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MEMORANDUM
To: James Gillies, Esq.
From: Thomas B. Hudson, Esq.
Date: March 31, 2003
Re: Passtime Position Paper
THE
LAW OF ELECTRONIC REPOSSESSION AND LOCATION DEVICES
Introduction
Passtime is a device that will disable
a delinquent customer's vehicle and is
equipped with a passive anti-theft system. When properly installed, Passtime cannot disable a vehicle in operation.
Passtime provides an adequate warning before disabling the vehicle
and includes two 24-hour emergency codes that ensure the customer will not
be stranded. Passtime further provides a 24-hour toll free
customer service line to assist the purchasers of the vehicle to ensure customers
will not be stranded. Further, Passtime allows the customer to check how many
days are remaining before the vehicle is disabled. Passtime enables creditors to make credit available
to customers who would otherwise not be able to obtain credit and provides
customers with impaired credit the opportunity to re-establish their credit.
In other words, it allows people who could not otherwise finance a
car to do so.
Passtime
And Its Use Under Existing Law
Since
the inception of the starter interrupt device, the courts and legislative
authorities have not addressed in reported decisions the legality of its use. No statute, regulation or reported case law
expressly permits or prohibits the use of starter interrupt devices, although
at least one state - Connecticut -
has addressed the use of the devices by providing certain conditions for their
use. Further, no executive, legislative
or judicial authority has offered any real commentary on the use of the device.
How the courts will rule on the legality of the use of starter interrupt
devices has yet to be determined, but if used properly, the use of Passtime
to disable a vehicle upon payment default should be treated no differently
than today’s common practice of repossessing a vehicle.
There
is extensive legislation and judicial precedent regarding the process of repossession. Because the term “repossession” is seldom,
if ever defined by state law in a manner that clearly includes or excludes
starter interrupt devices, the most conservative approach is to treat the
use of Passtime to render a vehicle inoperable as a repossession. Whether the use of Passtime to disable a vehicle
is ultimately deemed to be a repossession or not, its use will be argued to
be equivalent to repossession - the customer loses the ability to use the
vehicle.
Despite
the similarities to repossession, there are significant differences between
an actual physical repossession and the use of Passtime. These differences are that Passtime limits the confrontation that
can occur during repossession and reduces or eliminates the towing, storage
and repossession charges that a consumer could incur in an actual repossession.
The vehicle is rendered inoperable and the customer has the opportunity
to cure the delinquent balance and obtain a new code in order to activate
the vehicle, without having to pick up the car at a storage facility or pay
the charges associated with the creditor’s collection efforts.
The
Uniform Commercial Code (hereinafter the “UCC”) regulates the manner in which
secured creditors exercise self-help to recover collateral after a default. Additionally, many states have enacted statutes
governing the notice requirements in consumer credit transactions that may
require the creditor to send notices in connection with a repossession.
The following is an analysis of the existing laws as they relate to
repossessions and the use of Passtime.
Pursuant
to UCC §9-609, after default, a secured party may take possession of the collateral.
In taking possession, a secured party may proceed pursuant to judicial process
or without judicial process if it proceeds without breach of the peace.
[1]
Accordingly, the use of Passtime must not result
in a breach of the peace. UCC Article
9 does not define or explain conduct that constitutes a breach of the peace,
leaving that matter to be determined by the courts.
[2]
Using Passtime
to render a moving vehicle inoperable could result in a “breach of the peace”
and create additional exposure to the creditor using Passtime for any resulting
harm. However, if Passtime is properly
installed and not altered, it is only capable of preventing a vehicle from
being started and will not stop a vehicle from operating once the vehicle
has been started. We note that the
proper use of Passtime, when compared to a traditional repossession, substantially
reduces the likelihood of a “breach of the peace”. Passtime simply prevents the customer from
restarting the vehicle. There is no
confrontation whatsoever, and consequently, scarce opportunity to breach the
peace.
The term “repossession” is generally not defined by
state law in a manner that clearly includes or excludes starter interrupt
devices. Alternatively, the use of
Passtime can be compared to rendering equipment unusable under UCC Article
9. UCC § 9-609 (a)(2) provides that
creditors may render equipment that is collateral unusable. This right is created separately from the creditor’s
right to take possession, for situations where the removal and storage of
the collateral, such as heavy equipment, may be impractical or unduly expensive.
