Introduction. According to the Terminator movies, Skynet, the nefarious defense computer system that turned on and later waged war against humans, was to become self-aware at 2:14 a.m. on August 29, 1997. We all assumed we were safe when that date passed, and nothing happened. But perhaps Sarah and John Conner managed only to delay Skynet’s progress.

The “Google Car” drives itself autonomously around Silicon Valley. Audi’s RS7 piloted driving concept hits 140 mph—driverless. Mercedes-Benz’s Distronic Plus’ Steering Assist and Stop and Go handles the driver’s job. How will state governments (and the federal government) regulate this new frontier of self-driving automobiles?

In a rare moment of regulatory foresight, the State of California enacted a pilot regulatory program in 2014 for autonomous vehicles. Cal. Veh. Code § 38750(c). Distinguishing between “autonomous vehicles” (“AVs”) and “autonomous technology” (“AT”), the pilot program recognizes that a vehicle can have autonomous technology but still not be an AV. According to the California regulatory scheme, a vehicle is an AV if the technology is “capable, collectively or singularly, of driving the vehicle without the active control or monitoring of a human operator.” Cal. Veh. Code § 38750(a)(1)(B); see also NHTSA, Preliminary Statement Concerning Automated Vehicles at 4-5 (laying out a five-part continuum for deciding AV status).

Skynet, of course, does not care about humanity’s feeble efforts to regulate its technology and artificial intelligence (“AI”). Perhaps, though, Skynet cares about getting its AI in every home? In this article, we discuss some of the challenges that automobile lenders may face when attempting to put AV technology in every American home (and hence accelerate Skynet’s march to self-awareness and Judgment Day).

Problems Of Security Priority. AV prototypes generally consist of a production vehicle equipped with a myriad of high-tech hardware and software components. For example, fully autonomous AVs, such as the Google Car, utilize a combination of sensors that rely on radar, cameras, ultrasound, light detection and ranging (“lidar”), global positioning systems (“GPS”) and AI. AVs also sport sophisticated software to interpret, analyze and act on the data provided by the sensor technology, and to support various applications such as social media, payment processing and other personal computing functions.

One problem for automobile lenders arises when separate components of AV technology are separately financed. Are AVs merely the sum of their parts or amalgamations of distinct components that can be separately financed, swapped in and out and upgraded? There is precedent for both. An “accession” under the Uniform Commercial Code (“UCC”) is a good physically united with other goods in a way that the identity of the original good is not lost. UCC § 9-102. Component parts do not lose their accession status merely because of “the cost or difficulty of removing the accession from the other goods, and regardless of whether the original goods have come to form an integral part of the other goods.” UCC § 9-335, Comments 2, 7. Sophisticated sensor technology components utilized in AVs, such as radar, lidar, ultrasound and cameras should be classified as accessions so long as their addition does not fundamentally alter the identity of the car.

But, this is where it gets tricky for the lender. Accessions can be separately financed, and AVs’ expensive component AT are no exception—expensive batteries and AT are already separately financed and disclosed accordingly.

The problem is that separate financing of expensive GPS or computer plug-and-play AT could create security priority complications for automobile lenders. But the UCC might provide some help. Under the UCC, a security interest in an accession is subordinate to a security interest in the whole if the security interest in the whole is perfected by compliance with the requirements of a certificate-of-title statute. UCC § 9-335. Thus, if an automobile lender has perfected its security interest in a vehicle by complying with the applicable certificate-of-title statute, it also should have priority with respect to a piece of separately-financed AT that amounts to an accession, even if the accession lender perfected its security interest in the accession before it was added to the vehicle and even if the accession security interest was a purchase-money security interest. See UCC §§ 9-324, 9-335. As a result, future financiers of the high-tech component AT “accessions” will likely face risks if those components are affixed to titled AVs. Moreover, the importance of perfecting title and utilizing subordination agreements where possible will increase as the risk of financing component parts rises.

As AVs start to resemble rolling laptops, the UCC’s accession framework provides less and less help. The Uniform Computer Information Transactions Act (“UCITA”), instead, might provide some guidance. A model uniform legal framework adopted in Virginia and Maryland, UCITA allows vendors or licensors of software to retain an interest in the software under licensing agreements. Lenders might begin to separately finance the software packages and applications utilized in AVs. Unfortunately, however, UCITA is silent on the issue of lien priority.

Problems Relating To Repossession. Self-help repossession also raises a number of issues when it comes to AVs. The UCC’s accession rules on secured collateral remain relatively established, and likely would guide the various technologies on an AV. A secured party may remove an accession from other goods if the security interest in the accession has priority over the claims of every person having an interest in the whole. See UCC § 9-335(e). Importantly, the UCC provides that “[t]he secured party need not reimburse the holder or owner for any diminution in value of the whole or the other goods caused by the absence of the accession removed or by any necessity for replacing it.” UCC § 9-335(f). If applied to AVs, the statute would potentially allow a secured party to remove a necessary component, and with it the autonomous capabilities of the vehicle, without reimbursing the other secured parties for the resulting plummet in the vehicle’s value.

And in today’s world of wireless connectivity and networking, repossession by remote control—where a lender causes the AV to drive itself back to the lender on its own—is certainly a possibility. Need regulators worry that repossession by remote control will clog freeways with AVs autonomously returning home to the lender? Doubtful. The UCC’s self-help rules on breach of the peace are relatively well established. And this problem is actually not new—subprime lenders using starter interrupt devices or GPS-tracking to secure payments arguably paved the way for analyzing repossession by remote control. A starter interrupt device tracks a vehicle purchaser’s or lessee’s scheduled payments under a finance or lease agreement and prevents the vehicle from starting if a scheduled payment is not received. 4 Witkin, Summary of California Law, Sales, § 260A at 40, (10th Ed. 2014). The use of starter interrupt devices had previously been the stuff of subprime “buy-here-pay-here” dealers. Cal. Civ. Code § 2983.37(a)(2). Moreover, the UCITA limits software vendors’ use of electronic self-help (i.e. a kill switch written into the software code) by requiring separate assent to the use of such a technique, notice to the consumer prior to its use and a requirement that a creditor will not engage in such electronic self-help if it would result in substantial harm to the public. UCITA § 816.

But while the use of these self-help devices is already regulated, that regulation may not lend itself to use in the AV context because of the convenience of AT payment processing in higher-end vehicles and “A” paper. Again, as AVs or vehicles with AT are more like rolling laptops than conventional automobiles, the AVs could process installment payments through the vehicle as a convenience to the owner through such systems as Apple Pay, or even just by placing a device such as an Apple Watch up against the steering wheel.

Conclusion. Legal issues facing consumer lenders who finance AVs will grow increasingly complicated over the next few years. But, backed by competent advice to smooth the path to financing AVs, we all can contribute to Skynet’s march toward self-awareness.

Hasta la vista, baby!

For more information on the regulation and problems relating to the financing of autonomous vehicles, please contact Scott J. Hyman at