    [Senate Hearing 109-1123]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 109-1123

         PROTECTING THE CONSUMER FROM FLOODED AND SALVAGE VEHICLE FRAUD

    =======================================================================

                                    HEARING

                                   before the

        SUBCOMMITTEE ON CONSUMER AFFAIRS, PRODUCT SAFETY, AND INSURANCE

                                     OF THE

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 FIRST SESSION

                                   __________

                               NOVEMBER 16, 2005

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                           ONE HUNDRED NINTH CONGRESS

                                 FIRST SESSION

                         TED STEVENS, Alaska, Chairman
    JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
    CONRAD BURNS, Montana                    Chairman
    TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West
    KAY BAILEY HUTCHISON, Texas              Virginia
    OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
    GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
    JOHN ENSIGN, Nevada                  BARBARA BOXER, California
    GEORGE ALLEN, Virginia               BILL NELSON, Florida
    JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
    JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
    DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                         MARK PRYOR, Arkansas
                 Lisa J. Sutherland, Republican Staff Director
            Christine Drager Kurth, Republican Deputy Staff Director
                    David Russell, Republican Chief Counsel
       Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
       Samuel E. Whitehorn, Democratic Deputy Staff Director and General
                                    Counsel
                 Lila Harper Helms, Democratic Policy Director
                                     ------

        SUBCOMMITTEE ON CONSUMER AFFAIRS, PRODUCT SAFETY, AND INSURANCE

                        GEORGE ALLEN, Virginia, Chairman
    TED STEVENS, Alaska                  MARK PRYOR, Arkansas, Ranking
    CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
    JIM DeMINT, South Carolina           BARBARA BOXER, California
    DAVID VITTER, Louisiana

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on November 16, 2005................................     1
    Statement of Senator Allen.......................................     1
    Statement of Senator Pryor.......................................     3

                                   Witnesses

    Brauch, William L., Special Assistant Attorney General/Director,
      Consumer Protection Division, Iowa Attorney General's Office...     4
        Prepared statement...........................................     6
    Bryant, Robert M., President/CEO, National Insurance Crime Bureau    14
        Prepared statement...........................................    17
    Chappell, Karen, Deputy Commissioner, Virginia Department of
      Motor Vehicles; on Behalf of the American Association of Motor
      Vehicle Administrators.........................................    10
        Prepared statement...........................................    12
    Fuglestad, Alan, Vice President, Operations and Technology,
      Experian Automotive............................................    37
        Prepared statement...........................................    39
    Hall, Donald L., President and Chief Executive Officer, Virginia
      Automobile Dealers Association; on Behalf of the National
      Automobile Dealers Association.................................    42
        Prepared statement...........................................    44
    Shahan, Rosemary, President, Consumers for Auto Reliability and
      Safety.........................................................    19
        Prepared statement...........................................    30
        Article from the January 2002 Consumer Reports, entitled,
          ``Wrecks In Disguise''.....................................    19

         PROTECTING THE CONSUMER FROM FLOODED AND SALVAGE VEHICLE FRAUD

                                  ----------

                          WEDNESDAY, NOVEMBER 16, 2005

                                   U.S. Senate,
     Subcommittee on Consumer Affairs, Product Safety,
                                         and Insurance,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:34 p.m. in
    room SD-562, Dirksen Senate Office Building, Hon. George Allen,

    Chairman of the Subcommittee, presiding.

                OPENING STATEMENT OF HON. GEORGE ALLEN,
                       U.S. SENATOR FROM VIRGINIA

        Senator Allen. Good afternoon to everyone and welcome to
    this hearing of the Senate Subcommittee on Consumer Affairs,
    Product Safety, and Insurance. I call this hearing to order.
    While the impetus of today's hearing was unfortunately the
    devastation caused by the recent hurricanes, we hope to examine
    ways to protect consumers from further harm brought by the
    illegal and fraudulent transfer of flooded and salvage
    vehicles.
        The Ranking Member of this Subcommittee, Senator Mark Pryor
    of Arkansas, personally conveyed to me his concern about this
    and his commitment to preventing the sale of flooded cars to
    unsuspecting buyers and I thank him for his interest and his
    experienced leadership. He has experienced this in Arkansas
    when he was Attorney General. He will be here forthwith. He is
    on his way. But I wanted to get the hearing started in a timely
    fashion.
        We are promoting this as a forum to actually learn, to
    listen from all of you who have come here. I very much thank
    each and every one of our witnesses, some who have flown in
    this morning, for being here. Your insight, your knowledge,
    will be very, very helpful to us and we thank you for your
    testimony and your preparation.
        After Hurricanes Katrina and Rita hit the Gulf Coast,
    questions arose about what the Federal Government should do.
    There are a lot of things the Federal Government is doing
    appropriately along with the states and private industry, and
    we all want to help people rebuild their lives and their
    communities and get back on their feet. We also want to protect
    victims from fraud and illegal activities.
        In addition to the tremendous economic loss that was caused
    by this year's hurricanes, a window has been opened that may
    create circumstances for fraudulent and illegal activities. One
    way that could happen is through fraudulent transfer of the
    flooded and salvaged vehicles without the seller fully
    disclosing the vehicle's damage history. This tragedy has left
    an estimated 500,000 motor vehicles flooded in Alabama,
    Mississippi, and Louisiana. This hearing is an attempt to show
    malefactors that we are remaining vigilant and are aware that
    fraud can take many forms, particularly associated with flooded
    vehicles, and to develop solutions to deter any further
    deceptive behavior.
        The damage history of a car is an important information
    factor for a consumer to know when purchasing or making a
    decision to purchase a vehicle. In addition to financial
    considerations, a vehicle's safety can also be diminished after
    having sustained flood damage. Fraud can occur through what is
    known as title washing or the process of physically
    transferring a flooded or salvaged vehicle to a state that does
    not require the other State's brand on that particular vehicle
    to carry forward. In other words, all indication on a vehicle's
    title of prior damage is removed from that title. This is when
    problems can occur, as potential buyers of that vehicle are not
    aware of that vehicle's damage history.
        Lack of public disclosure of a used car's previous damage
    can lead to financial problems. The cars are usually reinsured
    after a new owner takes possession. If some problem develops
    with the car, the insurance company is going to get hit again
    for a claim on that car. Many lawsuits and litigation can
    result, which is hardly productive, but that can ensue. And
    even worse, it can lead to an unsafe vehicle being on the roads
    and causing wrecks and physical harm.
        So in hopes of averting any further harm caused by unsafe
    flooded and salvaged vehicles, we have invited these witnesses
    here today who will describe the problems that we face, which
    can unfortunately occur when a car has been significantly
    damaged. We look to all of you, all six of you, and the
    organizations and associations that you represent, to offer us
    possible solutions as well.
        We look forward to hearing from each of our witnesses on
    the prudence of Federal involvement. I am not one who is always
    claiming for Federal jurisdiction, but this is interstate
    commerce and there may be an appropriate Federal role and that
    is what we want to hear from you in addressing this vehicle
    fraud issue stemming from an event like a flood, as well as
    options for decreasing fraud in the used car market.
        With that, the person who I was extolling the virtues of
    earlier on this issue, who has a great deal of experience and
    knowledge on this subject. If you would like to make an opening
    statement, Senator Pryor, then I will introduce our witnesses.
        I will also say that--I do not know; have votes started?
    All right, we have three votes. Three votes. What we are going
    to have to do is kind of run this like a tag team. So what we
    are going to try to do is not have to recess and start up back
    and forth. So one of us will always be here while the other is
    voting.
        Senator Pryor. If you want to go vote now----
        Senator Allen. Well, I will introduce the witnesses.
        Senator Pryor. OK, great.
        Senator Allen. Go ahead.

                     STATEMENT OF HON. MARK PRYOR,
                       U.S. SENATOR FROM ARKANSAS

        Senator Pryor. Let me make a very brief statement and let
    me just thank all of you for being here and thank you for your
    attention to this issue. I want to thank the Chairman for his
    leadership on this and helping pull this hearing together. We
    all know that there is a real problem with flooded cars and the
    issue of a branded title or salvaged title. On the Federal
    level, some sort of uniform standard I think is probably in
    order. We need to get input from you about what is the best
    approach and get your thoughts on the plusses and minuses of
    various approaches on this.
        But you know the numbers and know the facts on this better
    than anyone. But basically, if consumers in this country buy a
    car that has been flooded, they are almost guaranteed to have
    problems with that car one way or the other. It is going to be
    rust, it is going to be the engine, it is going to be the
    electrical system, it is going to be safety, like the air bags
    do not work, or something. You know that it is going to happen.
        This is a major headache for not just consumers, but car
    dealers and insurance companies, and really is something that I
    think we need to take a serious look at.
        I want to thank the Chairman for his leadership in having
    this hearing today and assembling the witnesses. Mr. Chairman,
    thank you for doing this.
        Senator Allen. Thank you. Thank you again, Senator Pryor,
    for your leadership on this very important issue.
        Before we listen to the testimony of our witnesses, our
    panelists, let me introduce them, all gathered here. First we
    have Bill Brauch, who has flown in from Iowa to join us today.
    Mr. Brauch is a Special Assistant Attorney General in the Iowa
    Attorney General's Office, and the Director of the Consumer
    Protection Division. He is known for his work on automobile
    salvage safety issues. We are glad you are able to make it and
    we look forward to your testimony.
        Next we will hear from Karen Chappell, who is the Chief
    Deputy Commissioner for the Virginia Department of Motor
    Vehicles. She holds many responsibilities with the Virginia DMV
    and can help us understand what the states are currently doing
    to combat vehicle fraud. Her institutional knowledge of motor
    vehicle practices in the Commonwealth is very much appreciated
    and we thank you for attending today.
        We then will hear from Bob Bryant, the President and CEO of
    the National Insurance Crime Bureau. The NICB has taken the
    lead in developing sources for combatting vehicle fraud,
    including a new online database in coordination with their
    members, some of which are the largest property and casualty
    insurance companies. Mr. Bryant has been instrumental in trying
    to prevent flooded cars from being sold to unsuspecting buyers.
    We thank you for testifying today, Mr. Bryant.
        Next we have Rosemary Shahan, from the organization,
    Consumers for Auto Reliability and Safety. Ms. Shahan has been
    deeply involved in California's past motor vehicle legislation,
    including initiation of the State's lemon law. She has also
    played a leading role in the adoption of a motor vehicle safety
    standards approach nationwide, and in working to protect all
    consumers, Ms. Shahan is to be commended. Thank you again for
    agreeing to testify.
        Then we will hear from Alan Fuglestad, Vice President of
    Operations and Technology at Experian Automotive. Mr. Fuglestad
    has firsthand knowledge of Experian's extensive database that
    assists dealers and consumers in learning all the relevant
    information of a vehicle's history before buying or selling it.
    Experian also has an online database that is helpful in
    determining whether a vehicle has ever been damaged. Mr.
    Fuglestad's technical expertise will be enlightening and we
    thank you for testifying.
        Finally, we will listen to Don Hall, President and CEO of
    the Virginia Automobile Dealers Association, testifying on
    behalf of the National Auto Dealers Association. Mr. Hall has
    an extensive career in the automobile retailing business and he
    and I have had a chance to discuss important issues pertaining
    to auto dealers in the past. He is a well-respected leader and
    in his current capacity as the Virginia Auto Dealers
    Association leader, he represents dealers throughout Virginia
    on an assortment of issues, and we appreciate, Mr. Hall, your
    attendance today and look forward to your insight.
        Now, Mr. Brauch, you can begin.

           STATEMENT OF WILLIAM L. BRAUCH, SPECIAL ASSISTANT
     ATTORNEY GENERAL/DIRECTOR, CONSUMER PROTECTION DIVISION, IOWA
                       ATTORNEY GENERAL'S OFFICE

        Mr. Brauch. Thank you, Mr. Chairman and Senator Pryor. On
    behalf of Attorney General Tom Miller of Iowa, thank you for
    inviting me here today.
        Senator Allen. Mr. Brauch, I am going to go vote first. I
    am going to turn over the chair to Senator Pryor. I will be
    back as quickly as possible.
        Mr. Brauch. Thank you.
        Well, this is a very timely issue. The Chair was right that
    Hurricanes Katrina and Rita and half a million flooded vehicles
    bring this to us today. But this is a problem that has been
    with us for a while. It has been with us because it is so
    lucrative. Scam artists are able to obtain vehicles which have
    been substantially wrecked or flooded, clean them up to the
    point where it is hard to notice the problem, and then sell the
    vehicle to unsuspecting consumers, who pay far more than the
    vehicle is worth.
        Nothing diminishes the value of a vehicle more than past
    collision or flood history, nothing. And consumers with the
    information, knowing it is a flood, knowing it is a collision
    vehicle, will make a choice either not to purchase the vehicle
    or to pay much less for it than they would a comparable vehicle
    that does not have that background.
        We have made significant efforts in the past 10 or so years
    to deal with this situation. We have passed laws at State
    levels and enforced them. We have the National Motor Vehicle
    Title Information Service, or NMVTIS, up and running, at least
    in some states at this point. And we have the development of
    Carfax and Experian's service, AutoCheck, online and other
    companies to provide information to consumers.
        But we are not there yet. We have a long way to go. The
    scam artists are still making money and consumers are still
    being targeted. It is not just a value issue, of course, but it
    is a safety issue as well.
        Some of the contributing factors, some of the things that
    maybe we need to improve, are as follows: First of all, we have
    a lack of uniform nomenclature among the states. Most states
    now over the past 10 years have adopted the word ``salvage'' to
    describe these titles, although not all states have. But even
    that is not consistent. In many States it has different
    meanings from other states. ``Salvage'' might mean cars that
    are damaged but can be repaired and put back on the road. It
    might mean both those types of vehicles and vehicles which have
    to be parted out, sold for parts, or destroyed because they
    cannot be operated on the road any more. So we do not have a
    consistent nomenclature out there.
        We, as the Chair noted, we do not have uniform recognition
    by the states of each other's brands. They are not all carrying
    the brands forward from other states, and therefore we have the
    title washing problem that he described.
        We also have a lack of reporting by insurance companies
    when they total out a vehicle. Under NMVTIS they were required
    to report that to the title information service. However, the
    Department of Justice has never adopted the regulations to put
    that in place and therefore it is my understanding that is not
    being done. Even beyond that requirement, that requirement does
    not apply when insurance companies total out a vehicle but
    allow their policyholder to retain ownership. That is a problem
    as well.
        We also have a problem in disclosure in that in many states
    the title is not present at the time of sale because there is a
    lien on that vehicle, and in most States the lienholder holds
    that title until that lien, that loan, is paid off. So even if
    you have disclosure on titles, the title might not be there,
    and that consumer might not see that title for years after they
    purchase the vehicle, until they pay off their loan. That is a
    problem.
        We also need to get NMVTIS up and running across the
    country. It provides substantial benefits if we can fund it and
    we can get all the states contributing to it.
        Some other solutions that we need to pursue: Establishing
    uniform title terms as much as we can possibly do; requiring
    all states to recognize and carry forward each other's brands
    is vitally important. One thing we might look at as far as a
    uniform definition, might be to set minimums, to say that a
    state must at least adopt a salvage law that says, for example,
    the damage is 75 percent of the market value, but then let that
    be the floor and let the States go beyond it. For example, if a
    state wants to have a 50 percent standard, therefore be more
    inclusive and pick up more vehicles, states should be allowed
    to do that. But setting a Federal minimum would be very
    important here.
        Also, making sure that we require the insurance companies
    to report totaled vehicles, so that consumers get notice of it.
    There really is no reason that cannot happen and it really has
    to happen, because those vehicles may not show up in the
    titling process. They may not show up in the system. We need to
    get that information out to consumers, out to dealers who take
    vehicles in trade, to other insurance companies and to others
    in the process.
        When the title is not present, we ought to think about a
    written disclosure requirement, much like the odometer law. We
    have done something like that in Iowa, where we have combined
    the odometer statement and the damage disclosure statement
    under our damage disclosure law in one form which is used when
    the title is not present at the time of sale. That could be
    done with this as well.
        We also need more effective enforcement mechanisms. If we
    are going to look at a potentially nationwide process here, we
    need to take a look at giving authority to Federal agencies
    that enforce it, DOJ criminal and FTC civil, as well as
    providing enforcement authority to State Attorneys General to
    bring action, much like we can under the odometer law or other
    Federal laws that allow us to enforce them in State or Federal
    court.
        The odometer law has the capability of State or Federal
    court for the State AGs. Laws like the Do-Not-Call law that we
    can enforce as well as the FTC allow us to enforce in Federal
    court. Better to give us the discretion to choose, but in any
    event to give us a cause of action so we can get money back for
    consumers under that law if we do not have an equivalent State
    law.
        Also, additional Federal funding for NMVTIS is vitally
    important.
        Everybody agrees there is a problem here and I am very
    pleased to see the way that this is being handled, that instead
    of having a bill to shoot at right away and everybody tearing
    it down, we are working together to put information together.
    From what I have seen, many of us are singing the same tune
    here, from industry and from government. That is important. We
    are able to see, by handling it this way how much we have in
    common and how much interest everyone has in making sure that
    this process is one where consumers and dealers and others can
    see the history of that vehicle and make an informed choice, so
    the marketplace can work properly.
        That is really my final point. It is key that the
    marketplace work well because our laws, our consumer protection
    laws, are designed not just to protect consumers, but to ensure
    that the marketplace operates fairly. In order for it to
    operate fairly, consumers need the information, as do others,
    to make informed choices so that the true value of that vehicle
    is reflected in what people pay.
        Thank you, Senator.
        [The prepared statement of Mr. Brauch follows:]

