Georgia dealer sold them cars despite bad credit. GPS kill switch stranded them

Gwinnett-based U.S. Auto fitted its cars with GPS trackers and kill switches that could remotely disable them with the click of a button. The threat of a car that wouldn’t start was a powerful tool to make borrowers pay.

And it was power, federal authorities say, that was misused thousands of times.

Its system repeatedly triggered the kill switches, even when borrowers paid on time, according to an analysis of the company’s internal data by the U.S. Consumer Financial Protection Bureau. Its faulty system stranded customers at work and in unfamiliar towns. It cost them wages from missed shifts and earned their kids tardies at school, according to statements customers gave the agency.

In court records and interviews, U.S. Auto’s customers described discovering the company’s mistakes at inopportune times: Their cars wouldn’t crank as they got off overnight shifts at work or needed to see a family member who was being taken to the hospital.

If the car wouldn’t start after the company’s customer service line closed for the evening, customers were often out of luck. Records show borrowers found themselves stuck at the supermarket, stranded mid-road trip, and left to sleep in the parking lot at work.

The consumer-protection agency sued the company’s loan-servicing arm, USASF Servicing, in 2023 for its misuse of the kill switches and a range of other alleged misconduct. Its findings offer a window into the predatory practices and aggressive tactics facing consumers with weak credit.

No one knows how prevalent kill switches are and exactly how they’re being deployed across the country, said John Van Alst, a senior attorney at the National Consumer Law Center who studies the auto-lending industry. But they are part of a powerful arsenal of tools subprime lenders can use to force borrowers to make payments and find their cars when they don’t.

Lenders can track borrowers with GPS devices and license plate scanners. They can install kill switches that are unregulated in most states, including Georgia.

“They have a tremendous hold over people,” Van Alst said.

The technologies’ proponents have said that by reducing the risk to lenders and making cars easier to repossess, the devices serve to make loans available to more customers.

But because the industry is peppered with thousands of independent car lots and small lenders, abuses rarely garner much attention and they’re hard for enforcement agencies to monitor, Van Alst said.

U.S. Auto marks an exception, shining a bright light on the industry’s practices in one of the federal government’s biggest attempts yet to curtail abuse of kill switches.

In November, a federal judge in Atlanta slapped USASF Servicing with a $42.6 million judgment for its misuse of the devices and other violations of consumer protection law. The judge sided with investigators who also found the company overcharged interest and fees, double-billed for insurance and withheld millions in refunds belonging to customers.

But by the time the ruling came down, the business had long since vanished.

Now, it is unlikely to pay much, if anything.

‘Everyone deserves reliable transportation’

U.S. Auto was in its prime when Ingrid Jackson needed a new vehicle in 2021.

Jackson had been driving home from a late shift at work when an officer stopped her and warned that her car didn’t look roadworthy.

His warning represented a big problem. Living in rural Barnesville, an hour south of Atlanta, she needed a car to get around. But with her credit, buying a replacement seemed like a longshot.

Then her brother offered a suggestion: His girlfriend’s sister worked at the U.S. Auto dealership in Union City. Maybe she could help?

The company had been expanding rapidly across the Southeast over the previous few years. It found a lucrative niche selling cars and lending money to customers like her who had poor credit. The typical U.S. Auto customer had a FICO score between 500 and 550, according to Deepika Kothari, an associate managing director at Moody’s Ratings.

U.S. Auto aired radio spots during tax refund season and pitched itself as a more forgiving lender. It would let customers put vehicles on layaway, even allowing them to drive a car off the lot if they needed a few extra weeks to come up with the full down payment.

“We believe everyone deserves reliable transportation regardless of their credit story,” the company said on its website.

Jackson followed her brother’s suggestion. And at the dealership, she was blown away by how painless it was to get a car. U.S. Auto wrote her a loan without even asking for a co-signer. She walked out that day with keys to a Nissan Altima, feeling like she’d been offered a blessing.

“It was so easy I couldn’t believe it, honestly,” Jackson said. “I’m like, ‘You guys are really helping people.’”

Credit: AJC staff

Credit: AJC staff

U.S. Auto’s loans came at a steep cost. The company charged interest rates averaging around 18% a year, according to the ratings agency KBRA. The high cost of financing helped the company bundle the loans and sell them to investors who wanted to bet on what the industry calls “deep subprime borrowers.”

