Paul Kulas shares his thoughts on Automatic License Plate Recognition. The original version can be found HERE.
Across the automobile finance and recovery industries people will tell you that automatic license plate reader (ALPR) technology has been a valuable recovery method. As one BellesLink customer says, “Anything that helps me locate a vehicle is good. ALPR is one more tool in my toolbox.” But ALPR is not without downsides.
The costs of operating and optimizing ALPR systems makes profitability a challenge (improbable?) for recovery professionals who, for years, have faced stagnant or declining fees. Pressure to keep the number of monthly plate scans high has recovery companies making increasing investments in dedicated spotter vehicles and staff. The increase in overhead versus reduced recovery fees means the return on investment is too low to be sustainable.
Privacy concerns about the access, storage and use of license plate data, by both law enforcement and private companies, is putting ALPR in the headlines and on the legislative agenda in many cities and states. Recent moves by industry leaders to combine license plate scan data with facial recognition, civil and criminal databases, have alarm bells ringing for privacy advocates such as the American Civil Liberties Union (ACLU).
License plate readers are used in a variety of non-law enforcement roles. Private companies use license plate readers to monitor airports, control access to gated communities, enforce payment in parking garages, and even help customers ﬁnd their cars in shopping mall parking lots. While these uses in and of themselves are not objectionable, private companies can scan thousands of plates each day and store information indeﬁnitely, creating huge databases of Americans’ movements. (1)
What ALPR Risks Do Your Clients Face?
In this, our second article in our series about ALPR, we ask, “What risks do recovery industry clients—banks, credit unions, even forwarders—face because of ALPR”? The answer is that clients face several risks that the auto finance and recovery industries should track. The risks are related to quality of service, public relations and compliance.
The technology and regulatory landscape of ALPR is evolving rapidly. We at BellesLink encourage broad and open discussions, to keep recovery specialists informed and pro-active on ALPR issues.
Client Risks From Service Providers
In talking with industry experts, BellesLink learned that much of the risk for clients is passed through from service providers—recovery companies that spot and repossess vehicles. The two areas of most concern are in business operations and business stability.
Repossession Operations—Risk for Clients
None of the ALPR systems is perfect. Anecdotally, though, there are higher rates of mistaken recoveries, errors and duplicate assignments with recoveries based on license plate scans versus typical bank assignments. This leads to new operational and customer service processes that recovery companies must have to avoid worsening already costly mistakes. Clients are realizing they have an upstream risk and, according to experts, are now aggressively auditing the operational standards of potential service providers to ensure that they are fully prepared to handle ALPR recoveries.
Clients are happy with LPR’s benefits—finding the car they wouldn’t have found earlier—and are not at any risk when they choose the right service provider. Clients understand this and are selecting carefully.
Intuitively, more stringent operational requirements from clients and increasing regulation will lead to a smaller pool of fully-qualified service providers. As automobile sales and loan defaults rise with U.S. economic growth, this will lead to a significant gap in recovery capacity. As repo companies continue to absorb more costs and declining fees, at some point their business becomes unsustainable. We’re seeing it happen now. If this continues, and there’s no signs pointing otherwise, perhaps clients will have to repo the car themselves?
Repossession Business Stability—Risk for Clients
Many recovery companies are discovering that ALPR systems are not the boon for business that they thought or were possibly promised, they would be. Certainly, most companies using an ALPR system see an increase in monthly recoveries — spotted cars that would not have been found otherwise — but those cars are being recovered at a lower fee and higher cost. One company we spoke with told BellesLink that its labor rate for a typical repossession is 22 percent. But for an ALPR repossession, it is 38 percent. To complete the 1-1.5 million plate scans required per month and provide enough recoveries to cover the ALPR leasing and operational costs, this company used three full-time spotter cars.
The added labor for the guys in the spotter cars was eating up the smaller profit I was making on the lower-fee, ALPR recovery. I had to cut back.
With the current cost model of ALPR, it is difficult for some (most?) affiliated recovery companies to make their plate scanning operations profitable. In this example, we discussed labor costs. Other costs, such as a vehicle leases, fuel and LPR camera kits, put further profit pressure on these companies.
If ALPR systems are going to threaten the financial stability of recovery service providers, right now it appears they are, clients are going to have a rapidly shrinking pool of fully qualified partners across the country. This also points to an emerging trend of consolidation within the recovery industry because of smaller operators’ inability to remain competitive in an ever more capital intensive business.