      Prepared Statement of William L. Brauch, Special Assistant Attorney
    General/Director, Consumer Protection Division, Iowa Attorney General's
                                     Office
    I. Introduction
        On behalf of Iowa Attorney General Tom Miller, thank you very much
    for inviting me to participate in this hearing. I have worked in the
    area of motor vehicle fraud enforcement for over 18 years with the Iowa
    Attorney General's Office, and authored Iowa's motor vehicle damage
    disclosure law. Among the responsibilities of the Consumer Protection
    Division is enforcing Iowa laws governing used motor vehicle sales.
        Nothing affects used vehicle values more than prior salvage or
    flood history. While the unfortunate results of Hurricanes Katrina and
    Rita have brought the flood vehicle issue to the forefront, consumers
    have faced the prospect of unknowingly purchasing former flood or
    salvage vehicles for a number of years.
        The successful effort in the 1970s and 1980s against vehicle
    odometer fraud under Federal and State law has driven scam artists to
    perhaps this even more lucrative means of defrauding used car buyers.
    It begins when they purchase damaged vehicles, most often at auction,
    for well below average retail. Then, they repair the vehicles to hide
    the prior damage and sell them to unsuspecting buyers with no
    disclosure of the prior damage. The resulting sale price is several
    times more than the vehicle is worth, given that the retail value of a
    former salvage or flood vehicle diminishes by 50 percent or more than
    the average retail value for the same year, make, and model vehicle.\1\
    This not only hurts consumers, but steals business away from dealers
    who sell honestly by making full disclosure.
    ---------------------------------------------------------------------------
        \1\ Consumer Reports, March 2003 issue, ``Wrecks in Disguise.''
    ---------------------------------------------------------------------------
        To a great degree, this has occurred because consumers generally do
    not receive adequate notice of the damage history of a motor vehicle
    prior to purchase. That is not to say there are no tools available to
    consumers. Some states have enacted used auto damage disclosure laws
    akin to the Federal odometer law, requiring pre-sale disclosures.\2\
    Additionally, companies like Carfax, AutoCheck, and others provide
    vehicle history information for a fee. However helpful, these tools
    have not been sufficient to prevent the scam from growing.
    ---------------------------------------------------------------------------
        \2\ Those states include Hawaii, Iowa, Kentucky, Maine, Nevada, New
    Jersey, New Mexico, North Carolina, North Dakota, South Dakota and
    Wisconsin.
    ---------------------------------------------------------------------------
        Nationwide pre-sale consumer notice of prior salvage or flood
    history is essential for the marketplace to work. Our free market
    system presumes informed buyers making rational choices. Unfortunately,
    when it comes to vehicles which have been flood-damaged or involved in
    significant collisions, consumers do not get the information they need
    to choose whether to purchase a used vehicle or how much to pay for it.
    Millions of American consumers are purchasing used vehicles every year
    they would not have purchased, or for which they'd have paid much less,
    had they known of the vehicle's true prior history. Thus, too much
    consumer money is flowing into the hands of unscrupulous operators,
    resulting in higher prices than warranted and the unwitting operation
    of potentially unsafe vehicles on America's roadways.
        Although law enforcement officials have actively pursued scam
    artists who sell these vehicles without notice, the problem remains
    acute. However, there is much we can do to provide greater protection
    to the car buying public and to ensure that our used vehicle
    marketplace operates more efficiently and fairly.
    II. Current State and Federal Laws Are Not Adequate to Prevent Vehicle
            Salvage and Flood Fraud
    A. Differences in Nomenclature Make it More Difficult for Consumers
            Across the Country to Receive Notice
        Nearly every state issues salvage titles or the equivalent.
    Unfortunately, the states use a variety of differing terms to describe
    the titles for salvage vehicles including salvage, damaged, junk,
    unrepairable and others.\3\ These descriptive terms generally appear on
    auto titles. While most states have ``salvage'' titles, in some states
    that includes both vehicles which are significantly damaged but can be
    repaired for road use and those that cannot be repaired and can only be
    sold for scrap or parts, while in others it refers to vehicles which
    can be repaired for road use but does not include vehicles which can
    only be sold for scrap or parts. The lack of consistency across the
    states in describing damaged vehicles on auto titles is unnecessarily
    confusing for consumers and for state officials who have to learn and
    interpret these differing title brands. In addition, scam artists are
    able to pick and choose among differing state laws to attempt to title
    a vehicle in a jurisdiction which will not brand it.
    ---------------------------------------------------------------------------
        \3\ Two states, South Dakota and Washington, do not have a salvage
    title or the equivalent. South Dakota relies on its auto damage
    disclosure law to provide information to car buyers about past damage.
    The title for a vehicle in Washington which has a certain degree of
    damage and is less than six model years old at the time of the loss
    will receive a ``WA Rebuilt'' brand if the vehicle is repaired for road
    use.
    ---------------------------------------------------------------------------
        There currently is no Federal law which requires standardization of
    state title brands. However, Congress has recognized the problem of
    auto title fraud as long ago as 1992, when it enacted the Anti Car
    Theft Act.\4\ A portion of that Act included a requirement that the
    Department of Transportation work with states to establish the National
    Motor Vehicle Title Information Service (``NMVTIS''), a means by which
    law enforcement and consumers could get information about the past
    histories of specific motor vehicles. Unfortunately, for a number of
    reasons, including lack of funding, NMVTIS has taken a great deal of
    time to become established and, after nearly 15 years of trying, only
    about half the states are currently submitting data and consumers still
    do not have access to it.
    ---------------------------------------------------------------------------
        \4\ Pub. L. 102-519, 102nd Congress, October 25, 1992.
    ---------------------------------------------------------------------------
    B. The Failure of State Laws to Uniformly Mandate Recognition and
            Carrying
            Forward of the Title Brands of Other States Exacerbates the
            Problem
        In addition, while state motor vehicle titling officials are very
    aware of each other's title brands and definitions, the laws of some
    states do not permit the states to recognize each other's title brands
    and carry them forward on new titles. In addition, the brands can
    differ to such a great degree that it is very difficult to determine
    whether there is an equivalent brand in a state receiving a vehicle
    from another state. Some titling anomalies are even more difficult to
    understand. For example, Iowa will carry forward a flood brand from
    another state but lacks its own separate flood brand (the vehicle is
    either branded salvage or not). These titling differences make
    understanding their meaning more difficult for consumers and frustrate
    state officials who would prefer to provide as much information about
    the vehicle to consumers as possible.
        Private companies which sell vehicle history information for a fee,
    such as Carfax and AutoCheck, have established themselves in the used
    car marketplace in the interim. But, because some states do not
    promptly report title transfers and brands, even these services are
    lacking to some degree in being able to provide the information
    consumers need in time for them to use it.
    C. Auto Insurance Providers Do Not Uniformly Report Totaled Vehicles
        The situation is further exacerbated by the lack of reporting by
    auto insurance providers. Insurance companies and law enforcement
    agencies are able to learn about vehicles that insurance companies have
    totaled, but similar information is not made generally available to the
    buying public. There is a legal obligation for insurance companies to
    report to the NMVTIS system when they total a vehicle.\5\ However, it
    is my understanding that this requirement has never been implemented
    and that insurance companies have not been reporting this information
    to NMVTIS. And, further, this reporting requirement does not apply to
    the likely thousands of instances where insurance companies allow their
    policyholders to retain title. In many states, if the insurance company
    doesn't take title, there is no requirement the owner obtain a salvage
    title. Thus, in states lacking an auto damage disclosure law, a
    totaled, owner-retained vehicle may be sold with no disclosure to
    buying consumers. While such an act may violate state laws against
    deceptive and unfair practices, proving a violation often comes down to
    the buyer's word against the seller's, which is quite difficult to
    prove.
    ---------------------------------------------------------------------------
        \5\ 49 U.S.C. section 30504(b).
    ---------------------------------------------------------------------------
    D. Auto Title Branding Laws, In and Of Themselves, Are Not Totally
            Effective In States Permitting Secured Parties to Retain Titles
        Additionally, title branding laws, alone, are not totally effective
    in that most states permit entities holding security interests in
    vehicles, in most cases, lenders to trade-in customers, to retain the
    vehicle's title until the loan is paid. Thus, even if a title is
    branded ``Prior Salvage'' as would be the case under Iowa law, the
    consumer would not see that title brand at the time of sale and may not
    see it for many years if the consumer obtained a loan to purchase the
    vehicle. We have been faced with that situation in numerous consumer
    complaints in our office and we know it is a problem elsewhere across
    the country. Iowa addresses this, in part, by requiring a separate
    written disclosure on a secure form when the title is unavailable. But,
    this still results in false disclosures not being discovered until the
    title is released to the buyer.
    III. Potential Solutions Exist and Congress Can Help
    A. Establish Uniform National Nomenclature
        One part of the solution could be requiring the states to adopt
    uniform language. A title for a vehicle that has been in a major
    collision and has not been repaired should have the same name
    throughout the country. This would greatly enhance consumer knowledge
    and foster better recognition by the states of each other's title
    brands. The same approach could be taken for flood-damaged vehicles and
    for reconstructed vehicles--those which have been damaged and repaired.
    For example, the national uniform title terms could be ``salvage,''
    ``flood,'' and ``reconstructed.'' The potential downside to this
    approach is the costs that states would incur in phasing out non-
    uniform title brands and establishment of the new, uniform national
    brands.
    B. Establish Uniform Federal Minimum Standards Within the Different
            Title
            Descriptions
        Presuming the states used uniform nomenclature to define salvage,
    flood and reconstructed vehicles, the question remains when the states
    will require that those titles be obtained. For example, some states
    require salvage titles only when insurance companies take ownership due
    to collision damage. Others use percentage thresholds, such that if the
    cost to repair a vehicle exceeds a certain percentage of its retail
    value at the time of the damage a salvage title must be obtained. One
    way to deal with this would be for Congress to require that salvage
    titles be obtained when collision damage exceeds a certain minimum
    threshold, say 75 percent of retail value, but permit states to adopt a
    more expansive standard, for example, 50 percent of retail value. In
    addition, all states should require salvage titles to be obtained when
    insurance companies total a vehicle, regardless of whether the
    insurance company takes title or the title is owner-retained. By
    adopting a national minimum definition, consumers and dealers seeing
    the title brand will know that the vehicle has incurred at least the
    amount of damage required by the state with the least expansive
    standard.
    C. Require Uniform Recognition by States of Each Other's Title Brands
        Perhaps the most vital piece of the puzzle, and one that could
    stand on its own if the others prove not achievable, is requiring all
    states to recognize all of each other's title brands. Under this
    proposal, states would not be required to analyze the meaning of each
    other's title brands in an attempt to discern state equivalence.
    Instead, they would simply include a brand on the face of the title
    with the title brand from the other state and the two-letter
    abbreviation for that state. This would provide substantial assistance
    to consumers and would reduce costs for states which currently carry
    forward title brands but are required to convert them to their own
    state's nomenclature, a sometimes difficult endeavor. An expansion of
    NMVTIS to all states would also help in this regard.
    D. Require Insurance Companies to Report All Totaled Vehicles to
            National Databases, Whether Government-Established or Private
        Insurance companies should be required to report all totaled
    vehicles to NMVTIS, and make the information available, for a
    reasonable fee, to private auto title information providers as well.
    This should apply, regardless of whether the policyholder retains
    ownership or the insurance company takes title. In the event it is not
    possible to adopt some of the other proposals suggested in these
    comments, ensuring that consumers and auto dealers have easy access to
    information regarding whether a vehicle has been previously totaled by
    an insurance provider would assist the market to operate efficiently
    and ensure that consumers and dealers get this vital information before
    deciding whether to purchase a vehicle or take it in trade.
    E. Establish Disclosure Requirements Akin to Federal Odometer Law--at a
            Minimum, Pre-Sale Written Disclosure of Title Status If Title
            Is Not Present at Time of Transfer to Buyer
        The Federal Odometer Act \6\ has very effectively reduced odometer
    fraud, in great part, by requiring auto sellers to issue buyers written
    mileage disclosures. While auto title brands can effectively
    communicate past damage, as noted above, titles are often not required
    to be present at the time of sale. Therefore, consumers do not see
    titles and the brands which appear upon them. This problem could be
    eliminated by requiring a pre-sale written disclosure of title status
    in the event the title is not present at or before the time of sale.
    The disclosure statement could be handled in much the same way as the
    odometer statement. In fact, in Iowa we have combined the odometer and
    damage disclosure statements on the separate disclosure form required
    to be used when the title is not present at the time of sale. Written
    disclosures protect not only buyers and dealers who take vehicles in
    trade, but sellers who wish to retain written evidence of having made
    the disclosure.
    ---------------------------------------------------------------------------
        \6\ 49 U.S.C. sections 32701-32711, more formerly titled the Motor
    Vehicle Information and Costs Savings Act.
    ---------------------------------------------------------------------------
    F. Establish Remedies for Enforcement If Vehicle Owners Do Not Obtain
            Required Titles or Required Disclosures Are Not Made or Are
            False
        A law requiring action is only as good as its enforcement
    mechanisms. The Federal odometer law has been effective because it has
    provided various enforcement possibilities. For auto salvage and flood
    vehicles the same must be true. There must be a strong means of
    deterring vehicle sellers from concealing or misrepresenting prior
    salvage or flood history. I recommend providing for Federal criminal
    and civil remedies, and civil remedies for state Attorneys General,
    akin to the odometer law, national telemarketing law, and others.
    Federal laws that authorize state Attorneys General to act in state or
    Federal courts to obtain injunctive relief, restitution for consumers,
    civil penalties, and attorney fees are vital to ensuring there are
    enough ``cops on the beat'' to deter auto title fraud. Enabling the
    Federal Government to act is also vital to addressing large operators.
    I know our state departments of transportation or motor vehicles
    officials stand ready to assist state Attorneys General in bringing
    these actions, given the successful working relationship we've had with
    them in the odometer enforcement area.
    G. Consider Additional Funding to Help Bring All States Online With
            NMVTIS
        NMVTIS has taken a great deal of time to get going, yet it shows
    tremendous promise. Iowa Department of Transportation officials have
    described for me the benefits they've seen in being able to access
    title history information at the point the citizen seeks a title
    transfer, including whether the vehicle had been previously titled as
    salvage or flood. Making that same information available to consumers
    prior to their decision whether to purchase a vehicle is vital. The
    reason for the delay in the establishment of NMVTIS appears to be the
    cost incurred by states having to upgrade their computer auto titling
    systems in order to participate in NMVTIS. Perhaps Congress could
    consider additional funding to the states to assist in this vital
    endeavor.
    IV. Conclusion
        Consumers unknowingly purchasing vehicles which have incurred
    substantial past collision or flood damage is the greatest consumer
    problem regarding used vehicle sales. Other than their homes,
    automobiles are the most expensive items most consumers purchase in
    their lifetimes. Beyond their cost is the importance of motor vehicles
    to our lives, including our means of getting to work and school. Lack
    of a dependable, safe motor vehicle can mean loss of jobs and fewer
    opportunities, especially for the millions of Americans who live in
    places lacking access to mass transit. Consumers are unknowingly paying
    millions of dollars more in the aggregate for these vehicles than they
    are truly worth. Those excess payments line the pockets of scam artists
    who are all too willing to take advantage of a system of auto titling
    which is in substantial need of improvement.
        Congress can help reduce the incidence of salvage and flood fraud
    and assist the marketplace to work more fairly and efficiently.
    Congress can do this by working with the states to establish uniform
    descriptive terms for auto titles, recognition by the states of each
    other's title brands and carrying forward those brands on subsequent
    titles, and require written disclosures when titles are not present. In
    addition, Congress can act to ensure that motor vehicle history
    information systems like NMVTIS, and those of private companies, have
    the information consumers, auto dealers, and law enforcement officials
    require, including title histories and notice of insurance company
    totaled vehicles. Finally, Congress can act to ensure that whatever
    steps are taken can be enforced by the Federal Government and by the
    states.

        Senator Pryor. Thank you very much. By the way, I am a big
    fan of your boss. We served together as attorney general. He is
    fantastic.
        Ms. Chappell.

      STATEMENT OF KAREN CHAPPELL, DEPUTY COMMISSIONER, VIRGINIA
        DEPARTMENT OF MOTOR VEHICLES; ON BEHALF OF THE AMERICAN
                     ASSOCIATION OF MOTOR VEHICLE
                             ADMINISTRATORS

        Ms. Chappell. Thank you, Senator. I am the Deputy
    Commissioner of the Virginia Department of Motor Vehicles, but
    today I am speaking on behalf of the American Association of
    Motor Vehicle Administrators, or AAMVA.
        I would like to thank you for the opportunity to discuss
    two solutions that AAMVA and the State departments of motor
    vehicles believe will help protect consumers from motor vehicle
    fraud: first, increased participation in the federally-mandated
    National Motor Vehicle Title Information System, or NMVTIS; and
    second, uniform salvage branding legislation.
        Congress recognized the consumer value in a system like
    NMVTIS and in 1992 passed the Anti-Car Theft Act. This Act
    directed the States to begin the development and the rollout of
    a national online real-time motor vehicle title history system.
    A 2001 cost benefit analysis commissioned by the Justice
    Department indicated that once fully implemented nationwide,
    NMVTIS has the potential to save consumers from $4 to $11.3
    billion annually.
        When Senator Allen was Governor of Virginia, the
    Commonwealth became one of the first states to join NMVTIS.
    Because of that progressive step, Virginians began to realize
    consumer benefits such as the reduction in brand washing, the
    ability to carry forward brands from other states that did not
    appear on the paper title that we were presented, and the
    detection of stolen motor vehicles.
        States participating in NMVTIS today can detect fraudulent
    titles by verifying the paper title data against what is on the
    electronic record, identify odometer rollbacks by verifying
    odometer readings, determine if a vehicle is stolen, and view
    the brand history and carry forward all state brands.
        Although this system is built, some components that
    Congress stipulated are still not realized, for instance the
    provision of title history reporting by insurance companies and
    junk and salvage yards into NMVTIS. This function is critical
    in noting where insurance claims have been paid on vehicles
    that have been deemed salvaged, not repairable, or flooded. If
    reported directly to the system, this vehicle history would be
    available to participating DMVs as well as to consumers in a
    timely manner. But due to a lack of funding, today NMVTIS
    represents 52 percent of the vehicle population in the United
    States.
        Until the objectives set by Congress in the Anti-Car Theft
    Act are fully realized and every state is online and sharing
    vehicle history data with each other, the consumer will not
    have the information they need to make informed purchase
    decisions.
        Also, consumers need consistency in how each state defines
    all vehicle brands, including salvage, nonrepairable, and
    flood. Criminals can exploit this loophole and vehicle brands
    get lost or washed with an outdated paper title. Lack of
    consistency in branding definitions leaves the consumer at a
    major disadvantage when purchasing a new or used vehicle.
        AAMVA has supported a number of efforts to help establish
    national salvage branding legislation, but to date none have
    been successful. In the absence of Federal legislation, many
    states have enacted additional laws or strengthened existing
    laws governing the titling, or branding of salvage vehicles,
    and in addition, those State DMVs that participate in NMVTIS
    have a useful tool that helps compensate for the lack of
    uniform salvage branding requirements.
        State DMVs and AAMVA are doing their part to protect
    consumers and we ask that you help us to do more to ensure
    consumers have complete protection from motor vehicle fraud.
        I would like to thank you for this opportunity to share our
    members' concerns and welcome any questions you may have.
        [The prepared statement of Ms. Chappell follows:]

      Prepared Statement of Karen Chappell, Deputy Commissioner, Virginia
      Department of Motor Vehicles; on Behalf of American Association of
                          Motor Vehicle Administrators
        Good afternoon, Mr. Chairman and distinguished members of the
    Committee. I am Karen Chappell, Deputy Commissioner of the Virginia
    Department of Motor Vehicles and today I am speaking on behalf of the
    American Association of Motor Vehicle Administrators (AAMVA).
    AAMVA Background
        Founded in 1933, AAMVA is a state-based, nonprofit association
    representing motor vehicle agency administrators, senior law
    enforcement officials, and the industry in the United States and
    Canada. Our members are the recognized experts who administer the laws
    governing motor vehicle operation, driver credentialing, and highway
    safety enforcement. AAMVA plays an integral role in the development,
    deployment and monitoring of both the commercial driver's license (CDL)
    and motor carrier safety programs. The Association's members are
    responsible for administering these programs at the state and
    provincial levels. As a non-regulatory organization, AAMVA uses motor
    vehicle expertise to develop standards, specifications and best
    practices to foster the enhancement of driver licensing administration
    and vehicle titling and registration.
    Consumer Concerns
        AAMVA and its members place the concerns of consumers first. AAMVA
    has long realized the potential danger motor vehicle title fraud
    presents and has worked to combat the problem for years. Motor vehicle
    fraud costs consumers billions of dollars a year with life-threatening
    consequences. It endangers human life by putting unsafe vehicles back
    onto our roads. Title fraud dupes hard-working consumers into buying
    vehicles that look good on paper, but are not safe and reliable.
    Perhaps the most important issue concerning title fraud is the adverse
    effect it has on the consumer. For instance:

       In 2003, over 450,000 cases of odometer fraud cost consumers
            more than $1 billion.

