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Lawsuit Seeks To Save Car Title Database - And Protect Car Buyers

Sixteen years after Congress enacted the Anti Car Theft Act of 1992, which called for the creation of a national database to track motor vehicle titles and prevent the fraudulent retitling of wrecked and stolen cars, Public Citizen and two California consumer organizations are suing the U.S. attorney general over delays in implementing it. (Public Citizen v. Mukasey, No. 08833 (N.D. Cal. filed Feb. 6, 2008).)

After wrecked cars are declared total losses, insurers are often assigned the titles and dispose of the vehicles through auction or sale to junk or salvage yards. But a 2002 Consumer Reports study showed that as many as 20 percent of totaled cars involved in fatal accidents are rebuilt and sold each year. The study also showed that 30 percent of those rebuilt cars had fraudulent titles that did not disclose the damage and repairs.

The Anti Car Theft Act requires junk- and salvage-yard operators and insurers to file monthly reports on vehicles they obtain with the National Motor Vehicle Title Information System (NMVTIS), including identification numbers, names of vehicle owners, and whether the vehicles were wrecked, flooded, or stolen. The information is supposed to be accessible to law enforcement and consumers.

But according to the lawsuit filed recently by Public Citizen, Consumers for Auto Reliability and Safety (CARS), and Consumer Action, the attorney general has “not yet set a start date for the reporting of vehicle-history information by junk yards and insurance companies, has not yet issued regulations to facilitate the reporting of that information, and has not yet made any vehicle-history information accessible to consumers.”

Today, data from only half of the states is submitted to NMVTIS, and only law enforcement has access to it. CARS president Rosemary Shahan noted that although commercial vendors like Carfax and Experian provide similar information, their reports cost money and may not be current, so that a car might be rebuilt and sold before it shows up in their databases.

Unless the federal government fully implements NMVTIS, fraudulent retitling will continue to be “the number one problem in used-car sales,” said William Brauch, director of the consumer protection division of the Iowa attorney general’s office.

For a used vehicle, “you probably are paying more . . . than it’s worth, and you are not able to get information about the vehicle that is extremely important to its value: whether it was in a major accident, had been titled as a salvage vehicle, and information about its mileage,” Brauch said. “All are critical factors in determining retail value and, in the case of salvage history, can be an integral factor in safety.”

The extent of fraudulent retitling was revealed in part in 2005, when 49 states settled with State Farm after the insurer revealed that over 30,000 wrecked cars had been rebuilt and sold with clean titles. Although State Farm admitted no wrongdoing, it entered into an agreement with the states that provided compensation to owners of the retitled vehicles. Owners received the car’s salvage value, rather than the full amount they paid for the car; consumers taking the money agreed not to sue.

But many owners rejected the offer and sued State Farm because the settlement “was just pennies on the dollar rather than full restitution,” said Joe Longley, an Austin, Texas, attorney who handled about 100 of the cases.

Many actors have roles in fraudulent retitling. Although insurers who are assigned a totaled vehicle’s title must change it to indicate it is a wreck, they do not always do so, in part because of lax reporting standards, consumer advocates say. Wrecked cars command up to 50 percent more money at auction with clean titles, noted Longley. In addition, he said, rebuilders and car dealers know wrecks of recent models can be rebuilt and sold profitably, particularly when they have clean titles.

The Consumer Reports study estimated that insurers make about $2.5 billion every year from the sale of wrecked vehicles; about half comes from newer models. “The more insurers can recoup through sales at auction, the more they can make,” said Shahan. “So the insurer’s hands are not clean here.”

Safety is also a factor with fraudulent retitling, because state inspections of rebuilt vehicles are usually minimal.

“Let’s say the air bags had been deployed in the accident,” said Longley. “The car will go through auction as is, sitting up on a wrecker with the air bags deployed. The buyers will see that and just cut the air bags out and not replace them. So people are driving in these vehicles that should be salvage-titled, not knowing that there are no air bags in their cars.”

Public Citizen’s lawsuit claims that the federal government is violating the Administrative Procedure Act by failing to ensure that the NMVTIS contains complete information from all states. According to Deepak Gupta, the Public Citizen lawyer handling the case, the act “provides for a right of judicial review of a federal agency action that has been unlawfully withheld or unreasonably delayed.”

The original legislation specified that the database was to be created and maintained by the secretary of transportation. However, after a missed 1996 deadline, Congress transferred responsibility for NMVTIS to the attorney general and extended the deadline to 1997. More than 10 years later, “there is really no excuse for the delay,” Brauch said.

“The history of the vehicle should be totally transparent to any potential buyer: the number of oil changes, when they were made, the repairs. There is no reason that this information should be concealed. And concealing it really is, in essence, fraud.”