The model drew the interest of Milestone Partners, a private equity firm in Pennsylvania that bought the company in 2015. Under Milestone, U.S. Auto would more than double the number of locations it ran, and it would expand from its roots in Georgia and South Carolina to reach across the Southeast.

Soon it would run 39 dealerships in six states reaching from Memphis, Tennessee, to Tampa, Florida, to Fayetteville, North Carolina. It was clearing more than $400 million a year in revenue, court records show. When the business finally went under in 2023, it left behind a portfolio of loans worth more than $741 million.

And amid that growth, USASF developed business practices that federal authorities would later describe as reckless at best.

‘Improperly disabled’

Jackson recalls encountering one of the unsavory practices as she got into her Altima to head to work one afternoon in the fall of 2022.

The car wouldn’t start no matter what she tried. She got a neighbor to try to give her a jump and got a ride to buy a new battery. But still, it wouldn’t start.

U.S. Auto’s contracts disclosed that the company’s cars were fitted with what the industry calls a “starter-interrupt device” or “payment assurance device,” but at the time, Jackson didn’t realize hers had one, she said. And she says it shouldn’t have mattered: She’d set up automatic payments to make sure she paid on time.

Finally, she called U.S. Auto, and an agent told her the car had been immobilized by mistake. It was turned back on, but by then, Jackson had missed her shift.

Such calls were a regular occurrence at the U.S. Auto offices in Duluth, northeast of Atlanta.

In a statement to federal investigators, former U.S. Auto collections manager Timothy Jones said the company got 30 to 40 calls each day from customers complaining about kill switch issues.

Some had cars that weren’t starting even though they’d made payments. Others complained they were current on their loans when the devices played loud warning tones warning a shutoff was imminent.

“I can recall numerous customers telling me that they were stuck at Walmart or couldn’t pick up their kids because their car was improperly disabled,” Jones wrote. In a later interview, he said he also remembered hearing from customers stranded in a number of places, like the side of the road and supermarket parking lots.

Jones said executives knew the system didn’t work but didn’t want to pay for a new one.

The result, according to regulators: USASF broke its own policy at least 7,500 times by disabling customers’ vehicles when they were current on their loans, in the middle of a grace period or had made plans to catch up. It also issued erroneous warning tones more than 71,000 times.

USASF, which had gone out of business, did not contest the agency’s allegations. Attempts by the AJC to reach the company’s former executives and owners were unsuccessful.

In statements filed in court, customers who said they paid their loans described how the faulty system sowed chaos in their daily lives.

A man in College Park said he worried he would be called into court because his kids got too many tardies.

A woman in Covington stopped running errands after 5 p.m., worried she wouldn’t be able to reach customer service if her car was shut off.

A woman in Stockbridge made extra payments to make sure her son could get home from his basketball games; once, she said, he and a teammate had gotten stranded.

Jones told the AJC he eventually came to see the improper shutoffs as “a ploy to get people to pay more.”

When customers complained, they would sometimes get a bill credit, Jones said. The truly irate — those who threatened to call the TV news, for instance — might even get a gift card in the mail.

“The ones that did not balk about it, that money was kept. And it was laughed about,” Jones said.

Finally, after a couple of years, Jones quit his job. He felt customers were being ripped off and trapped in a degrading situation.

“The customer was dead as soon as they signed that contract,” he said. “They were done.”

‘Unable to get it fixed’

As customers were being hounded, pressure was building inside U.S. Auto Sales. Behind the scenes, it was missing payments of its own.

The dealership and its customers were both squeezed by inflation after the COVID-19 pandemic, said Kothari and Karen Ramallo, who also tracked the company for Moody’s.

Borrowers struggling to keep up with everyday expenses defaulted on their car loans at increasing rates. And the soaring price of used cars drove off customers who couldn’t afford steep monthly payments. U.S. Auto faced problems as both a car dealer and a lender.

Cracks began to emerge toward the end of 2021. That’s when the company started having trouble paying for one of its most popular add-ons: extended warranties.

