Chicago Car Dealer’s Gimmick: No Dough, No Go

When Delilah Grant went shopping for a car, she knew her recent bankruptcy filing would make dealers wary of lending her money.

But as she shopped among used-car lots, she found a dealer who offered her a loan -- with one big catch: No dough, no go.

A microchip in her car would disable the starter if she didn’t make her payment on time.

“My credit was so bad, they said I had to have one of those devices. All I had to do was put down $3,500 and I could finance the other $2,500,” Grant said.

She accepted the offer and drove away in a 1996 Pontiac Bonneville equipped with On Time, one of several electronic devices that car dealers who make loans use to protect themselves with high-risk customers that banks and credit unions won’t touch.

“I’m having no problems with it,” said Grant, 30, who hasn’t missed or been late with a payment, due every two weeks, since she got the car last year.

But as more technological innovations come along with a price, in terms of potential issues of privacy and control, not everyone is enamored of the idea of a device that can stop a car cold from afar.

Jon Sheldon, an attorney with the National Consumer Law Center in Boston, said devices such as On Time were “almost a form of servitude,” though they hadn’t generated complaints from consumers.

“I think it’s a very abusive practice, but it’s one of those areas that people don’t complain about,” Sheldon said. “It’s a matter of either pay on time or lose access to your job. It just puts more pressure on them to put their car payment ahead of their mortgage or rent.”

With the On Time system, a microchip under the dashboard links to the car’s starter and a numeric keypad near the steering wheel. When a customer makes a payment, generally in person, the dealer reprograms the microchip and gives the customer a new six-digit code that allows the car to start until the next payment is due.

If the customer is late, red lights and beeping sounds come on as reminders. The warnings get louder and more intense as time goes by. After three days, the microchip disables the starter while the engine is off.

“It lets you know it’s time to get down there and make your payment. If you don’t pay, you can’t move the car,” said Grant, who expects to pay off her car this month and talks about buying another one.

The dealership where she got the car, Quality Car Corner, has been using On Time for more than a year.

Manager Joe Peterson estimates they have 70 of the units on the street.

On paper, Peterson said, many people who come to his dealership shouldn’t get credit, but he relies on instincts accumulated over 25 years in the business to decide who is likely to pay.

“You just have to be careful who you deal with. I can read people pretty well,” Peterson said. “I use On Time when customers rub me the right way, but their credit history rubs me the wrong way. If the customer hesitates to do it, that gives me a heads-up that I don’t want to deal with them.”

He said three or four customers fell behind and tried to remove or disable the units. In each case, the dealership recovered the cars and the devices the old-fashioned way -- a repo man.

“These machines don’t do everything. If you’re not a good judge of character, they’re just another machine,” Peterson said. “But most of them are good people. They just need someone to help them.”

The On Time device, sold by Payment Protection Systems of Temecula, has been on the market since 1999, and President Mike Simon estimates more than 200,000 units are in use.

The bulk of his business is with “Buy here, pay here” car dealers, but Simon said On Time also has been used on a printer leased to a commercial graphics company, X-ray machines and a mobile MRI machine that a group of doctors rented for use in foreign countries.

“Anything electronic that’s financed can be controlled,” he said.

“People want to pay, but bad things happen to good people. It’s just a matter of what gets the priority. This is an opportunity for them to change their behavior,” Simon said.

Although “buy here, pay here” dealers generally charge interest as high as 40% on their car loans, Peterson said he charges 16% with or without On Time.

That’s high when banks are charging 6% to 10% for used-car loans, according to Bank Rate Monitor, but credit cards still carry rates of 18% or more.

Simon estimates that more than 800 used-car dealers and a few small finance companies use the device.

Among similar devices are the Payment Sentry, which disables the starter through a telephone paging system; PassTime, operated through wireless paging; the PayTeck Smart Box, which like On Time requires entering a new code after each payment; and Aircept, a GPS tracking device that locates a car for repossession.

Fewer than 1% of car buyers who have On Time try to disable it or remove it, Simon said.

“They don’t want to mess with it,” he said. “The majority by far want to pay for their car and keep driving.”