Client Risks from Public Opinion and Privacy Advocates
Privacy advocates are closely monitoring the use of ALPR in law enforcement and the private sector. The ACLU summarized its watchdog report on LPR by saying, ‘There are too few rules in place to protect privacy.” (2)
Given that license plate readers facilitate the mass collection of information on Americans’ movements, that too many jurisdictions are retaining data on innocent Americans for long periods of time, and the inevitable trend towards greater sharing of this data, it is apparent that there are too few rules in place to ensure that license plate reader technology is not abused. (3)
Though much the ACLU’s position, and the positions of other privacy advocates, is based on ALPR use in law enforcement, it is also closely looking a LPR data use by private companies.
License plate readers are used in a variety of non-law enforcement roles. Private companies use license plate readers to monitor airports, control access to gated communities, enforce payment in parking garages, and even help customers ﬁnd their cars in shopping mall parking lots. While these uses in and of themselves don’t seem objectionable, private companies can scan thousands of plates each day and store information indeﬁnitely, creating huge databases of Americans’ movements. (4)
Then in a recent piece, The Center for Investigative Reporting (CIR), took a critical look at the anti-regulation lobbying of LPR leaders Vigilant Solutions and its subsidiary Digital Recognition Network, particularly in California where pending legislation threatened to limit the ability of public and private entities from selling license plate data (5), a change which would certainly curb Vigilant’s business.
While APLR is a benefit for law enforcement agencies which should remain fully accessible to them, the ubiquity of license-plate readers on public and private fleet vehicles, and in public and private places, is raising awareness and concern among consumers. Stories of mistaken identities and unwarranted police actions due to incorrect LPR data are growing more and more frequent.
It is this link between automobile recovery and the unwarranted surveillance and tracking of private citizens that poses a risk to clients. In the court of public opinion, the automobile finance industry is likely to be heavily criticized for participating in this surveillance. The recovery industry is also likely to be criticized for being a willing partner in the collection of location data for millions of Americans.
In a recent announcement, Vigilant revealed its plans to combine license-plate data with facial recognition in a law enforcement product named Mobile Companion. This new product runs counter to law enforcement’s assertion that license plates are not personally identifying information. The CIR, quoting Jennifer Lynch of the Electronic Frontier Foundation, said:
Noting that Vigilant already offers analytical software that traces the movements of a vehicle through the public and private plate-reader data it retains…the company’s plans could pose a threat to individual privacy. (6)
As ALPR data becomes linked to personally identifiable information and access by private companies remains inadequately regulated, recovery clients will be at even greater risk from the public’s opinion.
The Future of ALPR
ALPR technology will continue to improve, reducing error rates, and license plate databases will continue to integrate with other public records to become an ever more powerful tool for identifying and locating vehicles.
Will recovery companies continue to be the low-paid foot soldiers of license plate data collection? We don’t see anything indicating otherwise. But even if the cost model for ALPR doesn’t improve for recovery companies, they could be displaced by other automated technologies, such as self-driven cars or self-identifying cars networked in the Internet of Things. In the near future, locating a vehicle could become a machine’s job, not, a human’s. This would not, be good for clients. And it’s certainly not a good sign for our society.
CFPB Regulations May Address ALPR
Industry experts we spoke with believe the Consumer Finance Protection Bureau (CFPB), will address the use of ALPR data in an upcoming release of debt collection regulations. This will provide needed guidance for clients to maintain compliance within their operations. Until the CFPB acts, clients will likely scale their use of service providers with ALPR capabilities while implementing stricter service level agreements with their chosen providers.
The use of ALPR technology does pose some indirect, though substantial, risks for clients of the recovery industry. For recovery companies specifically, the profitability of ALPR remains a big concern. And if recovery companies aren’t profitable, then clients lose a valuable partner.
In this, our second piece on ALPR, we’ve looked at issues facing clients. In the next of this series we’ll examine how ALPR impacts recovery companies—forwarders and repossessors. Is ALPR an advantage or a threat to forwarders? By putting a camera on trucks, are repossessors unwittingly putting themselves out of business?
Getting the Discussion Started
We encourage you to post your comments and thoughts below. ALPR is important to the recovery industry. Our goal is to stimulate the discussion of the issues and help the industry grow.
About Paul Kulas
Paul Kulas is the founder, and Head Belle Ringer, of Belles Camp Communications LLC and BellesLink.com. When Paul isn’t working he’s skiing or discovering his next big idea while playing in the mountains right outside Belles Camp’s door in Eagle, CO. | Connect on Linkedin