       Roughly 50,000 to 100,000 vehicles have had their Vehicle
            Identification Numbers (VINs) stolen or cloned. Consumers won't
            realize this until after the vehicles have been purchased or
            their numbers have been duplicated.

       Each year 200,000 stolen vehicles are shipped overseas where
            law enforcement organizations believe they are being used or
            resold to fund terrorist activities.

       Each year, 1.5 million motor vehicles are reported stolen at
            an average cost of $5,000 per vehicle, amounting to total costs
            of $8 billion.

       Over 30,000 vehicles were flood-damaged after Hurricane
            Floyd ravaged eastern North Carolina in 1999. An untold number
            of these vehicles were destined to be resold to the
            unsuspecting consumer.

       Most recently, the hurricanes that battered the Gulf Coast
            region caused flood damage to an estimated 500,000 motor
            vehicles. Unfortunately, many of these vehicles will be resold
            to unsuspecting consumers.

    Addressing the Concerns
        I would like to discuss two solutions that AAMVA, and the state
    Departments of Motor Vehicles, believe will help protect consumers from
    motor vehicle fraud: increased state participation in the federally-
    mandated National Motor Vehicle Title Information System or NMVTIS and
    uniform salvage branding legislation.
        Congress recognized the consumer value in a system like NMVTIS, and
    passed the Anti-Car Theft Act in 1992. To comply with this Act the
    states began the development and roll-out of this national online,
    real-time motor vehicle title history system.
        The Anti-Car Theft Act also directed the Secretary of
    Transportation to establish the Motor Vehicle Titling, Registration and
    Salvage Advisory Committee to study problems which relate to motor
    vehicle titling, vehicle registration, and controls over motor vehicle
    salvage which may affect the motor vehicle theft problem. The Advisory
    Committee, which included motor vehicle administrators and other
    stakeholders, developed recommendations in 1994 which AAMVA continues
    to support. While AAMVA realizes that a number of efforts to establish
    national standards have been unsuccessfully attempted, the Association
    feels that NMVTIS helps alleviate some of the concerns this lack of
    uniformity presents. While national standards for title branding at the
    time the Advisory Committee was established were of paramount
    importance, years later, the capability of NMVTIS to communicate a
    vehicle's title history between jurisdictions helps mitigate the need
    for identical matches on brands among jurisdictions.
        The importance of NMVTIS as a reporting mechanism can best be
    illustrated by the fact that a 2001 Justice Department cost-benefit
    analysis indicated that, once fully implemented nationwide, NMVTIS has
    the potential to save consumers from $4 to $11.3 billion  annually.
        A pilot evaluation report of NMVTIS conducted by AAMVA in 1999
    further indicates that:

       NMVTIS can be used to instantly and reliably verify
            information on the previous state's title document prior to
            issuing a new title. During the pilot period, data verification
            occurred 97 percent of the time within the performance
            requirement of 7 seconds.

       NMVTIS deters fraud by reducing the occurrence of title
            washing. Brands are washed from titles when the state that
            issues the new title does not carry forward a brand issued by
            some previous state. Since NMVTIS maintains brands on a central
            file, they are available to any inquirer and are never washed
            from titles. Using data from the pilot, NMVTIS could prevent
            approximately 57,000 titles from being washed per year.

       NMVTIS reduces the issuance of stolen titles to stolen
            vehicles. Many state DMVs do not conduct NCIC checks prior to
            vehicle titling. Pilot data show that use of NMVTIS could
            effect a cost avoidance of almost $214 million per year in
            insurance payoffs on stolen vehicles.

       Law enforcement officials believe that NMVTIS provides
            significant value as well. Law enforcement agencies, such as
            auto theft task forces, can use NMVTIS to investigate thefts
            and recover vehicles. AAMVA is also analyzing possible
            enhancements to NMVTIS, such as inclusion of export data, which
            will provide even more assistance to auto theft investigators.

        Senator Allen, when you were Governor, the Commonwealth became one
    of the first states to join NMVTIS. And because of that progressive
    step, Virginian's began to realize such consumer benefits as a
    reduction in brand washing, the ability to carry forward brands that
    did not appear on the paper title and the detection of stolen motor
    vehicles.
        States participating in the system today:

       detect fraudulent titles by verifying paper title data
            against electronic records,

       identify odometer rollbacks by verifying odometer readings,

       determine if a vehicle is stolen, and

       view the brand history and carry forward all state brands.

        Although this system is built, some components that Congress
    stipulated are still not realized; specifically, these include the
    provision of data by insurance companies and junk and salvage yards
    into NMVTIS. This function is critical in noting where insurance claims
    have been paid on vehicles deemed salvage, total loss or flooded. If
    reported directly to the system, this vehicle condition would be
    available to participating DMVs, as well as consumers, in a timely
    manner, preventing them from becoming victims of inaccurate or untimely
    title information. If this reporting mechanism had been in place before
    hurricanes struck the Gulf, the concerns about the current situation
    would not be as great.
        But due to lack of Federal funding, today NMVTIS represents 52
    percent of the vehicle population in the United States. Until the
    objectives, set by Congress in the Anti-Car Theft Act, are fully
    realized and every state is online and sharing vehicle title history
    data with each other, consumers will not have the up-to-date
    information they need to make informed purchase decisions.
        Also, consumers need to know how each state defines all vehicle
    brands, including: salvage, junk and flood. Criminals can exploit the
    loophole created by an absence of standardized vehicle brands. In
    addition, vehicle brands get lost, or washed, when outdated paper
    titles are used to create new titles. Lack of consistency in branding
    definitions leaves the consumer at a major disadvantage when purchasing
    a new or used motor vehicle.
        AAMVA has supported a number of efforts to help establish national
    salvage branding legislation. But to date, none have been successful.
    In the absence of Federal legislation, many states have enacted
    additional laws or strengthened existing laws governing the titling or
    branding of salvaged motor vehicles. In addition, state DMVs
    participating in NMVTIS have a useful tool that helps compensate for
    the lack of uniform salvage branding legislation.
        AAMVA also works to help DMV employees more quickly and accurately
    spot fake titles by continuing to advance its Vehicle Document Examiner
    Certification Program (VDEC). This program provides instruction on:

       Fraud prevention and employee responsibility,
       How to effectively examine features of vehicle documents,
       Alteration and counterfeit detection techniques,
       Basic interviewing techniques used in customer service, and
       Recognition of jurisdictional policies and procedures.

        This national training program increases vigilance for fraudulent
    documents among title examiners as well as educating them about
    statutes, policies and procedures. The VDEC program provides better
    service and security in state DMVs and will deter fraudulent
    enterprises.
        State DMVs and AAMVA are doing their part to help protect consumers
    from motor vehicle fraud. Please help us do more to ensure consumers
    have better protection from motor vehicle fraud.
        Mr. Chairman, thank you for the opportunity to share our members'
    concerns. AAMVA applauds your efforts in addressing the issue of motor
    vehicle title fraud and feels strongly that with the support of
    Congress, the solution is well within reach.
        I welcome your questions.

        Senator Pryor. Thank you very, very much.
        I know the Chairman does not want to take any recesses, but
    we are about 5 minutes past due on this vote, so let me do
    this. Let me just take a very brief recess. Hopefully, it will
    be less than a minute because he will walk in. Let me race down
    and vote and then come right back. So if you do not mind, just
    hold tight for a couple of minutes here until Senator Allen
    gets back. Thank you. I will be back.
        [Recess from 2:54 p.m. to 2:56 p.m.]
        Senator Allen [presiding]. I call the Subcommittee back to
    order. I ran into Senator Pryor on the elevator in passing. We
    are going to have 10-minute votes, which is going to make this
    really, really difficult, but it should not be too much.
        As I understand it, Mr. Brauch and Ms. Chappell have
    testified. Mr. Bryant, you have not started.

             STATEMENT OF ROBERT M. BRYANT, PRESIDENT/CEO,
                    NATIONAL INSURANCE CRIME BUREAU

        Mr. Bryant. That is correct.
        Senator Allen. OK. Well, we would now like to hear from
    you, Mr. Bryant.
        Mr. Bryant. I am delighted. Good afternoon, Chairman Allen.
    My name is Bob Bryant and for the last 6 years I have been
    President and Chief Executive Officer of the National Insurance
    Crime Bureau. Prior to this position I was a Special Agent with
    the Federal Bureau of Investigation, retiring as Deputy
    Director in 1999.
        NICB was created in 1912 and is the Nation's premier
    nonprofit organization dedicated exclusively to fighting
    insurance fraud and vehicle theft, crimes that impose about $30
    billion annually in losses to the property and casualty
    industry and the American public and the policyholders. Our
    more than 350 employees strive every day to prevent and detect
    such crimes as car theft and fraudulent sale of damaged
    vehicles to the American consumer. With the support of more
    than 1,000 member insurers and self-insured companies, NICB
    offers the most complete array of expert fraud solutions from
    any single source in the world, including investigating all
    types of property and casualty insurance fraud.
        It is within this context that salvage and flooded vehicles
    present an economic and safety concern for the Nation's
    consumers. The entire problem with salvage and flooded vehicle
    fraud can be condensed into two words: title disclosure.
    Disclosing the condition of a vehicle as salvage or flood-
    damaged is all that is necessary to defeat this problem.
    However, there is a vast amount of money to be made by selling
    these vehicles to unsuspecting consumers.
        For example, let us take a 2004 Chevy Tahoe that has a
    resale value of $28,000. If that same vehicle was damaged in
    the floods of Hurricane Katrina, it might now be worth only
    around $5,000 as salvage. If you take that same Tahoe and spend
    $3,000 to detail it and remove any obvious signs of water
    damage, you may be able to sell it for close to $28,000. In one
    transaction, you have made a net gain of $20,000. If you
    multiply that by the potential given by the thousands of
    vehicles affected by Hurricanes Katrina, Rita, and Wilma,
    including recent floods in the Northeast, you can quickly
    appreciate what makes this fraud so pervasive and enticing.
        However, beyond the gain to the perpetrator and the
    criminal, is the economic and personal harm to innocent people.
    While stealing a vehicle requires a certain amount of stealth,
    daring, and knowledge, passing it off as a clean resale is an
    art form. People who traffic in stolen vehicles know what it
    takes to obtain a clean title and how to produce counterfeit
    vehicle identification numbers, or VIN. These two items are the
    core of the problem with salvage, flood-damaged vehicles, and
    stolen vehicle traffic.
        A title to a vehicle is its birth certificate, while its
    VIN is its fingerprint. When a new vehicle is sold by a dealer,
    the state issues a title. That title follows the vehicle from
    owner to owner, state to state. The VIN remains with the
    vehicle forever. Each VIN is unique to the vehicle to which it
    was issued by the manufacturer, but both these items are
    fraudulently duplicated, altered, or otherwise manipulated to
    enable the fraudulent resale of defective or stolen vehicles.
        In a perfect scenario, once a vehicle is declared salvaged
    or flood-damaged and the title is branded as such, that
    description should never be removed. However, there are states
    where the titling process does not pick this up, and many times
    a clean or new title is issued for such vehicles, and sometimes
    it is a simple procedure. That process is known as ``title
    washing'' and it occurs by simply taking a branded title
    through a state with lax titling requirements and having a
    clean title issued in return. A clean title is the ``Holy
    Grail'' for those who make a living selling defective or
    damaged vehicles to innocent people.
        One other area I would like to add is on cloning. In
    addition to salvage and flooded vehicle fraud, cloning is a
    trend that NICB finds with increasing regularity.
        [Bell rings.]
        Mr. Bryant. Is my time up?
        Senator Allen. Keep going.
        Mr. Bryant. OK.
        Senator Allen. No, that is not for you.
        Mr. Bryant. That is for you, right?
        [Laughter.]
        Mr. Bryant. I am glad I do not have to vote.
        Cloning is the auto theft of the new millennium. Unlike VIN
    switching, where a person applies a VIN plate from one vehicle,
    usually a salvage vehicle, to another, usually a stolen one,
    cloning occurs when a person applies a counterfeit VIN from
    another vehicle to an identical stolen vehicle. Thus, there are
    two vehicles carrying the same vehicle identification number.
        We see many cases where we have five vehicles registered in
    five different states, all with the same vehicle identification
    number, and this is really an increasing issue we see all the
    time.
        I guess the one thing I would just say, certainly more
    important than preventing economic losses resulting from these
    types of flood potential, are serious injury or death due to
    mechanical failure of flood-damaged vehicles. Every flood-
    damaged or salvage vehicle that is fraudulently sold to an
    unsuspecting buyer is a potential coffin-on-wheels for that
    person and their family. A vehicle that has been under water
    for any period of time is bound to experience severe electrical
    and mechanical difficulties. It is only a matter of time before
    that vehicle is liable to fail.
        NICB and our member companies and law enforcement recognize
    the unprecedented magnitude of the flood-damaged vehicles that
    the recent hurricanes brought about. Along with the flooding
    that resulted from the levee failures around New Orleans, the
    number of flood-damaged vehicles were estimated at between
    300,000 and 500,000. We acted quickly to try to get in front of
    the fraud that these numbers would surely bring. With the total
    support of our member companies and working side-by-side with
    law enforcement professionals in Alabama, Louisiana,
    Mississippi, and Texas, NICB sent teams of special agents into
    the region to begin collecting the vehicle identification
    numbers for the creation of a database storing all of the
    vehicles damaged by the hurricanes or floods.
        It was not long after this process that we decided to offer
    a way for consumers to query this database at no cost to
    prevent them from buying a lemon. On October 17, this feature
    was activated on our website, nicb.org. Presently a consumer
    can simply place a vehicle identification number in the search
    feature and see if that specific vehicle was affected by the
    storms.
        The Katrina database has proved to be a very popular
    feature with our colleagues in the industry, law enforcement,
    consumer groups, and the media. As of today, it has been linked
    through the websites of several states to allow direct access.
    My principal concern is that I do not want anyone buying one of
    these cars if it is going to harm them.
        The recommendation is that loopholes in State titling
    procedures have been apparent for decades. As we confront the
    challenges posed by this season's hurricanes, the need for
    Federal action is beyond urgent. First, if insurers or other
    owners terminate a vehicle's title, it should not be re-issued.
    As long as a single state is willing to re-title a non-
    repairable vehicle, then plates will be bought or reproduced,
    and slapped on the stolen or salvaged vehicles.
        Second, where vehicles can be restored to safe operating
    condition, any brand indicating that a vehicle is a salvage or
    flooded vehicle should be carried forward in any title record.
    Consumers can then make choices.
        Finally, all crucial vehicle titling information should be
    electronically available, not only to law enforcement, but to
    every insurer and consumer.
        Thank you, Senator.
        [The prepared statement of Mr. Bryant follows:]

