in them extending credit to people they otherwise wouldn't.
- oh_sigh 6y ago
  From the article: "A leading device maker, PassTime of Littleton, Colo., says its technology has reduced late payments to roughly 7 percent from nearly 29 percent." It's rarely the case that people don't have the money. It's that they have the money, but they'd rather spend it on other things, like food, or entertainment.
  - mrstone 6y ago
    Funny you'd lump food in with entertainment.
    - zepto 6y ago
      How did they ‘lump them in’? They both seem like things someone would prefer to spend money on than a car payment.
  - goldcd 6y ago
    Yes - none of this is magically making the borrower have more money. The sole purpose of this device is to ensure that from an amount of money that doesn't cover their outgoings, the car payment has a higher priority and is more likely to be paid.
- jonnycomputer 6y ago
  Having worked repo for a summer, I believe this. We'd drive hundreds of miles in a day, only to find the vehicles not where we thought they'd be.
klyrs 6y ago
So you're parked in a spot that becomes a towaway zone at 7am, but you can't start your car, can't get to work. You're fired with cause, ineligable for unemployment, and your car is impounded. In this situation, the lender is more likely to get paid? I think not
- true_religion 6y ago
  In the event that you are that close to being unable to pay your debt, the lender would probably just want the car you are borrowing back so they can use it themselves and/or lend it to someone else.
effingwewt 6y ago
Not even close, the rates are far more onerous, and often require bi-weekly payments which also doubles the chance for late/missed payments and thus increases the lot's chance of re-selling the vehicle again. The lenders, as ever, are the only ones benefitting.

deleted 6y ago

[deleted]

jonnycomputer 6y ago

Two assertions made without data backing it up: (1) that this reduces the effective delinquency rate (2) that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates. (1) depends on whether unavoidable, but temporary, delinquency will not have knock-on effects that will exacerbate the likelihood of default, such as losing one's job because you're unable to get to work. (2) I believe that many subprime lenders are counting on being able to repossess the car; it's part of their business model. But I might be wrong about that. (3) in a functioning market, lower delinquency rates might translate into reduce interest rates, but it is not clear to me that it is a functional market, rather than one built explicitly on exploiting subprime borrowers with limited avenues for between lender competition for subprime borrowers.

rufus_foreman 6y ago
>> that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates What are the barriers to entry for subprime auto lending? Those lenders are ubiquitous in the inner city, so I don't think there is much of a barrier to entry, maybe I'm missing something. If there is no barrier to entry, and reduced delinquency rates aren't being used to reduce interest rates, then that is a problem poor people have that I could help solve by getting rich. In my experience, those type of problems do not exist. For the first assertion, there are some numbers in the article, but beyond that, why would lenders pay for this if it didn't reduce delinquency rates? It would be easy to run the numbers to see if it was worth the price, even a mom and pop shop could A/B test it.
- jonnycomputer 6y ago
  Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around. If you cannot do price comparison, then there really is no effect on prices of competition. Firms will compete in other ways, for example, by making themselves more accessible, or limiting access to competitors. Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering. And if they are doing that, its probably some shady corner dealership anyway.
  - rufus_foreman 6y ago
    >> Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around Everybody's got a phone. And everybody can ask around, places get reputations. If you offer significantly better rates than the competition, you will get a good reputation. >> Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering That's not what I did when I was poor, and it isn't what the other poor people I knew did.
SilasX 6y ago
That's the great part about markets: If you think the terms are unfair or overestimate the default risk, you can offer car loans at the same or lower rates without such odious restrictions! (Or invest in someone who does &c.) If no one's willing to do it, then maybe they're actually calibrating the risk correctly?
- jonnycomputer 6y ago
  Or there are market frictions that limit the ability of subprime borrowers from actually shopping around.
  - SilasX 6y ago
    That would be a hard case to make: https://www.google.com/search?q=auto+loan https://www.google.com/search?q=auto+loan

arrosenberg 6y ago

In that case, it seems like there is a social problem with a system that creates "subprime borrowers" that both need a car to survive, and can only get one under feudal conditions.