[3]
While the definition
of “equipment” generally does not include motor vehicles, this provision in
the UCC most accurately describes the actions taken by a creditor with the
use of Passtime. Arguably, the use
of Passtime is not a repossession of a motor vehicle, but simply the rendering
a motor vehicle unusable. The creditor
has not taken possession of the collateral but the debtor no longer has the
ability to start the motor vehicle.
Regardless
of whether the use of Passtime is most like a repossession or rendering collateral
unusable, the existence of the statutory right to render equipment unusable
suggests that there is no public policy against the use of Passtime in vehicles.
[4]
A creditor may disable equipment when the removal
of such equipment may be impractical or unduly expensive. The costs of repossession
are incurred by the secured creditor, but are generally passed along to the
customer.
[5]
The use of
Passtime reduces the cost of repossession, towing and storage, and offers
the customer an immediate opportunity to cure the default without having to
pay these costs.
The
UCC also allows for the parties to contract independently of their rights
and obligations under the UCC so long as the parties continue to observe good
faith, diligence, reasonableness and care as required under the UCC.
[6]
The UCC envisions the need for independent
provisions based on the individual needs of creditors and debtors. In a typical scenario where Passtime would
be used, the customer is unable to secure credit. The dealer may be willing to extend the financing if he has the
benefits provided by Passtime, and is unwilling to do so otherwise. Passtime enables the customer to secure the
otherwise unattainable credit, while the dealer, as the secured creditor,
retains the protections afforded by Passtime.
Certain
UCC states, such as Connecticut, have implemented new provisions that provide
for the use of new technology, so long as it is agreed to separately in writing.
[7]
Thus, so long as the parties enter into the
contract, and voluntarily agree to the use of Passtime, such use should comply
with the UCC’s repossession provisions.
Finally, individual states and jurisdictions have enacted
a variety of laws to govern consumer credit transactions and retail installment
sale contracts. Almost all such statutes
provide the secured creditor with the right to repossess the vehicle. Since there have been no definitive Court rulings
interpreting whether Passtime’s disablement of a vehicle constitutes a statutory
repossession, Passtime has requested that dealers or finance companies provide
the customer with a right to cure a default prior to disablement by Passtime
in those states requiring notice before repossession.
Under some of these “right-to-cure” statutes, pre-repossession notices
must be issued, and Passtime must not be used to render a vehicle inoperable
prior to the expiration of any applicable statutory cure or grace period.
In the event a state statute requires a secured creditor to provide
notice to the customer prior to repossessing the vehicle, Passtime must be
used in accordance with any such state required notices.
Conclusion
The
use of Passtime is equivalent to the common practice of repossessing a motor
vehicle. Passtime disables the vehicle upon the customer’s
failure to enter a new code. This
disabling of the vehicle can prevent the intentional relocation of the vehicle
while reducing confrontations with the customer. When faced with the inoperable
car and the need to go somewhere, the customer will typically contact the
secured creditor in order to make the necessary payment and secure a new code,
enabling the use of the vehicle.
The use of Passtime, when
properly installed, should not violate public policy. Passtime will not render a moving vehicle inoperable,
a characteristic that eliminates any traffic-related public safety concerns.
The practice of providing a customer with one or more emergency codes
further reduces these concerns, and also reduces or eliminates “societal”
public policy concerns raised by those who point to dire consequences if,
for instance, the vehicle is needed to obtain urgent medical attention at
a time when standard codes have expired and payment is in default.
In
the event the customer fails to cure the default, Passtime facilitates actual
repossession. The vehicle is inoperable
and cannot be driven from its location. Collection costs are reduced and more
credit can be made available to consumers at less expensive rates.
With few exceptions, state laws do not expressly address the use of starter interrupt devices. However, public policy and the substantial law regarding repossessions support the legality of Passtime, provided that Passtime is used with due regard for state repossession notice requirements, right to cure requirements and other state consumer protections applicable to secured parties attempting to enforce their security interests in collateral, and provided that the terms and conditions of the installation of the Passtime device are fully disclosed to the customer.