            Prepared Statement of Robert M. Bryant, President/CEO,
                        National Insurance Crime Bureau
        Good afternoon Chairman Allen, Ranking Member Pryor, and
    distinguished members of the Subcommittee. My name is Bob Bryant, and
    for the last six years, I have been President and Chief Executive
    Officer of the National Insurance Crime Bureau. Prior to this position,
    I was a Special Agent of the Federal Bureau of Investigation, retiring
    as Deputy Director in 1999.
        The National Insurance Crime Bureau (NICB) was created in 1912, and
    is the nation's premiere nonprofit organization dedicated exclusively
    to fighting insurance fraud and vehicle theft; crimes that impose more
    than $30 billion annually in losses to insurance companies and their
    policyholders. Our more than three hundred employees strive every day
    to prevent, detect and deter such crimes as car theft and the
    fraudulent sale of damaged vehicles to American consumers. With support
    from more than one thousand member insurers and self-insured companies,
    NICB offers the most complete array of expert fraud solutions from any
    single source in the world, including investigating all kinds of
    property and casualty insurance fraud.
        It is within this context that salvage and flood vehicles present
    an economic and safety concern for the nation's consumers. The entire
    problem with salvage and flood vehicle fraud can be condensed into one
    word--``disclosure.'' Disclosing the condition of a vehicle as salvage
    or flood-damaged is all that is necessary to defeat this problem.
    However, there is a vast amount of money to be made by selling these
    vehicles to unsuspecting consumers.
        For example, let's say a 2004 Chevy Tahoe has a resale value today
    of $28,000. If that same vehicle was under water in New Orleans, it
    might now be worth only $5,000 as salvage. If you take that same Tahoe
    and spend $3,000 to detail it and remove any obvious signs of water
    damage, you may be able to sell it close to its $28,000 value. In one
    transaction, you have a net gain of $20,000. If you multiply that
    activity by the potential given the thousands of vehicles affected by
    Hurricanes Katrina, Rita, and Wilma, including the recent floods in the
    Northeast, you can quickly appreciate what makes this kind of fraud so
    pervasive and enticing. However, beyond the pure gain to the
    perpetrator of this kind of fraud is the economic cost to innocent
    people.
        A person engaging in this kind of activity is not going to obtain
    replacement parts from a legitimate supplier. More than likely, the
    source of parts required to make salvage or flood vehicles appear
    pristine is a stolen identical vehicle.
        While stealing a vehicle requires a certain amount of stealth,
    daring, and knowledge, passing it off as a clean resale is an art form.
    People who traffic in stolen vehicles know what it takes to obtain a
    clean title and how to produce a counterfeit vehicle identification
    number or VIN. Those two items are at the core of the problem with
    salvaged, flood-damaged, and stolen vehicle trafficking.
    Title Washing
        A title is a vehicle's birth certificate, while a VIN is its
    fingerprint. When a new vehicle is first sold by a dealer, the state
    issues a title. That title follows the vehicle from owner to owner,
    state to state. The VIN remains with a vehicle forever. Each VIN is
    unique to the vehicle to which it was issued by the manufacturer, but
    both of these items are fraudulently duplicated, altered, or otherwise
    manipulated to enable the fraudulent resale of defective or stolen
    vehicles.
        In a perfect scenario, once a vehicle is declared salvage or flood-
    damaged and its title ``branded'' as such, that description should
    never be removed. However, there are states where the titling process
    is lax that having a new, clean title issued for such vehicles is a
    simple procedure. That is the process known as ``title washing,'' and
    it occurs by simply taking a branded title through a state with lax
    titling requirements, and having a clean title issued in return. A
    clean title is the Holy Grail for those who make a living selling
    defective or damaged vehicles to innocent consumers because once you
    have that clean title, there is nothing to prevent selling that vehicle
    for market value as a perfectly fine used vehicle.
    Cloning
        In addition to salvage and flood vehicle fraud, cloning is a trend
    that NICB finds with increasing regularity. Cloning is auto theft for
    the new millennium. Unlike VIN switching, where a person applies a VIN
    plate from one vehicle (usually a salvaged vehicle) to another (usually
    a stolen one), cloning occurs when a person applies a counterfeit VIN
    from another vehicle to an identical stolen vehicle. Thus, there are
    two vehicles carrying the same VIN. NICB has investigated situations
    involving five vehicles--all with the same VIN--meaning that four of
    them were stolen.
    Consumer/Public Safety
        Certainly more important than preventing economic losses resulting
    from these kinds of fraud is preventing potential serious injuries or
    even death, due to mechanical failure of a flood-damaged vehicle.
        Every flood-damaged or salvaged vehicle that is fraudulently sold
    to an unsuspecting buyer is a potential coffin on wheels for that
    person and their family. A vehicle that has been under water for any
    period of time is bound to experience severe electrical and mechanical
    failures. It is only a matter of time, and should that failure occur
    while on the interstate, well you can imagine the terrible
    consequences.
        Similarly, a salvaged vehicle made whole for fraudulent resale is
    not likely to sport original equipment manufacturer replacement parts,
    or even new after-market parts, as the motive for these people is
    profit (not safety) and there is less profit in using good parts. Thus,
    that salvage resale has a high potential for mechanical or electrical
    failure, and should that occur at high speed on an interstate, the
    consequences are grim.
    NICB Katrina Database
        NICB, our member insurance companies, and law enforcement
    recognized the unprecedented magnitude of flood-damaged vehicles that
    Hurricanes Katrina, Rita and, more recently, Wilma left in their paths.
    Along with the flooding that resulted from the levee failures around
    New Orleans, the number of flood-damaged vehicles was estimated to be
    between 300,000 to 500,000.
        NICB acted quickly to try and get in front of the fraud that these
    numbers would surely bring. With the total support of our member
    companies and working side-by-side with law enforcement professionals
    in Alabama, Louisiana, Mississippi and Texas, NICB sent teams of
    Special Agents into the region to begin collecting VINs for the
    creation of a database storing all of the vehicles damaged by the
    hurricanes or floods.
        It was not long after this process began that I decided to offer a
    way for consumers to query this database--at no cost--to prevent them
    from buying a lemon. On October 17, this feature was activated on our
    website www.nicb.org. Presently, a consumer can simply place a VIN into
    the search feature and see if that specific vehicle was affected by
    these storms.
        The Katrina Database has proved to be a very popular feature with
    our colleagues in the industry, law enforcement, consumer groups, the
    media and the states. As of today, several states have linked their
    websites with ours to allow their residents direct access.
    Recommendations
        The loopholes in state titling procedures have been apparent for
    decades. As we confront the challenges imposed by this season's
    hurricanes, the need for Federal action is beyond urgent. Our efforts
    and the efforts of those engaged in the fight against fraud would be
    far more effective if Congress would assure the following improvements.
        First, if insurers or other owners terminate a vehicle's title, it
    should not be reissued. As long as a single state is willing to re-
    title a non-repairable vehicle, VIN plates will get bought or
    reproduced, and slapped onto stolen or salvaged vehicles, and rebuilt
    wrecks will endanger the lives of everyone on the highway.
        Second, where vehicles can be restored to safe operating condition,
    any brand indicating that a vehicle was a salvage or flood vehicle
    should carry forward to any new title record. Consumers then can make
    intelligent choices about the value of that vehicle, and thieves cannot
    use the titling records for those vehicles in their illegal operations.
        Finally, all of the crucial vehicle titling information should be
    electronically available not only to law enforcement, but to every
    insurer and consumer.
        We look forward to working with the Committee in our joint efforts
    to keep Hurricane Katrina and other disasters from haunting American
    car buyers for years to come. Thank you.

        Senator Allen. Thank you, Mr. Bryant. We appreciate your
    testimony.
        We would like to hear from Ms. Shahan.

      STATEMENT OF ROSEMARY SHAHAN, PRESIDENT, CONSUMERS FOR AUTO
                         RELIABILITY AND SAFETY

        Ms. Shahan. Thank you, Mr. Chairman. I am Rosemary Shahan,
    President of Consumers for Auto Reliability and Safety, which
    is a nonprofit consumer group based in Sacramento. Since 1979,
    I have worked on behalf of consumers on the State and Federal
    level, and I really appreciate your and the Committee's
    interest in working with everyone to help protect consumers
    from flooded and salvage fraud.
        I think everyone agrees that there is a problem, that we
    need some Federal assistance to address it. I would like to
    enter into the record, if I could, this article. It is a report
    from the 2002 January issue of Consumer Reports magazine and it
    has----
        Senator Allen. It will be entered in the record. By the
    way, I do not know if Senator Pryor said. All of you, to the
    extent you may summarize your statements, your full statements
    will be put in the record, as well, of course any documentation
    that any of you so desire.
        [The information referred to follows:]

                         Consumer Reports, January 2002

                               Wrecks In Disguise

        When a car or truck has been so badly damaged in an accident that
    an insurance company declares it a total loss, it usually means the
    labor and parts required for proper repair would cost too much, given
    the vehicle's worth. You might think that would put severely damaged
    vehicles on a one-way trip to the junkyard for parts or scrap.
        Instead, hundreds of thousands of these wrecks make a U-turn each
    year and get right back on the road. One big reason: Insurance
    companies, which own the piles of twisted metal after they pay off a
    total-loss claim, have discovered they can get more bucks for the bang-
    ups if they sell the wrecks at salvage auctions. The practice has
    fostered a thriving industry that rebuilds severely damaged vehicles--
    craftily enough to hide their traumatic pasts yet cheaply enough to
    turn a sizable profit.
        Some of the new breed of rebuilders are refugees from criminal
    pursuits, says Bill Brauch, director of the consumer-protection
    division of the Iowa attorney general's office. ``Instead of rolling
    back odometers, people who wanted to defraud consumers turned to
    rebuilding damaged cars whose history could be concealed,'' he says.
        This shadow auto industry now annually beats, bends, and bangs out
    as many as 400,000 rebuilt wrecks that are five or fewer model-years
    old, Consumer Reports estimates; no authority keeps track of the total.
    That represents 3 percent of the 13 million used vehicles sold in that
    model-year group in 2001. But the number looms large, because rebuilt
    wrecks, like all used vehicles, are not subject to Federal safety
    standards.
        Insurers say that as much as they disdain shoddy rebuilding, they
    cannot stop it. ``Once we sell the vehicle to a salvage yard, there's
    very little we can do to influence the process,'' says Mary Beth
    McDade, a spokeswoman for Progressive Insurance, the nation's fourth
    largest auto insurer.
        The Highway Loss Data Institute (HLDI), a leading highway-safety
    institute funded by the insurance industry, and several other data
    providers hold key information that could help reveal the scope of the
    problem. But industry officials say they cannot release their data,
    citing confidentiality concerns and contractual prohibitions. As a
    result, the full extent of this murky enterprise is largely unknown.
        But according to a Consumer Reports study using data from the
    National Highway Traffic Safety Administration (NHTSA) and the database
    of Carfax, a company that sells vehicle history reports to consumers
    and businesses, 20 percent of vehicles that were damaged severely
    enough to be ``totaled''--that is, labeled by an insurer as not worth
    repairing--after fatal accidents in the U.S. from 1993 through 1999
    were rebuilt, reregistered, and put right back on the road.
        Our six-month investigation also found the following:

       There's no way for consumers to know for sure the history of
            a used vehicle. States have widely differing laws concerning
            rebuilding practices and damage disclosure, and critical
            oversight is lacking in most states. It's not uncommon for
            rebuilt wrecks to hopscotch from state to state, receiving new
            titles ``washed'' of any hint of past problems.

       Overall, 30 percent of vehicles that had been totaled after
            a fatal accident and then put back on the road with a title
            that disclosed the damage had that disclosure subsequently
            removed, our study found.

       Wrecked cars can be rebuilt safely, experts say. But there
            are strong financial incentives to cut corners. Consumers
            should especially steer clear of newer-model vehicles that have
            been totaled and rebuilt, unless a trusted mechanic can vouch
            for the repairs. The damage is usually severe, which can
            encourage rebuilders to skimp on repairs to make a profit.