DOWC, the New Jersey company managing the warranties, said in a lawsuit that U.S. Auto started coming up short on its monthly invoices. In effect, U.S. Auto was selling warranties without activating them. When it abruptly shut down in spring 2023, the company owed DOWC some $17.9 million, the warranty provider said.

And by the time U.S. Auto filed for bankruptcy protection later that year, it had few assets.

Wells Fargo said in court papers that the dealership had overdrawn its bank accounts by some $1.5 million. Ally Bank, which lent the company money to buy cars, quickly repossessed the roughly 1,300 vehicles still on the company’s lots, including some more than 20 years old and others with more than 300,000 miles, court records show.

In the wake of the shutdown, chaos rippled out to U.S. Auto’s customers. DOWC had been honoring its unpaid policies as a courtesy but now refused to pay out claims. The change affected more than 20,000 customers, DOWC said.

With warranties in limbo, customers were left to pay out of pocket for a litany of issues or leave them unrepaired, according to complaints filed with the Consumer Financial Protection Bureau. They complained to authorities about denied claims for a transmission leak, a broken timing chain and a trunk that wouldn’t close, among other repairs.

“Now I have no way to get to work,” a North Carolina customer wrote in 2023.

Soon after U.S. Auto closed, customers started getting debt collection notices from a new company many didn’t recognize, Westlake Portfolio Management. Westlake was hired to collect payments for the investors who bought U.S. Auto’s loans.

The transition was bumpy. Nearly two dozen customers told the government their past payments weren’t recorded in Westlake’s records. And because U.S. Auto didn’t tell them they were going out of business, some said they kept sending money directly to the dealer, not Westlake.

The AJC talked to several customers who had issues with their loans. One in Smyrna said Westlake had the wrong details for her loan. Another in Austell said his balance was reset to the early days of his loan — as though he’d hardly made a payment.

And in Barnesville, Jackson said the debt collector who called her was so abrasive she was sure she was being scammed and refused to pay. Before long, she said, she was awakened in the middle of the night by someone outside.

A repo man had come to take her Altima.

Stymied efforts

In the nearly two years since U.S. Auto collapsed, its former customers have found little in the way of compensation.

The company is insulated from lawsuits while a bankruptcy court sorts through the heaping stack of claims against it and decides how to distribute its last assets.

A few customers sued Westlake and sought class-action status. But a clause in U.S. Auto’s loan agreements requires customers to arbitrate their cases one by one, so for now, their effort is on ice. For its part, Westlake, which did not respond to AJC requests for comment, has said it is providing warranties to U.S. Auto’s remaining borrowers.

And U.S. Auto’s owners, Milestone Partners, have argued in response to at least one lawsuit that they shouldn’t be held liable for the dealership’s actions. U.S. Auto was its own legal entity responsible for its own decisions, they argue.

Regulators’ actions have also been limited to date. The Georgia Attorney General’s Office opened an inquiry in 2023, but according to a spokeswoman, the state is still investigating the situation.

And the Consumer Financial Protection Bureau has acknowledged it may never collect a dollar from the case, though its judgment will allow consumers to eventually get some compensation from a federal relief fund. The agency declined to say when.

The judge’s ruling was otherwise largely symbolic, including a court order to never again break the nation’s consumer protection laws.

The bankruptcy trustee managing the company’s remaining assets told the court he didn’t oppose such an admonition.

There was no chance it could harm consumers in the future, he said, because there was no more U.S. Auto — “and will not be (ever).”

Our Reporting

From their offices in Gwinnett County, U.S. Auto Sales and USASF Servicing held outsized influence over tens of thousands of people across the Southeast, including the ability to disable their cars with the click of a button.

The Atlanta Journal-Constitution began examining the now-defunct business’s practices after a federal judge in November hit USASF with a $42.6 million default judgment.

The AJC began by reviewing the U.S. Consumer Financial Protection Bureau’s allegations and more than a dozen customers’ written statements filed in Atlanta federal court. Reporter Thad Moore also reviewed U.S. Auto’s bankruptcy case, police reports, CFPB complaints and a number of lawsuits, including cases dealing with its allegedly unpaid warranties and the handoff of its loans to Westlake Portfolio Management.

Moore used bankruptcy claims and social media posts to identify and interview several customers about their experiences with the company. He also interviewed credit analysts and a whistleblower to better understand the business’s operations.