Car finance firms using ‘kill switches’ that stop the engine if borrowers miss loan payments face crackdown
- Kill switches may be banned in new cars
- Move is the latest sign regulators have fears over growth in consumer lending
- Devices often used for customers with poor credit histories
Financial watchdogs are spearheading a clampdown on reckless car finance firms and may force them to stop ordering the installation of controversial ‘kill switches’ in new vehicles.
The crackdown on the devices – designed to immobilise a car if a borrower fails to meet payments – is the latest sign that City regulators have fears over the growth in consumer lending.
It is thought the devices are common for customers with poor credit histories – up to 10 per cent of the £35 billion lent annually to buy cars. The car finance market is considered a potential flashpoint in the wider consumer credit boom which is growing by more than 10 per cent a year.
Forced stop: Some lenders install ‘kill switches’ that allow them to turn off the engine remotely
Frank Brown, a consumer credit expert at regulatory consultancy Bovill, said the switches can tempt lenders to make loans to high-risk customers because they will be confident of getting the car back if repayments stop.
He said the use of kill switches was unfair and pointed out they could be used to immobilise a motorist’s engine outside a supermarket when there are children and shopping in the vehicle.
The Financial Conduct Authority is already conducting a review of the car loans market. Other steps being considered include tighter rules forcing lenders to make much more careful assessments of whether borrowers can afford repayments – similar to the checks required for mortgages.
One reason that regulators take a dim view of kill switches is that lenders are usually required to go through a lengthy process with customers who cannot meet payments and discuss alternative options, rather than just switching off engines remotely.
Many motorists may not even be aware that such electronic devices exist.
Brown added: ‘I’ve worked with firms which have used kill switches and I’ve experienced situations where the FCA has required them to offer redress to customers.’
The devices are common in the US where regulators are cracking down on their use.
The FCA declined to comment.
Economists fear Britain’s debt splurge could come to a sticky end as incomes are squeezed by rising inflation. Figures due out this week are set to show wage growth has dipped further, from 2.1 per cent to 1.8 per cent.
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