        This report tells you the best way to identify such vehicles before
    you buy a used car and what to do if, after reading this, you think you
    may own one.
    Flawed Disclosure
        Used-car buyers have always had to be wary of unscrupulous
    individuals fobbing off a ``cream puff'' previously creamed in an
    accident. In all states except Wyoming and the District of Columbia,
    the used car's certificate of title is supposed to tell about severe
    accident damage. But title disclosure is incomplete. For starters,
    accident disclosure is required only if damage exceeds typically 70
    percent or more of the vehicle's pre-accident book value or the insurer
    declares the vehicle a total loss. Lesser damage is not disclosed on
    the title.
        In most cases, when an insurance company declares a total loss, it
    pays off the policyholder's claim and takes title to the vehicle.
    Often, the insurer must then apply for a different type of title for
    that vehicle, one generically known as ``salvage,'' though different
    states use other designations, including ``junk,'' ``unrebuildable,''
    ``scrap,'' and ``parts only.'' Whatever it's called, a salvage title's
    key distinction is that it declares the wreck not worth repairing, as
    far as the insurer is concerned, and doesn't allow the vehicle to be
    operated on public roads.
        At this point, the wreck itself usually sits at a salvage auction
    company, which often obtains the salvage title and handles other
    paperwork as agent for the insurer. Three national chains, ADESA
    Impact, Copart, and Insurance Auto Auctions, sell insurance salvage
    vehicles almost exclusively at auctions throughout the country and
    handle about half of the estimated 2.5 million vehicles totaled each
    year. (Other auction chains sell unwrecked fleet, auto-rental company,
    and off-lease vehicles.)
        From here, the car or truck might be sold to a dismantler for
    parts, a scrap processor, or a rebuilder or used-car dealer who works
    with a rebuilder to put the vehicle back together. In any event, the
    salvage title is transferred from the insurer to the buyer. If the
    wreck is rebuilt, it must regain a type of title that allows it to
    again operate on public roads. That's almost easier done than said
    because the majority of states require no special inspection of rebuilt
    wrecks. When inspection is required, it's often cursory, industry
    experts say.
        Consider this red-letter warning on California salvage titles:
    ``The vehicle described herein has been declared a total loss salvage
    vehicle'' and ``may not be registered without a brake and light
    inspection.'' The title says nothing, for example, about the frame,
    suspension, or air bags.
        When a new title is issued for a rebuilt wreck, disclosure about
    prior damage leaves much to be desired. Every state uses different
    designations and methods of notice. Among the worst: Colorado, which
    alerts consumers that the vehicle was rebuilt with an ``R'' on the
    title in front of the vehicle's identified ``make,'' in same-size type.
    Among the best: Washington state, which requires ``WA REBUILT'' in big
    letters running diagonally across the title.
        The lack of uniform titling is made worse by the fact that states
    can't easily share information with one another. The National Motor
    Vehicle Title Information System, a computerized database designed to
    connect all state motor vehicle departments, may alleviate the problem,
    but it has been bogged down in development and may not be fully
    operational for several years.
    Do the Math
        Salvage disclosure leaves another mark on a vehicle: It diminishes
    book value--even if the car or truck is rebuilt as good as new.
        Say you have a choice between two used cars, which you know are
    identical except for this: Car #1 had been totaled and rebuilt; Car #2
    was never so much as dinged by a shopping cart. Which would you want?
        Of course you'd prefer Car #2, because Car #1 comes with the
    uncertainty of hidden damage. If the title does not divulge the
    accident, Car #1 can be sold for its regular book value. But if the
    damage becomes known, book value diminishes dramatically. ``At best, a
    vehicle that's had a salvage title would be worth half its Blue Book
    value, even after repair,'' says Charlie Vogelheim, executive editor of
    Kelley Blue Book, a leading publisher of used-car prices.
        That's because the market of potential buyers shrinks to only those
    willing to buy uncertain quality. And for that gamble, informed buyers
    demand a steep discount.
        But that puts a squeeze on rebuilders. If you rebuild a total-loss
    vehicle by the book--with salvage titling, repairs that might be
    specified by an insurer, full disclosure to the consumer, and a sale
    price based on the diminished book value--you'd be hard-pressed to make
    a profit.
        Consider an extended-cab 1993 Chevrolet K1500 pickup we found in
    Florida. It had a book value of $18,150 as of March 8, 1995. That was
    just before it sustained more than $14,520 in damage in a fatal
    rollover on Interstate 4 near Tampa, according to the application for
    salvage title filed by Progressive Insurance. With a salvage title, the
    book value of the rebuilt pickup drops to $9,075.
        So how could a rebuilder afford to spend several thousand dollars
    to buy the wreck, plus $14,520 more that Progressive certified it
    needed in repairs? Even if the rebuilder's labor costs were far lower
    than Progressive estimated, there would be little room for a profit.
        The Chevy pickup was rebuilt. We tracked it to Kentucky, where it
    was sold for $16,775, records show. More on that later.
    The Safety Threat
        Rebuilders have been around for as long as there have been car
    accidents. And many do high-quality work. Some use their mechanical
    know-how to create labor-of-love bargains for family and friends.
    Collision repair shops often keep a rebuild project on premises to
    occupy employees during slack times. And car buffs like Bill Plain--
    ``Plain Old Bill'' to folks around Ocala, Fla.--save money on the cost
    of parts by specializing in one favorite model; Plain rebuilds pre-1992
    Mazdas.
        But a different group of rebuilders elbowed their way into salvage
    auction yards in the 1990s. These rebuilders were on the prowl for
    quick, high profits.
        ``Backyarders,'' as they are called, often have neither the
    expertise nor the equipment to do the job right. ``They'll take the car
    to their backyard, tie it to two trees, and pull out the frame that
    way,'' says George Menchen, a rebuilder and retired collision-repair-
    shop owner from Santa Rosa, Calif.
        Supply is no problem, since insurers realized they can make far
    more money selling wrecks at auto auctions than to junkyards. ``State
    Farm has always tried to recover as much as we can from salvage,'' says
    Dave Hurst, spokesman for State Farm, the Nation's largest insurer. Kim
    Hazelbaker, senior vice president at HLDI, the insurance-industry
    research group, says insurers have been intent on extracting more
    dollars from wrecks in recent years because of thin industry profits.
    ``They're trying to lower costs; one way to do that is to reclaim
    significant value from salvage vehicles,'' Hazelbaker says.
        According to a 1997 HLDI study, insurers recovered $2,756 on
    average per totaled 1995-97 model-year car or passenger van sold as
    salvage, or 18 percent of what they paid out in total-loss claims for
    those vehicles. And they received $4,293 per totaled pickup, sport-
    utility vehicle, or large van. That's 23 percent of total-loss claim
    payouts for those vehicles. Those prices were for one- and two-year-
    old, low-mileage vehicles, the cream of the rebuilding crop. Many more
    older cars and trucks--more than five years old--are totaled and
    salvaged, too, but their high mileage, age, and lower book value make
    them less attractive for rebuilding. By contrast, insurers are paid
    only a few hundred dollars to a thousand dollars or so for parts-only
    vehicles and maybe $50 for those destined for the scrap shredder.
        We estimate that insurers recover about $1 billion a year from the
    salvage sale of wrecks five or fewer model-years old and $2.5 billion
    annually from wrecks of all ages, based on information from State Farm;
    analysts at A.M. Best, which rates the financial soundness of insurance
    companies; and ADESA Corp., owner of the third-largest salvage auction
    chain.
        Are rebuilt wrecks safe?
        ``It is possible to make repairs to a vehicle that had been
    involved in a severe crash in such a way that the resulting vehicle has
    a structure that is similar to an uncrashed vehicle,'' says Bob Lange,
    executive director for safety integration at General Motors. ``But if
    it's not properly repaired, the safety performance of the original
    product could be compromised.''
        To understand how easily safety can be shortchanged, you have to
    consider new-car design and development. Today's unibody vehicles are
    engineered as a single crash-protection unit. All individual components
    are aligned to work together to one end: Dissipate the fantastic crash
    energy created when 3,000 to 5,000 pounds of machinery rapidly
    decelerates from 55, 35, or 20 mph to zero so that the people inside
    can safely ``ride down'' the same deceleration with minimal injury.
        New vehicles must comply with Federal safety standards. To test and
    refine their design, automakers conduct up to 100 crashes using 50 or
    more prototypes that cost $300,000 to $800,000 each.
        By contrast, the rebuilding industry is subject to almost none of
    that rigor.
    Cutting Corners
        If rebuilders replace all damaged parts, the level of safety should
    be the same, because the repairer would be simply replicating the
    original safety engineering. That, however, can be expensive, so even
    reputable mechanics take shortcuts. Experienced hands can do that
    without shortchanging safety. The problem comes when such repairs are
    made by rebuilders out to make a fast buck. By so doing, they can
    create a vehicle very different from the one Detroit intensively
    tested.
        Potential problem areas include:
        Sectioning. Instead of replacing a damaged critical structural
    component with a new one, rebuilders cut out only the damaged section
    and splice in a new piece. This procedure has the blessing of
    automakers and of the Allstate subsidiary Tech-Cor, a repair facility
    that develops ``cost-effective repair procedures,'' according to a
    company bulletin, and shows anyone with a computer and Internet access
    how to do it.
        But a Tech-Cor bulletin warns that sectioning must be performed
    only by a properly-trained technician, requires the use of accepted
    procedures, and must maintain the vehicle's ``original energy
    management characteristics intact to ensure the proper functioning of
    passenger safety devices.''
        ``We regularly conduct rigorous testing procedures, including crash
    tests, to validate the effectiveness of replacement procedures,'' Jack
    Ribbens, Tech-Cor's engineering manager, wrote in an e-mail exchange
    with Consumer Reports. When asked for details, and for comment on the
    issue of untrained rebuilders using such techniques, Allstate and Tech-
    Cor declined to be interviewed.
        Bending, banging, cutting, welding. Pry bars, hammers, and welding
    torches provide cheaper fixes than replacement with a whole new part.
    The problem is that when high-strength steel alloys are torched, some
    lose their strength and rigidity while others lose their flexibility.
    ``If the rigidity of the metal changes, the crash pulse that the air-
    bag sensor has to feel may change and the air bag may fire too soon or
    too late,'' says Priya Prasad, manager of safety research and
    development at Ford Motor Co.
        Clipping. This procedure involves cutting two smashed vehicles of
    the same make and model in half and welding the undamaged half of one
    to the undamaged half of the other.
        ``Clipping can be done in a safe manner, provided it's done
    properly,'' says Lou DiLisio Jr., Chairman of the Collision Industry
    Conference, a repair-shop education and training group. But without
    Federal safety standards and government inspections, who's to know
    whether this intricate procedure is done properly?
        Cheating on air bags. Air bags are expensive, so ``a lot of lower-
    cost vehicles get totaled because of air-bag deployment,'' says John
    Eager, senior director of claims services for the National Association
    of Independent Insurers. He added: ``You can spend $3,300 just for the
    air-bag system alone.''
        Rebuilders can save thousands by forgetting the air bags. ``There
    are cars out there right now that had air bags deployed and were
    rebuilt and never had a new bag put in,'' says Richard Morse, who
    chaired NHTSA's Motor Vehicle Titling Registration and Salvage Advisory
    Committee.
        Alternatively, rebuilders can use recycled air bags, which are
    cheaper than factory-fresh replacements. But Robert Redding, the
    Washington, D.C., lobbyist for the Automotive Service Association, a
    trade group comprising 15,000 collision repair shops, says the risks of
    using recycled air bags is an important issue that has been ignored by
    safety regulators. ``These things are very sophisticated pieces of
    electronic equipment, and when you see 60 used air-bag modules sitting
    on the ground underneath a tin shed in a salvage yard, that's a little
    scary,'' says Redding, who notes they can be damaged by exposure to the
    elements.
        The Insurance Institute for Highway Safety (IIHS) recommends
    against recycled air bags because of the risk that they may come from
    the hundreds to thousands of cars that are flooded each year. The air-
    bag system's electronic diagnostics ``cannot check whether the module
    itself, the folded air bag, gets damp or wet,'' says Brian O'Neill,
    IIHS president. ``If it does get wet, that can impede the way the air
    bag unfolds.''
        Not replacing safety belts. The most effective piece of safety
    equipment is also the most easily overlooked by a rebuilder and used-
    car buyer. Belts protect passengers and help them gradually decelerate
    by stretching, which permanently damages the belt. The belt retractors
    have metal spikes that become permanently damaged as well, as they bite
    into the belt to hold the load constant. Belts and retractors should be
    replaced after a frontal crash at speeds of 15 mph or higher or if the
    belts are frayed or their fibers have been partially melted together by
    friction, advises Prasad of Ford.
        Internal corrosion. This can be created by sloppy welds or failure
    to apply zinc-based undercoating--though generous undercoating is a
    favorite cover-up for shoddy workmanship. But the biggest corrosion
    problems start with vehicles that have been submerged above the door
    sill in floodwaters--especially salt water--that invade the sensitive
    electronic components in the dashboard and engine. Air-bag sensors and
    electronics can be harmed as well.
        Flood cars can be properly restored, says Plain, the Ocala, Fla.,
    rebuilder, but it takes about 75 hours to strip the car down to its
    shell, replace all electronics, wash the upholstery, and dry up and
    protect wiring and connections. Such work isn't cheap, either.
        Because much of that work can be left undone and undetected, other
    collision repairers and experts recommend that consumers avoid vehicles
    that have slept with the fishes. When only a cosmetic mop-up and air
    fresheners are used, flood cars can literally corrode from the inside
    out, causing mystery problems and electrical failures.
        With no standards and no inspections, there's no way to know
    whether a rebuilt car is safe. ``Our repairers tell us they can rebuild
    these cars from the ground up, and they can make them safe,'' Redding
    says. ``Whether they're all safe? How in the world will we know unless
    they're inspected? The majority of states have no inspection.''
    Questionable Titles
        Used-car buyers are at a further disadvantage when a vehicle's
    salvage history is not disclosed.
        In Indiana, for example, State Farm Insurance sold, exchanged, or
    transferred hundreds of totaled vehicles in the 1990s without getting
    the required salvage titles, according to Jeffrey Modisett, the Indiana
    attorney general, who reached a settlement with State Farm in 1998.
    Consumers who ultimately bought these vehicles ``did so without
    knowledge of the damage, safety, reliability, and true value of these
    vehicles,'' he said.
        Hurst, the State Farm spokesman, says the insurer offered to buy
    back 437 improperly titled vehicles as part of the settlement. He says
    the problem stemmed from a misunderstanding by a salvage dealer who
    disposed of the cars and trucks for State Farm.
        Christopher Gridley of Louisiana had a different problem involving
    State Farm, according to a lawsuit filed in June 2000. He purchased a
    1998 Volvo S70 with a clean title in November 1999, he says, but when
    he brought it in for repair after an accident of his own, the repair
    shop told him the car had previously been wrecked and improperly
    rebuilt. According to the lawsuit, which is still pending, State Farm
    declared the car totaled a month before Gridley bought it, but the
    company didn't apply for a salvage title. Hurst says the allegations
    are ``without foundation.''
        In California, three plaintiffs say in a class-action lawsuit that
    National Car Rental System did not obtain the proper salvage title
    after their cars were wrecked by rental customers, rebuilt, and
    subsequently sold to them with clean titles. Because the lawsuit is
    ongoing, National said that it wouldn't comment.
        No one knows exactly how many rebuilt wrecks are for sale whose
    titles hide their histories. To get an idea, however, Consumer Reports
    analyzed some 10,000 cars and trucks offered for sale at 35 locations
    in 23 states one week last summer. They were being auctioned by
    Insurance Auto Auctions, one of the nation's leading auction chains,
    which says it sells insurer-totaled vehicles almost exclusively. Twenty
    percent of the vehicles we analyzed had clean titles. Wide differences
    in state salvage-titling regulations may partly explain why. At any
    rate, the numbers suggest the relative ease with which damage too great
    for insurers to repair can remain hidden from consumers.
        But even if a vehicle gets a salvage title, that title can easily
    be washed by registering the car in a state with more lenient
    thresholds for salvage- or rebuilt-branding. For example, in Oklahoma,
    a salvage title is required when damage equals only 60 percent of the
    car's book value. For a car with more damage, a rebuilder can simply
    retitle the car in Texas, where a salvage title isn't required until
    damage hits 75 percent of book value.
        Remember the Chevy pickup wrecked in Florida? Progressive
    Insurance's office in Brandon, Fla., declared it ``unrebuildable''
    because it required more than $14,520 worth of repairs, or at least 80
    percent of book value, the Sunshine State's salvage threshold.
        The wreck was then shipped to Kentucky, which has a lower salvage
    threshold than Florida (75 percent of book value), but other loopholes.
    Whoever rebuilt this pickup produced two notarized estimates from two
    body shops swearing that the rebuilding cost had fallen to as little as
    $4,969, or a mere 27 percent of book value--a $9,550 cost saving.
        The pickup was rebuilt and given a new title with an inconspicuous
    ``Rebuilt Vehicle'' notation near the bottom of the certificate.
        Kentucky says the state issues 40,000 rebuilt titles a year. The
    Chevy pickup was still on the road in the vicinity of Canada, Ky., as
    of July 2000, Carfax's last notation.
    Recommendations
        Before you buy any used vehicle, have a mechanic whom you trust
    inspect it thoroughly; at a minimum, cover the checkpoints (Telltales
    Signs of a Rebuilt Wreck) on pages 27 and 28.
        Used cars that show evidence of prior repairs are not inherently
    unsafe; that depends on the severity and type of damage, the quality of
    the repair, and the age of the vehicle. (A totaled older-model car
    actually may have had relatively minor damage, given that it wasn't
    worth a lot to begin with.)
        But avoid a newer-model vehicle that was totaled and rebuilt (or an
    older vehicle rebuilt years ago when it was newer) unless you have the
    assurance of your mechanic that repairs are proper and safe. Because of
    their higher book values, newer vehicles must sustain significant crash
    damage to be totaled. (An exception would be vehicles totaled because
    of extensive cosmetic damage from, say, hail.) The high cost of
    repairing extensive damage provides rebuilders with plenty of incentive
    to cut corners. But the biggest problem is that the majority of states
    require no safety inspection on the repair work.
        If you believe you may have inadvertently bought a rebuilt wreck,
    ask your local or state consumer-affairs department about the
    applicable laws in your state. The National Association of Consumer
    Advocates' website, www.naca.net, maintains a list of lawyers who are
    experienced in these matters.
        Insurers should support meaningful legislation to regulate
    rebuilding. And Congress and states should require the following:
        Claims reporting. Since accident damage is the first event that
    leads to all other problems involving rebuilt vehicles, insurers should
    be required to report to state motor-vehicle authorities the vehicle
    identification number of every vehicle that is totaled or that sustains
    frame or flood damage.
        Release of claim data. To provide consumers with the best
    information about past accidents, Federal legislation should require
    insurers and their data-service vendors to make their existing accident
    and total-loss databases available to motor vehicle departments--for a
    fee, if need be--so that authorities from all 50 states and consumers
    can check whether a vehicle has been totaled or sustained major damage.
        Safety inspections. Every vehicle that has suffered frame damage or
    that has been totaled and rebuilt should be required to be inspected
    for the quality of its repairs.
        Uniform titling. Congress should establish uniform titling
    standards in all states regarding rebuilt vehicles.
    ----------------------------------------------------------------------
    Diary of a Rebuilt Wreck
        Black 1998 Mercedes E320 four-door wagon, VIN: WDBJH65F9WA560114.
    Manufactured in Germany. Retail value in 1998: $50,000.
        January 15, 1998:

            Registered in Forrest City, Ark. Odometer: 18 miles.

        May-August 1999

            A crash causes $30,000 in damage.

            Car is rebuilt across the state line, in Memphis, Tenn. Damage
            doesn't appear to meet threshold for Arkansas title disclosure.
            Odometer: 11,459.

            Mercedes-Benz flags the car's 4-year, 50,000-mile warranty:
            Repairs deemed accident-related won't be covered.

        November-December 1999:

            Owner trades in car to Mercedes-Benz of Memphis for a new one.
            Odometer: 12,569.

            Sold for $30,000 to Mid-South Motors of Memphis.

            Sold for $29,000 to Peck Daniels Auto Sales of Memphis.

            Sold for $34,000 to Southern Imports, Leesburg, Fla.

        December 20, 1999:

            Sold for $36,000 to Ocean Imports of Houston, Texas. Odometer:
            13,823.

        December 31, 1999:

            Sold for $45,000 to a man in Houston, Texas. Odometer: 14,300.

        February 4, 2000:

            Sold back to Ocean Imports, Houston, Texas, for $45,000 after
            Houston owner says he discovered the prior damage. Odometer:
            14,422.

        February 18, 2000:

            Sold for $29,500 back to Southern Imports, Leesburg, Fla.
            Odometer: 14,223.

        February 28, 2000:

            Sold for $29,500 to McNeill Automotive, St. Petersburg, Fla.
            Odometer: 14,423.

        March 22, 2000:

            Sold at a West Palm Beach, Fla., auto auction to Walter's Auto
            Sales & Service of Riverside, Calif. Odometer: 15,801.

        May 2, 2000:

            Sold for $34,800 at Riverside Auto Auction to Auto Mart of San
            Ramon, Calif. Odometer: 15,911.

        June 5, 2000:

            Sold to Julie Ray of San Francisco for $43,455. Odometer:
            16,112.

        April 2001:

            Bought back by Auto Mart for $43,455 plus legal fees after Ray
            learns of prior damage, sues Auto Mart, and settles.

        October 2001:

            Sold by Auto Mart to new owner for ``just under'' what Ray
            paid, Auto Mart says. Odometer: 27,981.
    ----------------------------------------------------------------------
    Our Study
        No one seems to know how many rebuilt wrecks are on the road today,
    and whether their current owners know the history of these vehicles.
    Insurers have the best information to help answer these questions, but
    they aren't releasing it.
        We analyzed government data on an important subset of all wrecks:
    Some 393,000 passenger vehicles involved in fatal accidents from 1993
    through 1999. Of those, we focused on the 58,000 late-model cars and
    trucks deemed to have disabling damage by police at the accident scene
    for which we could find vehicle-history information.
        Our analysis provides new statistical evidence that a severe crash
    is not the end of the road for many wrecks. Indeed, more than 40
    percent of the passenger vehicles involved in such crashes were rebuilt
    and retitled for use on public roads, according to our study.
        Other key findings:

       All vehicles identified by police as having disabling damage
            are not necessarily a total loss, as defined by states and
            hundreds of individual insurance companies. So we zeroed in on
            the 41,800 vehicles deemed by an insurer as totaled, as
            indicated by their receiving a ``salvage,'' ``junk,''
            ``dismantled,'' or ``non-legal highway'' title as their first
            title following the fatal crash date. About 20 percent of those
            cars, or 8,300, were subsequently retitled for use on public
            roads.

       About one-third of the 8,300--roughly 2,500 vehicles--had
            titles ``washed'' of their salvage history. That means the
            latest title said nothing about the vehicle being totaled and
            then rebuilt. Overall, 6 percent of the totaled cars we studied
            had their title washed.

       Newer vehicles were more likely to be rebuilt. Experts say
            this is because their age and low mileage make them more
            attractive to used-car buyers. Approximately 25 percent of
            totaled vehicles that were the current model year or one model-
            year old at the time of the accident were retitled for the
            highway vs. just 15 percent of totals that were 5 model-years
            old. (See table below.)

                                               Which vehicles get rebuilt?
    ----------------------------------------------------------------------------------------------------------------
                                          Age of Vehicle                                Percent Totaled And Rebuilt
    ----------------------------------------------------------------------------------------------------------------
            0-1 yr.                                                                                              25
            2                                                                                                    24
            3                                                                                                    19
            4                                                                                                    17
            5                                                                                                    15
            All cars 0-5                                                                                        20
    ----------------------------------------------------------------------------------------------------------------
    Source: Consumer Reports, Carfax, NHTSA

