Late-pay penalty: You walk

Device immobilizes car if your payment isn't on time. Is it a boon or bane for those with bad credit

Fullerton resident Katherine Barragan always makes her car payments on time. If she doesn't, her car won't start.

In February, when she bought her Saturn SL2 from MacAuto in La Habra, she agreed to have OnTime, a starter interruption device, installed. MacAuto is the only Orange County dealership to offer the system, which uses a keypad and a 6-digit code to start the engine.

'It's a win for the customer because they
can get a car and reestablish their credit.'
MIRTY MCENTEE
OWNER OF MACAUTO
IN LAHABRA

Now, Barragan is one of about 100 MacAuto customers who agreed to the installation of the microchip-operated device - as well as to interest rates of 16 percent to 26 percent -just to have wheels.

Temecula-based Payment Processing Systems, which developed and sells OnTime, says it's easing the car-buying process for people with bad credit.

Barragan, a single mother of three, said 10 dealerships denied her a loan after a friend stole her identity and ruined her credit.

When car owners like Barragun make their monthly, bi-weekly, or even weekly car payments, they call the dealer or finance company for the code to the keypad that connects to a unit under the dashboard. No payment, and the car will not operate until a payment is made. The device also comes with an emergency code that will work up to three times.

Three days before the payment is due, a light on the contraption blinks. The next day, it blinks twice. On the third day, the light flashes and the device beeps until payment is made.

Almost a year later, Barragan has not missed a payment.

"It's OK. It's better than before," Barragan said of the OnTime system. "At least this way you have a chance."

It is that chance that PPS's president, Mike Simon, and his brother Frank had in mind when they developed the product in 1994. Mike Simon said they wanted to make something that would eliminate the adversarial relationship between the customer and the finance company. Now he touts it as a rare opportunity for consumers to rebuild credit, and even their lives. If they establish a consistent payment history, they can trade in that car for a better one and eventually be trusted with a car loan that doesn't require OnTime.

"I can't emphasize this enough. The thing is, the customer says, 'I know I need help,' and the finance company says, 'I want to give help,'" Simon said. "We've been able to come up with a system that forces that communication between the customer and financier."

Nothing prevents a customer from just removing the OnTime System.

"It helps protect our interests," she said. It allows Auto Credit USA to sell better quality vehicles than the competition."

Stresemann, of Instant Auto, works for the competition.

Instant Auto also offers quality used cars and approves loans for about 90 percent of applicants, he said. And the dealer's customers usually make their payments.

"We don't have a big delinquency rating," he said, declining to place a number on the total.

Stresemann added, however, that Instant Auto's delinquency rate is below that of the two previous used-car dealers he worked for.

While Stresemann sees some advantages to the online system, he doesn't think they outweigh the disadvantages.

"I think that it would help a customer remember to make their payment," he said. But on the downside, he's heard of the system malfunctioning and shutting off a car as it was traveling down the highway.

Impossible, Simon responded. The On Time president said the device links directly to a car's starter and can stop it from starting but cannot interrupt its operation if it's already running.

The On Time system isn't completely foolproof, however. Simon acknowledged that anything that can be put on a car can be taken off.

"There's a lot of people who try to tamper with the system, but very few are successful," Newsome said. "Pretty soon they're giving you a call and saying,' My car won't start, even when I enter the code.' So we tow it in and look at it and say, 'You wouldn't have a problem if you didn't tamper with it.'"

Nationally, fewer than 1 percent of car buyers tamper with the On Time system, Simon said. And for those who do, the penalty can be severe.

Auto Credit's Newsome said borrowers have to sign a form agreeing to allow the device to be installed on their cars. The paperwork states that "it may be a crime (grand theft) to remove the On Time Payment System from my vehicle."

The system's primary electronic unit is positioned out of sight beneath the dashboard. A second black box is placed near the hood release, to the driver's left side. That's the box with the lights that blink green when no payment is due and red when the payment comes due.

"It's nothing conspicuous," Newsome said. "It almost looks like an alarm system."

The payment schedule is determined by the borrower's pay schedule and can be programmed at the time of sale for every week, every two weeks, once a month or twice a month.

Customers receive a six-digit code when they make payments. They plug a small key pad into the black box, using a standard telephone line, and enter the number to keep the On Time system activated.

The devices are programmed to disable the cat's starter at 10 a.m. on the fourth day after a payment is missed. That gives customers a one hour reprieve to make a payment at the Auto Credit office, which opens at 9 a.m., Newsome said.

Some used-car buyers welcome the opportunity to improve their credit ratings by using On Time's reminders to prompt them to make regular payments. Others would rather try to dodge the repo man than deal with the unforgiving little black box.

"Nine times out of 10, people don't want this on their car," Newsome said. "They have no intention of making the payments (on time).