oh_sigh 6y ago
It can be a social problem, it can also be an individual problem. A lot of people want a nicer car than they can afford. I make well into 6 figures as a programmer, and drive a year 2000 Civic which cost me ~4 days of my salary. A friend of mine makes 40k/yr as a bike mechanic and drives a 2017 Civic and it cost him ~6 months of his salary. In a more rational world our car ownership would be swapped.
- Xcelerate 6y ago
  Isn’t there also a pretty big difference in crash safety though between the 2000 and 2017 Civic? I’d rather work a few more days for a higher chance of surviving a crash.
  - throwawayboise 6y ago
    Somewhat, but by 2000 cars were pretty safe. At least, some were. You could look for brands that were leading the way on safety, such as Mercedes or Volvo.
- arrosenberg 6y ago
  Not really an individual problem, even then. Usury is one of the most legislated-on topics in history, and allowing solutions like the one described in the article is a societal choice. Your anecdote aside, most of the people borrowing on these terms are doing it out of necessity, and the ones who aren't should be told No.

nulbyte 6y ago

I assure you, disabling one's transportation and, thus, reducing one's likelihood to arrive to work on time does not reduce delinquency. Neither are subprime lenders interested in reducing delinquency; rather, they rationalize such abhorrent practices that increase the likelihood of delinquency because it generates more revenue.

modularform123 6y ago
I assure you there are many liberals who won’t pay despite having money in the bank, unless they are forced to do so. It is literally a human right to them.
goldcd 6y ago
Sorry, how is their provoking of delinquency in any way more profitable than getting that 29% APR on an overpriced piece of junk, hitting their bank account each month?
rsync 6y ago
"I assure you, disabling one's transportation and, thus, reducing one's likelihood to arrive to work on time does not reduce delinquency." You are correct, of course, for any one particular borrower. However, I suspect the aggregate delinquencies drop as marginal "delinquents", aware that their car is going to cease functioning, adjust their behaviors throughout the month, etc., to make absolutely sure the car payment is made. I'm not defending the practice, I merely suggest that your (correct) observation about individual borrowers doesn't negate a net-positive result for the lender.
polishdude20 6y ago
Yeah you better believe that if I can't pay off my car and you disable it. It'll make it an order of magnitude more difficult to now pay for the car. People don't miss payments because they have the money but choose not to pay. They miss payments because they can't afford them. Preventing job access is a quick ticket to poverty town.
- sokoloff 6y ago

ByteJockey 6y ago

I doubt it reduces delinquency rates that much. If you don't have the money, you don't have the money. But I bet it makes it much more likely for the lender to be able to get the car back in the event of a default (and probably cheaper to recover). This probably does result in them extending credit to people they otherwise wouldn't.

oh_sigh 6y ago
From the article: "A leading device maker, PassTime of Littleton, Colo., says its technology has reduced late payments to roughly 7 percent from nearly 29 percent." It's rarely the case that people don't have the money. It's that they have the money, but they'd rather spend it on other things, like food, or entertainment.
- mrstone 6y ago
  Funny you'd lump food in with entertainment.
  - zepto 6y ago
    How did they ‘lump them in’? They both seem like things someone would prefer to spend money on than a car payment.
- goldcd 6y ago
  Yes - none of this is magically making the borrower have more money. The sole purpose of this device is to ensure that from an amount of money that doesn't cover their outgoings, the car payment has a higher priority and is more likely to be paid.
jonnycomputer 6y ago
Having worked repo for a summer, I believe this. We'd drive hundreds of miles in a day, only to find the vehicles not where we thought they'd be.

klyrs 6y ago

So you're parked in a spot that becomes a towaway zone at 7am, but you can't start your car, can't get to work. You're fired with cause, ineligable for unemployment, and your car is impounded. In this situation, the lender is more likely to get paid? I think not

true_religion 6y ago
In the event that you are that close to being unable to pay your debt, the lender would probably just want the car you are borrowing back so they can use it themselves and/or lend it to someone else.

effingwewt 6y ago

Not even close, the rates are far more onerous, and often require bi-weekly payments which also doubles the chance for late/missed payments and thus increases the lot's chance of re-selling the vehicle again. The lenders, as ever, are the only ones benefitting.