        A spokesman for the National Highway Traffic Safety Administration
    (NHTSA), a division of the Department of Transportation, said the
    agency has no official comment on our study. But NHTSA's Richard Morse,
    former chairman of the agency's Motor Vehicle Titling Registration and
    Salvage Advisory Committee, said of our findings, ``That's a lot of
    cars.'' Morse said hard numbers on rebuilt vehicles are scarce and that
    lack of information has impeded reform efforts. ``It's hard to build up
    a whole lot of support in Congress if you don't have a whole lot of
    numbers,'' he said.
        Said Rosemary Shahan, president of Consumers for Auto Reliability
    and Safety, a California-based safety-advocacy organization: ``These
    numbers are a big red flag for used-car buyers. They validate the
    concern that tremendously damaged cars do go back on the highway.''
        Our study tapped the Federal Fatality Analysis Reporting System
    (FARS), a computer database maintained by NHTSA that contains detailed
    information about every fatal U.S. motor vehicle accident.
        Most FARS data are public and accessible via the Internet or CD-
    ROM, but NHTSA does not disclose the entire vehicle identification
    number (VIN) because it regards that as personally identifying
    information, which it is not allowed to release. The FARS data also
    have no information about the vehicle's title history.
        Carfax, one of two leading providers of vehicle title-history
    information, maintains a 1.6-billion-record database including VINs and
    vehicle histories. But it does not have the detailed accident
    information that's in the FARS database, though it has accident data
    reported by some states.
        Our analysis for the first time joined information from these two
    databases, through a special agreement between NHTSA, Carfax, and
    Consumers Union, designed to preserve the confidentiality of the FARS
    VINs. Consumers Union never saw the VINs.
        The findings apply only to the group of fatal crashes we studied,
    not to all wrecks. And our numbers are conservative. For example, we
    excluded from the study titles with incomplete information about their
    salvage, washed-title, or road-legal status.
    ----------------------------------------------------------------------
    Caution, Before you buy any used car . . .
        Bring a friend with you, preferably one who knows cars. Thoroughly
    inspect the exterior, interior, trunk, engine compartment, tire wear,
    and undercarriage.
        Be direct. Ask the seller whether the car has been in an accident
    or a flood, and gauge his or her reaction.
        Inspect the title for ``salvage,'' ``rebuilt,'' or similar
    notations. If the seller is an individual, check the title to make sure
    you're dealing with the vehicle owner.
        Take the car for a test drive. Make right and left turns at various
    speeds; turning should be smooth. On a straight roadway, check that the
    car doesn't pull to one side. Ask your friend to follow behind in the
    car you arrived in to look for rear wheels that seem to skew to one
    side--a sign that the frame may be out of alignment.
        Have the car inspected. If you're really interested in the car,
    have a qualified mechanic or vehicle appraiser examine it inside and
    out. Agree in advance with the seller that you'll pay for the
    examination if the car passes muster and the seller will pay if
    significant problems are discovered. Have the mechanic look under the
    air-bag covers to check that the air bags are present and functioning.
        Check the warranty. Ask the service or warranty department of the
    local dealer if the warranty is still in effect
        Investigate the VIN. Use the Internet to find out whether the car's
    vehicle identification number (VIN) is listed among the thousands of
    cars severely damaged in floods in North Carolina in recent years
    (www.jus.state.nc.us/cpframe.htm). And, yes, even cars used in crash
    tests can wind up rebuilt. The National Highway Transportation Safety
    Administration takes steps to prevent this by titling its crash-test
    cars ``not rebuildable'' and publishing their VINs on the Internet
    (www.nhtsa.gov/cars/problems/salvage). The Insurance Institute for
    Highway Safety also titles its crash-test cars unrebuildable but does
    not publicly disclose the VINs. It provided them to Consumer Reports,
    however, and we found that only 1 of 150 apparently had been retitled
    for the road.
        Buy a title-history report. Ask the seller to pay if there are
    problems. Two Internet providers sell this information. Carfax
    (www.carfax.com) charges $15 per report on a single VIN and $20 for 60
    days of unlimited access; Experian Automotive (www.e-autohistory.com/
    1_autohistory/index.html) charges $15 per history report for a single
    VIN and $20 for five. Both systems use state motor-vehicle departments
    to compile their reports, but each has other sources that differ
    slightly. Other history-report services repackage Experian's basic
    data.
        Size up the seller. If it's a car dealer, consult the Better
    Business Bureau; if it's an individual, browse the classifieds for
    other auto ads with the same phone number--a sign of an unlicensed
    broker who sells used cars by posing as the owner.
    ----------------------------------------------------------------------
    Telltale Signs of a Rebuilt Wreck
        1. Paint that chips off or doesn't match indicates damage repair
    and poor blending.
        2. Paint overspray on chrome, trim, or rubber seals around body
    openings reveals that the adjacent panel was repaired.
        3. Misaligned fenders suggest a poor repair job or use of non-
    original equipment manufacturer (non-OEM) parts.
        4. CAPA (Certified Automotive Parts Association) sticker on any
    part may indicate collision repair.
        5. Uneven tread wear reveals wheel misalignment, possibly because
    of frame damage.
        6. Mold or air freshener cover-up suggests water damage from a leak
    or flood.
        7. Silt in trunk may mean flood damage.
        8. Fresh undercoating on wheel wells, chassis, or engine strongly
    suggests recent structural repairs covered up.
        9. Door that doesn't close correctly could point to a door-frame
    deformation and poor repair.
        10. Hood or trunk that doesn't close squarely may indicate twisting
    from side impact.
        11. Dashboard lights, power windows, and other electronics with
    intermittent problems could be a sign of flood damage.
        12. Dashboard air-bag indicator that doesn't light up could mean
    the air bag was replaced improperly--or wasn't replaced at all.
        13. Big dents, kinks in structural components, or crimped or
    crunched fuel lines and pipes underneath are the easiest problems to
    find because rebuilders assume you won't be looking there.
        14. Uneven surfaces on frame components could be filler, seam
    sealer, or welding beads.
        15. Damaged/gouged nuts and metal on top surface of strut tower
    (which connects the front wheels to the frame) in engine compartment
    may mean the frame was realigned.
        16. New metal on only one part of the hood apron shows section
    repair rather than replacement of the entire apron piece.
        17. Welding bead anywhere on heavy frame members underneath the
    engine suggests frame-rail sectioning or sloppy repair of a cutout made
    in the rail to perform repair work.
        18. Inconsistent welds around hood apron, door, door frame, or
    trunk exemplify a nonfactory weld.
        19. Frayed safety belts or belt fibers that have melted together
    because of friction indicate a previous frontal impact above 15 mph.
        20. Missing car emblem or name on trunk may mean a non-OEM part was
    used.
    ----------------------------------------------------------------------
    What We Don't Know
        The Highway Loss Data Institute (HLDI) and its affiliate, the
    Insurance Institute for Highway Safety (IIHS), describe their mission
    as ``finding out what works and what doesn't work to prevent motor-
    vehicle crashes in the first place.'' Their aim is to reduce human and
    property losses from automobile accidents. The combined $14.6 million
    annual budget of these private nonprofit groups is provided mainly by
    75 insurance companies.
        Through crash testing and research of damage claims make-by-make,
    model-by-model, the institutes analyze the human, vehicular, and
    environmental factors associated with accidents. Consumer Reports uses
    IIHS data in our safety assessments of specific models.
        A unique database maintained by the institutes--millions of records
    on loss claims related to roughly two-thirds of all insured late-model
    cars and trucks in the U.S.--allows them to glean rich information
    about those models that are more frequently involved in accidents.
        That same database could help answer critical questions about
    rebuilt wrecks, such as: How many totaled vehicles have been rebuilt
    and put back on the road? Are there patterns or trends that merit
    further investigation or better regulation?
        There's no evidence that the safety of rebuilt vehicles is a major
    problem, says Brian O'Neill, president of HLDI and IIHS. ``Is it
    possible that repairs are related to vehicle performance during a
    crash? That's impossible to know,'' he says. ``If I were going to have
    concerns about this issue, I'd be concerned whether consumers are
    adequately informed about the history of the vehicle.''
        For this report, we asked HLDI for the vehicle-identification
    numbers (VINs) and other basic details for all collision-totaled cars
    and trucks in its database. Merged with the extensive title-history
    database of Carfax, a Fairfax, Va., company, the HLDI data could
    provide the most comprehensive picture to date of rebuilt wrecks.
        The HLDI board, whose members are executives from the nation's
    largest auto insurers, turned down our request. ``The conditions in
    which we get our data from insurers is that we cannot release any
    individual records, and a VIN is an individual record,'' says O'Neill.
        Even if the data were made available, ``Knowing that there are that
    many rebuilt vehicles doesn't tell you very much,'' O'Neill says. He
    notes that some wrecks are bought by car thieves, who remove the VIN
    plate and put it on a stolen car of the same make, model, and year. He
    said he had no information on how often that might happen.
        CCC Information Services (CCCIS), an insurance-industry service
    provider, maintains its own database containing information on 30
    million vehicles that have been identified as totaled, salvaged,
    borderline totaled, stolen, or damaged since 1980. The company declined
    our request for information from the database; contracts with
    insurance-company customers prevents it, says Susan Jablonski, a
    spokeswoman.
        We also asked Experian Automotive, a leading seller of vehicle-
    history reports, which draws on the CCCIS database to include the
    barest major-damage information about individual vehicles. Ken
    Kauppila, Experian's executive vice president, says his database has
    information on 10 million salvage vehicles and that the company
    retrieves data in large batches for car dealerships. But the company's
    contract with its partners doesn't allow release to Consumer Reports,
    he says.

        Ms. Shahan. Thank you very much, Senator.
        It has a classic example that I told Consumer Reports about
    of a woman who is a real estate agent in San Francisco who
    bought a car that was new at one time in Arkansas, and it was a
    Mercedes. The first owner registered it in Arkansas and then it
    sustained $30,000 worth of damage. At that time Mercedes red-
    flagged the warranty and deemed that repairs that were
    accident-related would no longer be covered.
        Then it was sent to Tennessee, Texas, and Florida and sold
    at one point to an individual who got it bought back in Texas,
    then it went to Florida again, then to California, Riverside,
    and then up to San Francisco, where Julie Ray bought it.
        It was a so-called ``certified'' car, so the implication
    was that it had already been inspected, had passed a very
    rigorous inspection. She paid $43,455 for this car. Then when
    she started having serious problems with it, she tried to get
    Mercedes to honor the existing warranty that supposedly was in
    effect, and Mercedes said no. They would not honor the warranty
    because of the prior damage.
        So she paid extra to get a car that was certified. She paid
    extra to get a car with the manufacturer's warranty. And not
    only was it a very dangerous car because the prior wreck was
    very shoddily repaired, but she could not get it repaired under
    the warranty.
        With my testimony I have brought copies of other examples.
    We are seeing this all over the country, where certified cars
    are being sold, supposedly with additional protections, that
    consumers cannot use because of prior damage status. It is a
    serious problem. In California Governor Schwarzenegger just
    signed legislation, it is the first in the country, and it is
    part of the Car Buyer's Bill of Rights, to address the sales of
    certified wrecks. It outlaws selling prior damaged cars if they
    had any frame damage as a certified car. We think that that is
    an important step.
        But because of the mobility of these cars, there is nothing
    any individual State can do that is sufficient. We need better
    protection. As others who have testified before me have said,
    consumers should have access to the databases that are out
    there that already exist, whether it is through improving
    NMVTIS, whether it is through better access to NICB for the
    public.
        We are not asking for personal identifiers or information
    about the owners. We are just asking for the consumers who are
    looking to buy the car to have access to the same information
    that others have, the insurance company or self-insured entity
    if it is a rental car company or a car dealership, or very
    often, the manufacturers. We do not believe that the consumer
    should be the last to know.
        If you are looking at a car, we think that the information
    really belongs right on the car. Here is an example of the car
    buyer's guide [indicating] that the Federal Trade Commission
    has required on every used car since 1985. It would go a long
    way toward cleaning up fraud if there were information on the
    buyer's guide. The dealer is supposed to say whether or not
    there is a warranty in effect, but what often happens is--here
    is an example of a car buyer's guide. A young man who works as
    a landscaper bought a BMW and on the guide it said it had a
    warranty, a full factory warranty for 4 years or $50,000, but
    in fact, BMW would not honor that warranty due to prior damage.
        So the representation that is being made to consumers in
    the Federally-required buyer's guide is very often misleading.
    It is like a triple whammy because the car is not worth as much
    as they are paying for it, and they pay extra for warranty
    coverage they cannot use. If they get an extended service
    contract, extended service contract companies will not honor
    the warranties on these vehicles either.
        This will not solve the problem entirely if the disclosure
    is on used cars because, unfortunately, and lot of times we
    forget this, a lot of times flood-damaged cars or wrecks are
    new. We hear from consumers, not very often but occasionally,
    who buy new cars that were damaged and there was no disclosure
    and the manufacturer will not honor the warranty on them or
    part of the warranty is void.
        So we need something that goes beyond the used car sticker.
    We look forward to discussing what that might be with other
    parties and look forward to your questions.
        [The prepared statement of Ms. Shahan follows:]

               Prepared Statement of Rosemary Shahan, President,
                   Consumers for Auto Reliability and Safety
        Mr. Chairman and Senators: Thank you for the invitation to testify
    today regarding ways to protect consumers from flooded and salvage
    vehicle fraud. My name is Rosemary Shahan, and I am the President of
    Consumers for Auto Reliability and Safety, or CARS, a nonprofit auto
    safety and consumer advocacy organization based in Sacramento,
    California.
        CARS is dedicated to preventing motor-vehicle related fatalities,
    injuries, and economic losses. Since 1979, I have worked at the State
    and Federal levels on behalf of consumers on a range of auto-related
    issues. I appreciate the opportunity to highlight some of the worst
    problems posed by flooded and salvage vehicle fraud, and to make some
    recommendations for your consideration.
    Problem
    Damaged Vehicles Pose a Serious Threat to the American Public
        Every year, millions of vehicles are in serious collisions, or in
    flood disasters. Most people assume that severely damaged vehicles are
    crushed, or sold solely for parts. In fact, many are destroyed. Many
    are taken apart and usable parts are recycled by professional and
    responsible recyclers. But every year millions of severely damaged
    autos are sent by insurers to auctions and then sold to unscrupulous
    auto dealers and rebuilders. They are then sold under false pretenses
    to car buyers. The deceptions artificially inflate profits for the
    unscrupulous insurers, auctions, rebuilders, and dealers who profit
    from perpetrating fraud, at the expense of the motoring public and
    honest businesses alike.
        This is particularly troubling since shoddily rebuilt wrecks and
    flood cars Pose a serious safety problem--to the owners and to all who
    share the roads with them.\1\
    ---------------------------------------------------------------------------
        \1\ State of California: Report to the Legislature: A Study of Auto
    Body Repair Problems with Findings and Recommendations (July 1, 1994).
    ``According to a 1984 DCA/BAR [Department of Consumer Affairs Bureau of
    Automotive Repair] study of unibody repairs, the ability of improperly
    repaired unibody vehicles (95 percent of today's passenger cars are of
    unibody design) to withstand a second crash is significantly
    compromised and would result in serious injury and death to the
    occupants. . . . Finding: More than 70,000 structurally damaged and
    150,000 salvaged vehicles are returned to our streets and highways
    every year without a safety inspection, and they pose a potential
    hazard to all of California's twenty million unsuspecting motorists.''
    ---------------------------------------------------------------------------
        The problem of flooded and salvage vehicles goes far beyond title
    branding. At its core, the problem is systemic fraud--knowing and
    deliberate concealment of material facts. Fraud involving prior wreck
    or flood damage costs American consumers billions each year and also
    endangers lives.
        Prior damage vehicles may not provide adequate protection in a
    subsequent crash. Air bags are sometimes not replaced. Some major
    franchised auto dealers have sold cars missing air bags or with shop
    rags where the air bags belong. This is a serious safety threat. Auto
    manufacturers have reconfigured seat belt designs so that seat belts
    work in tandem with the air bag as a safety system. Consequently, in a
    moderate-to-severe collision, a driver or passenger who is wearing a
    seat belt, but whose vehicle is missing an air bag, is prone to suffer
    and debilitating serious head, facial, or spinal cord injuries, or be
    killed.
    Insurers Part of the Problem
        Some insurers destroy vehicles that are non-repairable and properly
    brand the titles of ``salvage'' autos, but others engage in fraud. The
    fraudsters send nonrepairable vehicles and salvage or flood cars to
    auctions, often with clean titles. In return, insurers recoup more than
    the vehicles are actually worth, given their damaged condition.
        The Nation's largest auto insurer, State Farm, has a shameful
    record of violating state title-branding laws and failing to properly
    brand titles as ``salvage.'' In 1998, State Farm settled a case brought
    by the Attorney General of Indiana. According to Indiana Attorney
    General Jeffrey Modisett, ``State Farm sold, exchanged, or transferred
    salvage vehicles it had acquired without obtaining salvage titles . . .
    People who purchased these vehicles did so without knowledge of the
    damage, safety, reliability and true value of these vehicles.'' \2\
    ---------------------------------------------------------------------------
        \2\ ``Attorney General Modisett, State Farm settle salvage motor
    vehicle title case,'' News Release, State of Indiana Office of the
    Attorney General, July 28, 1998.
    ---------------------------------------------------------------------------
        That case reportedly came to light because ``a car dealer in
    Greenfield, IN, made a startling discovery. After repairing what he
    thought was a relatively new Ford pickup, he routinely sent the
    manufacturer a bill for his warranty work. Ford refused to pay. It told
    the puzzled dealer that a records check found that the pickup had been
    in a wreck, an insurance company had declared it a total loss and had
    resold it. That voided the warranty . . .  After a two-year
    investigation, State Farm admitted selling about 1,400 totaled cars,
    trucks and sport-utility vehicles in Indiana--all without the required
    state salvage titles.'' \3\
    ---------------------------------------------------------------------------
        \3\ ``State Farm violated agreement on selling totaled cars,'' St.
    Louis Post-Dispatch, January 24, 2005.
    ---------------------------------------------------------------------------
        Earlier this year, State Farm settled yet another case, this time
    with 49 state attorneys general and the District of Columbia. The
    company publicly admitted that it had resold at least 30,000 totaled
    vehicles without salvage titles. State Farm reportedly conceded that
    ``the number could turn out to be as high as 40,000.'' \4\ A
    spokesperson for State Farm is quoted as saying ``We don't know whether
    it was an error, a mistake or malfeasance.'' \5\
    ---------------------------------------------------------------------------
        \4\ Ibid.
        \5\ Ibid.
    ---------------------------------------------------------------------------
        Owners of those salvage vehicles were not immediately notified.
    Over a year after State Farm notified the attorneys general, the owners
    received letters informing them their vehicles were ``salvage.'' The
    titles are belatedly being branded ``salvage.'' Some owners have found
    that not only is their vehicle worth far less than they paid for it,
    but they face losing insurance coverage or having their coverage
    reduced due to the salvage history.
        Hapless victims may also find the lender will call the entire loan
    due, on grounds the vehicle is not sufficient collateral for the loan.
    Under the new Federal bankruptcy law, they may be held liable for the
    entire amount of the loan, based on the inflated price they paid, while
    in the past the amount could have been reduced to reflect the fair
    market value of the damaged vehicle. If the consumer is unable to pay
    the full loan, they may end up having the vehicle repossessed. For many
    people, that means they would lose their only means of transportation,
    and potentially lose their jobs.
    Flood Cars Pose Unique Problems
        The entire Nation has witnessed national news coverage showing tens
    of thousands of new and used flooded cars resulting from the recent
    disasters in the Gulf region and Florida. They have garnered tremendous
    media attention, and rightfully so. Flood cars pose a unique set of
    hazards to consumers. Thanks to sophisticated, advanced safety
    technologies and the increasing computerization of automobile design,
    flood cars are even more hazardous than in the past. Virtually all of
    today's cars have sensitive electronic components that control major
    systems, including the engine, brakes, and air bags. Those electronic
    components, immersed in water and contaminants such as silt and
    petroleum residues, will inevitably deteriorate and corrode,
    particularly if the vehicle was submerged in salt water, rendering the
    vehicles unreliable.
        Compounding the problem: complicated electronic components tend to
    be the most expensive to replace. They are also not visible, but are
    usually enclosed, making their condition difficult to detect and easy
    to conceal. The temptation for unscrupulous rebuilders and dealers is
    to cut corners and simply do a cosmetic clean-up, replacing the
    carpeting and upholstery and leaving the compromised electronics
    untouched.
        At one time, the typical vehicle could be submerged in water over
    the sill without compromising its safety. Those days are gone. Now,
    most passenger vehicles have electronic systems located under the
    seats. Flood damage to the point where vital electronic components are
    soaked in water makes today's vehicles totally unreliable. They will be
    plagued by a whole host of major electronic problems.
        For example, the air bags may or may not inflate in a crash. If
    they do inflate, they may inflate too soon or too late. The anti-lock
    brakes may not work. In an emergency braking situation, on a rain-
    slicked road, a driver who has learned to slam on his or her anti-lock
    brakes may lose control and spin out. The engine may stall out
    intermittently, without warning, during driving in heavy traffic--an
    obvious safety hazard.
        Over time, flood cars are also prone to develop mold and mildew
    that can cause serious health problems, particularly for people who
    suffer from allergies or asthma.
        According to one news report, some insurers, such as Progressive,
    have been destroying many of their flood cars, but others, including
    State Farm, reportedly have failed to do the same.\6\ This raises the
    question: what possible legitimate purpose can there be for placing
    flooded vehicles back into the stream of commerce? This question takes
    on a certain urgency when it involves an unprecedented number of flood
    cars that were submerged in heavily contaminated salt water for days or
    weeks.
    ---------------------------------------------------------------------------
        \6\ ``What insurers are doing,'' Automotive News, October 31, 2005.
    ---------------------------------------------------------------------------
    Self-Insured Entities
        A complicating factor: some self-insured entities, including rental
    car companies, large auto dealers and auto dealer chains, may not be
    required to brand titles ``salvage,'' or ``flood,'' and since there is
    no claim filed, it is harder to trace and document the damage history.
    New Vehicles
        Salvage and flood car fraud also involves new vehicles. For
    example, some auto dealerships had hundreds of new vehicles on their
    lots when the flood waters rose. If history is any guide, new car
    buyers from coast to coast will eventually end up saddled with problem-
    plagued ``new'' vehicles that were once submerged in flood waters. In
    some cases, the manufacturers will refuse to honor the warranties,
    citing the prior flood histories. Those histories will be known to the
    manufacturer, but not the buyer.
    ``Certified'' Damaged Vehicles
        Some rebuilt wrecks are even being sold by supposedly ``reputable''
    dealers as ``certified'' used cars, and the dealers are charging a
    premium--with the representation made that the vehicles have passed a
    rigorous, 130+ or 150+ point inspection. Sometimes the vehicles are
    advertised ``complete with factory/manufacturer warranty.''
        But--manufacturers will not honor warranties on prior damage
    vehicles, certainly not for area repaired, and sometimes for entire
    vehicle. Nor will consumers who paid extra for an extended service
    contract be able to have necessary repairs covered, since prior wreck
    and flood damage are excluded under the contracts.
        This is a triple whammy for consumers. Consumers pay extra for
    ``certified'' used cars, pay extra for factory or OEM [original
    equipment manufacturer] warranties, and pay extra for extended service
    contracts, in order to be protected. Then when problems arise, they
    discover not only did they pay thousands more than the Blue Book price
    when the vehicle is actually worth thousands less, but the warranty is
    void and the contract won't cover repairs. It's a very rude surprise to
    be forced to incur unexpected, unanticipated repair costs--if the
    vehicle is repairable. Some are beyond repair.
        California recently enacted landmark legislation, the Car Buyers
    Bill of Rights, signed into law by Governor Schwarzenegger, to curb
    various forms of auto fraud, including sales of previously damaged
    vehicles as ``certified'' used cars. The impetus for the ``certified''
    provision came from numerous cases where consumers paid thousands extra
    to buy cars that had been ``certified,'' only to find they were grossly
    unsafe to drive, due to prior damage that had been shoddily repaired
    and was concealed at the time of sale.
        California's law, which will take effect next July, expressly
    forbids the sale of used vehicles with ANY frame damage as
    ``certified.'' \7\
    ---------------------------------------------------------------------------
        \7\ AB 68 (Montanez), Statutes of 2005.
    ---------------------------------------------------------------------------
    Salvage and Flood Car Perpetrators Target Victims
        Who is targeted for sales of rebuilt wrecks and flood cars? While
    even highly sophisticated, well-educated consumers sometimes fall prey
    to auto salvage fraud, some dealers have shown a propensity to target
    particularly vulnerable individuals. Due to their inexperience buying
    cars, teenagers and students buying their first vehicles are often
    targeted. Other targets: recent immigrants, and members of our armed
    forces, especially enlisted personnel.\8\
    ---------------------------------------------------------------------------
        \8\ ``In Harm's Way--at Home: Consumer Scams and the Direct
    Targeting of America's Military and Veterans,'' Report by National
    Consumer Law Center, May 2003. ``Automobile-related scams: Cars are a
    big source of financial trouble for service people. The Navy-Marine
    Corps Relief Society, for instance, gives the largest single portion of
    its cash aid to military families--nearly a quarter of all its aid--for
    car-repair assistance . . . military legal assistance officials in the
    San Diego region told NCLC that high-priced used car sales are `the
    single largest consumer [contract] problem that we see here in Legal
    Assistance.' ''
    ---------------------------------------------------------------------------
        The armed forces themselves have documented the harm that ensues
    from used car fraud, noting that such frauds can compromise the troops'
    ability to perform their duties, even ``to the point of endangering
    themselves, their unit, and the mission itself.'' \9\ According to
    experts, unscrupulous dealers prey on military families.\10\ Recently,
    representatives of the armed forces testified at a hearing in
    California that auto-related scams, including rebuilt wrecks being sold
    as ``certified'' used cars, are the worst consumer-related problems
    troops stationed in California face.\11\
    ---------------------------------------------------------------------------
        \9\ Financial Fitness: The Importance of Financial Fitness to the
    United States Marine Corps' Mission. A Final Report. Prepared for and
    funded by The United States Marine Corps, prepared by The Financial
    Fitness Evaluation Team, University of California, Riverside. August
    2000: ``We found widespread agreement that when Marines have pressing
    financial problems, their performance in the field can be significantly
    compromised, even to the point of endangering themselves, their unit,
    and the mission itself . . . Buying cars causes more problems than any
    other single financial factor.''
        \10\ ``Scamsters preying on military families,'' Los Angeles Times,
    April 2, 2003. ``Operating just outside the gates of major bases, some
    car repair shops and dealerships prey on military families,
    particularly when a husband has been shipped out of the country, said
    Karen Varcoe, a consumer economics specialist at UC Riverside who has
    written academic studies on the financial problems of military
    personnel.''
        \11\ ``After car breaks down, Iraq vet wages new battle--with
    dealer.'' Sacramento Bee, April 14, 2005: ``Last month, the Assembly
    Committee on Banking and Finance heard testimony about financial scams
    aimed at members of the military. John Irons, director of the Navy-
    Marine Corps Relief Society in San Diego, told lawmakers his informal
    survey of Navy lawyers found `the number one issue they are confronted
    with is used car dealers who are taking advantage of military
    personnel.' Among the alleged problems: sale of `certified' junkers. .
    . .'' [Note: Active duty representatives of the U.S. Armed Forces also
    testified that they had conducted their own informal surveys and
    reached the same conclusions.]
    ---------------------------------------------------------------------------
        To make matters worse, some auto dealerships are disregarding the
    Servicemembers Civil Relief Act, intended by Congress to protect all
    active-duty families from foreclosures, evictions, and other financial
    consequences of military service. \12\
    ---------------------------------------------------------------------------
        \12\ ``Creditors Press Troops Despite Relief Act,'' New York Times,
    March 28, 2005.
    ---------------------------------------------------------------------------
    Recommendations
    Designate Vehicles Non-Repairable and Retire VINs
        Severely damaged vehicles and flood cars that have been submerged
    in salt water should be declared non-repairable and destroyed. The
    Vehicle Identification Numbers, or VINs, should be permanently retired
    to curb fraud and to reduce the incidence of VIN-switching, which
    contributes to vehicle theft, carjackings, and other related crimes.
    National Databases Present Opportunities, Challenges
        For vehicles that are suitable for repair and resale as safe,
    reliable transportation, full disclosure to sellers and consumers alike
    is needed.
        With the advent of CLUE \13\ and other vast electronic databases,
    insurers, manufacturers, lenders, dealers, and other entities have
    access to relevant data that is sometimes withheld from consumers, or
    is not provided in a timely fashion. The challenge policy makers face
    is how to make that information accessible to prospective buyers in an
    efficient, cost-effective, meaningful way.
    ---------------------------------------------------------------------------
        \13\ CLUE is a registered trademark of ChoicePoint Asset Company.
    ---------------------------------------------------------------------------
        While improved title branding will assist as an important
    enforcement tool, title branding is of limited usefulness in curbing
    salvage fraud. One reason: consumers usually do not see the titles
    until after a sale is consummated. It may be years later, when the lien
    is paid, that they finally see the title for the first time.
        Also, thanks to computer technology, it is now quite easy for
    unscrupulous sellers to counterfeit titles, so even if states were to
    adopt uniform standards, and carry forward other states' title brands,
    auto salvage fraud involving vehicles with false clean titles would
    continue to occur.
        However, a national electronic database with relevant information
    holds promise for curbing fraud. Prior to sale, prospective buyers
    should have access to the same information about the vehicle's history
    as the insurers, manufacturers, or other entities that already enjoy
    access. (Of course, the prior owner(s) personal information should be
    kept private.) Vehicle owners, who are entrusting their personal
    safety, and their family's safety, to the reliable operation of the
    vehicle, should not be the last to find out their vehicle's damage
    history.
        The most effective way to provide vehicle history information in a
    timely fashion to all prospective purchasers and bridge the Digital
    Divide is to require relevant information from a national database be
    displayed on vehicles themselves.
        A precedent to consider: after extensive research into effective
    means of disclosing vehicle safety information to the public, the
    National Academy of Sciences issued a report recommending that the
    relevant information be provided on a separate sticker on the vehicle
    itself.\14\ The National Highway Traffic Administration sought comments
    on that approach, and adopted the Academy's recommendation, requiring
    on-vehicle safety ratings disclosures on all new vehicles.
    ---------------------------------------------------------------------------
        \14\ As part of the Department of Transportation and Related
    Agencies Appropriations Act, 1995 (Pub. L. 103-331; September 30,
    1994), Congress provided NHTSA funds ``for a study to be conducted by
    the National Academy of Sciences (NAS) of motor vehicle safety consumer
    information needs and the most cost effective methods of communicating
    this information.'' The NAS study was completed and released to the
    public on March 26, 1996. It is titled ``Shopping for Safety--Providing
    Consumer Automotive Safety Information,'' TRB Special Report 248. Based
    on its findings, the study makes recommendations to NHTSA on ways to
    improve automobile safety information for consumers.
    ---------------------------------------------------------------------------
    Federal Trade Commission Used Car Buyers Guide
        For used vehicles, an on-vehicle Buyer's Guide already exists.
    Since 1985, the Federal Trade Commission has required that all licensed
    auto dealers must post a Buyers Guide on each used vehicle sold to
    retail consumers. The Guide includes information about warranty
    coverage and warnings aimed at informing consumers about common
    pitfalls involved in purchasing used cars. Dealers must provide
    consumers with the Buyers Guide as part of the sale or lease
    transaction.
        Requiring the disclosure of vehicle history information would also
    help address the inherent deception that occurs when a vehicle is
    advertised and sold with a supposed warranty that is actually void due
    to prior damage. Currently, the Buyers Guide on relatively new damaged
    vehicles usually states that the vehicle is being sold with the
    remainder of the manufacturer's factory warranty. However, if the
    warranty is void due to prior damage, that should be fully disclosed
    prior to sale, along with the prior damage history. Otherwise, buyers
    are being misled into believing they are obtaining vital protections
    that prove to be illusory.
    Enforcement and Remedies for Victims
        In order to discourage scamsters from engaging in auto salvage
    fraud, it is important for any Federal legislation to provide for
    remedies and penalties that are at least as strong as under the Federal
    Odometer Act. That Act provides for victims to obtain multiple damages
    and attorneys fees, and also provides criminal penalties. Salvage and
    flood car fraud is even more serious than odometer fraud, since it
    clearly impacts the motoring public's safety, and should invoke
    commensurate sanctions.
        Any Federal statute should create a floor and not a ceiling for
    states, allowing states to provide stronger protection. This non-
    preemptive effect is particularly important since some states may find
    they are being targeted, and need to take stronger steps to avoid
    becoming dumping grounds for salvage and flood car frauds.
        Ease of enforcement: providing damage information on the Used Car
    Buyers Guide would provide law enforcement agencies with a relatively
    simple, cost-effective, uniform method for monitoring disclosures and
    ensuring compliance. Rather than attempting to delve into whether or
    when the prior damage disclosure was made during complicated sales or
    lease transactions, law enforcement officials could simply monitor and
    spot-check the Buyers Guides on open display.
    Conclusion
        Thank you again, Senators, for the opportunity to testify. I
    appreciate the Senate's interest in examining this serious form of
    fraud, and I welcome the opportunity to work with you and the
    Subcommittee Counsel to develop positive, effective ways to protect the
    public from flooded car and salvage fraud.
                                  Attachments:
        1. Federal Trade Commission Used Car Buyers Guide from a so-called
    ``certified'' BMW. The buyer, who works as a landscaper, paid over
    $30,000 for the BMW. When he test-drove it, the traffic was congested
    and he was unable to drive more than about 35 mph. As soon as he drove
    it home, and got to speeds over 60 mph, it shook violently. A
    subsequent expert inspection found that the vehicle had sustained major
    damage in a crash. The repairs were woefully inadequate and shoddy. As
    a result, the frame was bent and the suspension was shot. It would take
    thousands more dollars to fix it so that it was safe to drive. BMW
    refused to honor the ``Full factory warranty, 4 years or 50,000 miles''
    touted on the Buyers Guide due to the prior damage. The buyer had also
    purchased an extended service contract. The holder of the service
    contract excluded coverage for repairs due to the prior damage.
        The dealer refused to refund the purchase price. The BMW sat unused
    in the owner's driveway for over a year, while he drove an old truck
    and continued making $500 per month in car payments, pending resolution
    of a lawsuit.
        2. CARFAX Vehicle History Report for the same BMW, reporting ``no
    severe accidents reported to DMV, Guaranteed!'' This report was
    presented by the dealership to the buyer prior to sale.
        3. Blank Federal Trade Commission Used Car Buyers Guide

        Senator Pryor [presiding]. Thank you very much.
        Mr. Fuglestad.

      STATEMENT OF ALAN FUGLESTAD, VICE PRESIDENT, OPERATIONS AND
                    TECHNOLOGY, EXPERIAN AUTOMOTIVE

        Mr. Fuglestad. Thank you, Senator Pryor, for the
    opportunity to testify today. My name is Alan Fuglestad and I
    am Vice President of Operations and Technology for Experian
    Automotive. I plan to touch on a few topics today related to
    how private industry and Experian can help and is helping
    protect consumers on flooded and salvage vehicle fraud.
        First let me give a brief description of Experian
    Automotive. We are a unit of Experian that delivers information
    solutions to the automotive marketplace, car manufacturers,
    dealers, lenders, and consumers. Our core data asset that
    drives these solutions is our national vehicle database. This
    database houses information on more than 500 million vehicles,
    of which about 285 million of those vehicles are in operation
    on the road today. Our sources include the State departments of
    motor vehicles, auto auctions, police accident reports, and
    salvage yards.
        One of Experian's key automotive solutions that is
    applicable to today's topics is its AutoCheck vehicle history
    report. A vehicle history report helps consumers and businesses
    make vehicle purchase decisions by understanding historical
    events for pre-owned vehicles. This report can reveal frequency
    and location of title and registration, past title brands, past
    accidents, and even odometer history.
        Let me touch briefly on how Experian helps prevent vehicle
    title fraud, especially in the wake of the recent hurricanes.
    We feel there are important steps consumers can take to protect
    themselves from unknowingly buying a car damaged by one of
    these hurricane storms. In addition to a physical inspection,
    one of the most important steps a potential buyer can take is
    to better understand the history of a car prior to purchasing
    it by obtaining a vehicle history report. This report can tell
    potential buyers if the vehicle has severe flood damage or has
    been branded salvage, as well as where and how many times the
    vehicle has been titled.
        Now, in the wake of the recent hurricanes, Experian set out
    on an awareness campaign for car dealers and consumers.
    Experian launched a cooperative effort with the National
    Automotive Dealers Association designed to educate its members
    and build awareness of the large number of storm-damaged cars
    that would potentially be hitting the market after these
    storms.
        Information was supplied about how to identify and
    recognize a storm-damaged vehicle and a process was established
    so that dealers and others could report their own vehicles
    damaged by the storms. Our goal was to make this information
    available more quickly than traditional reporting processes
    through the State DMVs.
        Experian is now making this information available to
    dealers and consumers at no charge via its AutoCheck Storm Scan
    feature, which includes three key pieces of information. Number
    1 is the self-reported information from the car manufacturers
    and dealers. Number 2 is past vehicle title brands, whether or
    not they are the result of storm damage. Number 3 is the title
    and registration history that does reveal whether the vehicle
    has been titled or registered in areas affected by a storm
    during the past 12 months.
        Let me move briefly to address how private industry and
    Experian can work with AAMVA and its members. We have been in
    discussion with AAMVA for some time now about how we may
    further support their efforts with the National Motor Vehicle
    Title Information System initiative to combat title and vehicle
    fraud. We do fully support the efforts of AAMVA in moving
    toward providing real-time information on vehicles during the
    vehicle titling process.
        For the past several years, private industry, including
    Experian, has developed data assets and solutions for the
    marketplace that can be leveraged effectively to support the
    National Motor Vehicle Title Information System initiative. As
    far as some examples of where industry can help: first, in
    providing a comprehensive data repository. I spoke of our
    national vehicle database earlier. Experian does receive
    vehicle data from all of the U.S. jurisdictions. A
    comprehensive data source we feel is imperative in combatting
    title and vehicle fraud.
        Second, in managing the data. Experian has expended
    significant resources and expertise in interpreting,
    standardizing and hosting this data to provide the common
    formats that our solutions use for the marketplace.
        Third, in distributing or providing access to this data.
    Experian has developed secure, flexible methods for
    distributing our vehicle history reports and services based on
    the needs of our partners and clients and consumers.
        Next, I will briefly discuss how industry can work with
    other governmental agencies in these efforts. Today Experian
    does offer our AutoCheck services free of charge to law
    enforcement agencies to support their investigative efforts.
    Experian is also in discussion with the NICB to offer their
    hurricane-affected vehicle database free of charge to
    consumers.
        But whether working with AAMVA, the State DMVs, or other
    organizations, once again having a comprehensive vehicle
    history information database or repository available at the
    point-of-purchase or titling a vehicle or during an
    investigation is critical to consumers, businesses, DMVs, law
    enforcement, and others in combatting title and vehicle fraud.
        Finally, I was asked to speak briefly on issues regarding
    DMV data costs. We do purchase this data from the 51
    jurisdictions. No doubt that the high and unpredictable nature
    of our data costs from the State DMV organizations is one of
    our primary risks of doing business. There are significant
    differences in pricing between the various State DMV
    organizations as well as significant fluctuations from year to
    year. I can get into more details on that during the Q and A,
    but that does conclude my initial statement.
        Thank you.
        [The prepared statement of Mr. Fuglestad follows:]

             Prepared Statement of Alan Fuglestad, Vice President,
                 Operations and Technology, Experian Automotive
    Description of Experian Automotive
        Experian Automotive delivers information solutions to
    manufacturers, dealers, lenders, insurance companies, and consumers.
    Experian helps automotive clients increase customer loyalty, target and
    win new business, and make better lending and vehicle purchase
    decisions. Its National Vehicle Database, housing information on more
    than 500 million vehicles, meets the industry's growing demand for an
    integrated information source. Experian technology supports several top
    automotive websites including eBay Motors, CarsDirect.com,
    NADAguides.com and Yahoo! Autos.
        One of Experian's key automotive solutions is its
    AutoCheck' Vehicle History Report. A Vehicle History Report
    is designed to help consumers and businesses make better vehicle
    purchase decisions by quickly and easily understanding potentially
    significant historical events for pre-owned vehicles manufactured in
    1981 or later. Using the Vehicle Identification Number (VIN) and
    depending on the information reported to Experian, an AutoCheck vehicle
    history report can reveal frequency and location of title and
    registrations, past title brands, past accidents, and odometer history.
    Through its joint venture with The First American Corporation (leading
    provider of mortgage title insurance), Experian also offers consumers a
    vehicle title insurance policy (TitleGuard) that covers hidden title
    defects (e.g., water damage, salvage) with coverage up to the full
    purchase price of the vehicle.
        AutoCheck Vehicle History Reports supply information about pre-
    owned vehicles from a multitude of data sources, including state
    departments of motor vehicles (DMVs), auto auctions, police accident
    reports, and salvage yards. AutoCheck is the volume leader in supplying
    vehicle history information to the automotive industry. Dealers,
    consumers and manufactures can easily access the AutoCheck information
    via the AutoCheck website or other methods. AutoCheck offers toll-free
    telephone and e-mail support to all clients should they have questions
    regarding any event in the vehicle's past.
    How Experian Automotive Helps Prevent Vehicle Fraud
        Consumers who live thousands of miles from areas recently hit by
    hurricanes may think they have little to be concerned about, but those
    in the market for a used car are wise to takes steps to protect
    themselves from purchasing a flood-damaged vehicle. Even if potential
    buyers are not in an area directly affected by a hurricane or flooding,
    cars often are repaired and shipped across the country in a matter of
    weeks, putting consumers at risk of buying damaged vehicles.
        While it's too early to know exact numbers, some experts estimate
    nearly 500,000 cars have been damaged by Hurricanes Katrina and Rita.
    There are steps consumers can take to help protect themselves from
    unknowingly buying a car damaged by a hurricane.
        One of the most important steps a car-buyer can take is to better
    understand the history of a car prior to purchasing it by obtaining a
    vehicle history report. A vehicle history report can tell potential
    buyers if the vehicle has severe flood damage, been branded ``lemon''
    or ``salvage,'' if the vehicle has been in an accident, where and how
    many times the vehicle has been titled and the vehicle's odometer
    history.
        Consumers can check a car's reported background by obtaining a
    history report from the seller or dealer or online through AutoCheck
    Vehicle History Reports. Consumers can enter a car's Vehicle
    Identification Number (VIN) at www.autocheck.com and receive a detailed
    vehicle history report.
        Experian recommends a thorough vehicle inspection be performed as
    well. We advocate consumer inspection tips from the National Automobile
    Dealers Association (NADA), to help detect significant water damage
    when buying a used car:

       Check the vehicle's title history;

       Examine the interior and the engine compartment for evidence
            of water and grit from suspected submersion;

       Check for recently shampooed carpet;

       Check under the floorboard carpet for water residue or stain
            marks from evaporated water not related to air-conditioning pan
            leaks;

       Look for rusting on the inside of the car and under interior
            carpeting and visually inspect all interior upholstery and door
            panels for any evidence of fading;

       Check under the dashboard for dried mud and residue, and
            note any evidence of mold or a musty odor in the upholstery,
            carpet or trunk;

       Check for rust on screws in the console or other areas where
            the water would normally not reach unless submerged;

       Check for mud or grit in alternator crevices, behind wiring
            harnesses and around the small recesses of starter motors,
            power steering pumps and relays;

       Complete a detailed inspection of the electrical wiring
            system, looking for rusted components, water residue or
            suspicious corrosion; and

       Inspect the undercarriage of other components for evidence
            of rust and flaking metal that would not normally be associated
            with late model vehicles.

        By taking a few simple precautions when buying a used car,
    consumers can safeguard themselves from the frustration of wasting
    their hard-earned money on a flooded or damaged vehicle.
        In the wake of the most recent hurricanes, Experian set out on an
    awareness campaign for dealers and consumers. Experian launched a
    cooperative effort with NADA designed to educate its members and build
    awareness of the large number of storm damaged cars that would be
    hitting the market after these catastrophes. Information was supplied
    about how to identify and recognize a storm-damaged vehicle and a
    process was established so that dealers and others could report their
    own vehicles damaged by the storms. Our goal was to make this
    information available more quickly than the traditional reporting
    process through state DMVs. Experian is now making this information
    available to NADA members and consumers at no charge via its AutoCheck
    storm scan functionality, which includes three pieces of information:

            1. Self-reported information on storm damaged vehicles from
            dealers and manufacturers.

            2. Past vehicle title brands whether or not they are the result
            of a storm.

            3. Title and registration history that reveals whether the
            vehicle has been titled or registered in areas affected by
            storm during the previous twelve months. If considering a
            purchase of one of these vehicles, Experian recommends a
            professional vehicle inspection.

        Experian also provided state attorneys general offices with vehicle
    inspection tips and AutoCheck storm scan availability so they may
    educate their constituents regarding the risk of purchasing a storm
    damaged vehicle.
    How Experian Works With AAMVA and Its Members
        Experian has enjoyed a good relationship with the American
    Association of Motor Vehicle Administrators (AAMVA) for many years. We
    are also an Industry Member with the ``sister'' organization, Canadian
    Council of Motor Transport Administrators.
        Experian supports AAMVA as an Associate Member and through our
    participation in the Industry Advisory Board. We have been in
    discussion with AAMVA for some time about how we may further support
    their efforts to combat title and vehicle fraud.
        For the past several years, industry has developed assets and
    solutions for the marketplace that can be leveraged to support the
    National Motor Vehicle Title Information System (NMVTIS) initiative.
    For example,

       Experian currently receives vehicle data from all U.S.
            jurisdictions. A comprehensive data source is imperative in
            combating title and vehicle fraud.

       Experian has expended significant resources in analyzing,
            interpreting, validating, standardizing, and hosting this data
            to provide a comprehensive national database of vehicle data to
            be used in solutions and services. This process allows the data
            to be used in a ``common'' format while retaining the specific
            content of the different sources.

       Experian has developed secure, flexible methods for
            distributing our vehicle history reports and services based on
            the needs of our partners and clients.

    Public/Private Efforts to Improve Titling and Disclosure of Brands
        Experian welcomes the opportunity to work with government to
    provide critical information to consumers and business.
        Experian Automotive has dedicated staff who are researching and
    analyzing potential data sources everyday. We are always looking for
    important data that can impact our AutoCheck report to the benefit of
    business and consumers.
        Experian offers our AutoCheck services free of charge to law
    enforcement agencies to support their investigative efforts. We support
    organizations such as the National Odometer and Title Fraud Enforcement
    Association (NOTFEA), the International Association of Lemon Law
    Administrators (IALLA) and the Association of Traffic Safety
    Information Professionals (ATSIP).
        Experian is also in discussion with the National Insurance Crime
    Bureau (NICB) to offer their Hurricane Affected Vehicle Database free
    of charge to consumers. This is an important opportunity to forge a
    partnership between public and private participants for the greater
    good.
        Whether working with AAMVA, the state DMVs or other organizations,
    having comprehensive vehicle history information available at the point
    of purchase or titling a vehicle, or during an investigation, is
    critical to consumers, businesses, DMVs, law enforcement and others in
    combating title and vehicle fraud.
    Issues Associated With Data Costs
        The high and unpredictable nature of our data costs from the state
    DMVs is one of our primary risks of doing business. Experian pays
    millions of dollars annually to the states for the right to collect and
    preserve this data. There are significant differences in pricing
    between the various state DMV organizations, and we've seen significant
    increases in pricing from year to year. In addition, in order for the
    data to continue to be useful, it is necessary to store and maintain
    the information for an indefinite period of time. Experian currently
    stores information on more than 500 million vehicles in our database.
        Experian provides information solutions based on a national
    database of vehicle information. As a bulk data purchaser, we must
    aggregate data from all of the DMVs prior to offering our services and
    solutions (and beginning to recover costs).
        To add to the business risk of our data cost, various state and
    Federal laws and regulations greatly restrict what we can do with the
    records we purchase, which limits our ability to recover the cost of
    this data.
        Finally, in addition to the cost of acquiring this data, we also
    expend significant resources interpreting, validating, aggregating, and
    standardizing the various state-specific file formats for use in our
    solutions.

        Senator Pryor. Thank you.
        Mr. Hall.

            STATEMENT OF DONALD L. HALL, PRESIDENT AND CHIEF

             EXECUTIVE OFFICER, VIRGINIA AUTOMOBILE DEALERS

                 ASSOCIATION; ON BEHALF OF THE NATIONAL

                     AUTOMOBILE DEALERS ASSOCIATION

        Mr. Hall. Thank you, Senator. To begin with today, I am
    here speaking on behalf of the Virginia Automobile Dealers
    Association, the National Automobile Dealers Association, and
    our 20,000-plus members nationwide. Senator, I will go one step
    further and say we are also here on behalf of the 36 million
    purchasers of vehicles every year. They are very important to
    us and we think we are the consumer advocates here.
        Hundreds of thousands of vehicles are totaled each year. It
    was estimated in 2001 by a well-respected consumer organization
    that about 20 percent of those were rebuilt. They estimate in
    about 30 percent of those the titles were washed. People had no
    knowledge of what took place with those rebuilt vehicles.
        As we all know, this year has been a very tough year on
    this great Nation of ours in terms of hurricanes, tornadoes,
    and so forth. We had Hurricane Katrina with 500,000 vehicles.
    We had a number of hurricanes up and down the East Coast. We
    had flooding in the Northeast, the Western States, tornadoes in
    Iowa, in fact even last night, unfortunately, tornadoes that
    hit in Indiana and other parts of the Midwest that destroyed
    vehicles.
        We are very, very concerned about those salvage vehicles,
    probably to a tune of probably a million cars before it is all
    said and done this year. I guess the basic question, Senator,
    and to all of your colleagues, would be this: Do consumers have
    the right to know the history of a car? It is our stance and
    our belief that consumers have that right to know and the only
    way, unfortunately, we have found to address this issue is to
    come to Congress and ask Congress to intervene in our behalf.
        Safety issues are very important. Many of the speakers
    today spoke about that, but just to make the point, any time
    you buy a vehicle that has been wrecked or under water, you
    want to know about that before you make the decision. You want
    to know whether it has impacted the electrical system, whether
    it has impacted the air bags and any other kind of equipment on
    that car. You have a right to know it and you ought to know it,
    so when you make a decision to buy you do so with that
    knowledge.
        We are very concerned about the economic impact this has on
    consumers. There was a great example used earlier by one of the
    panelists today dealing with a Chevrolet Tahoe. The fact of the
    matter is, these cars that have been branded are worth less
    money. We want consumers to know that and make a decision,
    again, with that knowledge.
        So we are very much in favor, very much in favor of brands
    being carried forward from State to State to State. There are
    basically three things that are important to us as an industry,
    as the automotive industry. One is transparency, two is timing,
    and three is technology. It is important that we have complete
    histories of these cars. We do not want to sell vehicles to the
    consumers of the United States of America without that
    knowledge. We want you to have it. In fact, in most cases we do
    not even want to sell those vehicles. We want to stay away from
    them. Unfortunately, so often we find out after the fact.
        Timing is important to us as well. It is critical that when
    these State agencies and other Federal agencies have this
    information that it be passed on to these third-party vendors
    that are out there as soon as possible, so we can get it and we
    know it. So often you hear about the story of an individual who
    bought a car only to find out months later that it had been in
    fact branded. We as the dealer public or the dealers in this
    country, we do not know about it oftentimes either until after
    the fact, and that is not right.
        The technology is there. That is what is unique about
    today's discussion. We are already there. We have third-party
    vendors already providing this. We have other State and Federal
    agencies who have the capacity to provide this information.
    What we need is more complete information to be able to help us
    make a better decision about whether or not we want to sell
    that vehicle and/or as a consumer, whether or not you want to
    buy that vehicle with that knowledge. Again, we think the
    answer is to require brands to go forward.
        If I can, and I will not enter this in the record, Senator,
    but this is a book about two inches long--two inches thick,
    rather--that has 51 different ways to register cars throughout
    this country, 51 different ways, and they are as different as
    night and day. I have tagged several states, without naming any
    States--and yours is not one of them, Senator--that have the
    policy of either accepting a brand from another State and not
    carrying it forward or even stating that they do not accept a
    brand from another state and therefore do not carry it forward.
        As indicated earlier, oftentimes those titles are
    physically taken to those states, the fees are paid, they re-
    issue a new title, the brand is gone, and three or four titles
    later that car then is moved into, as an example, the
    Commonwealth of Virginia and sold to an unsuspecting dealer and
    consumer, and now both are going to be disadvantaged because
    they did not have this knowledge.
        As simple as passing on from title to title to title these
    brands, it is critical to us.
        It is a complicated system. It has been reduced to this big
    old book. We hope that ultimately with technology we can get it
    to something a little less than this, and make it simpler to
    know how to title vehicles and what they mean.
        The insurance industry has taken what I would consider to
    be a baby step, if you will, in terms of saying, ``let us tell
    folks about Katrina cars, let us let them know about these
    vehicles.'' Well, my comment is this: If you buy a car that
    came out of Indiana after last night's horrible tornadoes, do
    you have a right to know that? Our answer as an industry is
    absolutely yes.
        It does not matter--Katrina was terrible and it is the
    reason this hearing is taking place, but let us go after all
    the vehicles in this country. Let us give consumers the right
    to know. The key is once again, do consumers have the right to
    know? It is our position that they do. We absolutely support
    this. We hope that brands will be carried forward from State to
    State to State and make sure that consumers know.
        Senator Pryor, we appreciate the opportunity to speak on
    behalf of the dealers. We appreciate the good work that you
    have done not only in your State but here in the Senate as
    well, and thank you.
        [The prepared statement of Mr. Hall follows:]

        Prepared Statement of Donald L. Hall, President/Chief Executive
      Officer, Virginia Automobile Dealers Association; on Behalf of the
                                   National
                         Automobile Dealers Association
        My name is Don Hall. I am the President of the Virginia Automobile
    Dealers Association.
        I am appearing on behalf of the National Automobile Dealers
    Association (NADA) and its 20,000 franchised auto and truck dealerships
    involved in the retail sale, service and repair of new and used motor
    vehicles, both domestic and import. The majority of NADA's members are
    small family-owned and community-based businesses that employ more than
    one million people nationwide.
        I am also a member of NADA's Title Integrity Task Force, a group of
    representatives from state dealer associations that seeks to combat
    title fraud and to identify solutions that will create more
    transparency in the title history process to protect vehicle
    purchasers.
        I applaud the Subcommittee and the leadership of Senators Allen and
    Pryor on this important national issue. While motor vehicle titling is
    traditionally the province of the states, by nature motor vehicles are
    mobile and are frequently titled across state lines. Several years ago,
    we passed legislation in Virginia to require permanent branding on
    titles for seriously damaged vehicles. Unfortunately, because vehicles
    cross state lines, vehicles purchased and sold in Virginia do not come
    only from Virginia. Because of the inherent mobility of vehicles, title
    fraud is a national problem that requires a national solution.
        Amid the personal devastation of the gulf coast hurricanes this
    year we are faced with an unprecedented number of flood vehicles that
    may result in a dramatic increase in title fraud. It is estimated that
    more than 500,000 vehicles were damaged by flooding in the Southeast
    region and many will be cleaned up and sold to unknowing vehicle
    purchasers.
        But the problem goes beyond flood vehicles from the Gulf region
    hurricanes. Flooding in New England and North Carolina and other areas
    of the Nation has led to countless other flood vehicles. And this
    barely scratches the surface of salvage vehicles, which result when
    insurance companies deem a car to be ``totaled'' as a result of
    collision, theft or fire damage. These vehicles can be rebuilt and
    given a clean title that does not disclose damage.
        The National Automobile Dealers Association is pleased to be
    included in your hearing to discuss the problem of flood and salvage
    cars. Each year new car and truck dealers buy millions of used vehicles
    at wholesale auctions or in trade. Dealers and consumers, as purchasers
    of vehicles, must rely on the accuracy of the titles of used cars.
    NADA's Chairman, Jack Kain, spoke to the Automotive Press Association
    on October 6 on the issue, outlining many of the strategies that I will
    present today for laying the foundation to stop title fraud.
    The Risk to Car Buyers
    The Problem
        The complicated 51-jurisdiction state motor vehicle titling regime
    invites fraud. The large-scale damage of three major hurricanes
    highlights the flaws in our current motor vehicle titling laws.
    Hundreds of thousands of flooded vehicles in the Gulf Coast region may
    be wholesaled and retailed without fundamental disclosure of the
    severity of the flood damage. Because 51 jurisdictions title vehicles
    51 different ways, many opportunities for fraud exist. Under the
    current system, any unscrupulous rebuilder can repair or refurbish a
    wrecked or flood damaged car (typically a late model car ``totaled'' by
    an insurance company) and obtain a ``clean'' or ``washed'' title in a
    state with weak title disclosure rules. The new title will contain no
    reference to the damage, leaving the buyer (consumer or dealer) to rely
    on a physical inspection of the vehicle to expose flood damage. NADA's
    website at www.nada.org contains tips on how to spot a flood vehicle.
        Vehicle purchasers believe they can rely on the title history and
    vehicle history reports, which are currently incomplete. Vehicle
    history services can only report information to which they have access.
    Recent court cases and settlements illustrate that insurance companies
    receive higher sale prices for these totaled vehicles at salvage
    auctions if the titles are not branded.
        The current unreliability of information creates a blanket
    suspicion of all vehicles from a particular region due to an inability
    to obtain information for individual vehicles. The current system
    creates an environment where all vehicles from Louisiana, Mississippi,
    Alabama and other states in the Gulf region are inherently suspect as
    flood damage vehicles, penalizing all sellers in those states, even
    those whose vehicles have not suffered damage. We have specific
    information that this is already occurring in Louisiana.
    The Solution
        More transparency, more timeliness, and more technology is
    necessary to provide buyers a more complete and reliable title history
    before the sale, and penalties must be created for intentional
    circumvention of damage disclosure. We are not talking about how states
    title vehicles; we are talking about sharing information they currently
    collect. All buyers of a used vehicle (consumers, businesses, and even
    automobile dealers taking a vehicle in trade) have the same economic
    interest--determining fair market value prior to purchase. A more
    complete, near real-time title history would provide a more accurate
    picture of a vehicle's prior condition/use.

       Transparency: More complete title history data is needed.
            Most states departments of motor vehicles (DMVs) are collecting
            the necessary title data about damaged vehicles, but there are
            exceptions. The motor vehicle title laws of each should provide
            a threshold level of disclosure to capture significant damage
            to a vehicle. Also, the states should move to more uniform
            classification of the title data.

       Timing: More current title history data is needed. Title
            histories provide key data that dramatically affect fair market
            value and may raise safety-related concerns. Yet, as many as 30
            to 60 days may pass between the time that a vehicle is damaged
            and the time that data reflecting that damage are publicly
            available. This delay facilitates criminal activity.

       Technology: More accessible title history data is needed.
            The information industry in the private sector should have
            access to insurance company information for total loss vehicles
            (VIN, odometer reading, and date of declaration of total loss)
            and salvage auction sales data (VIN, odometer reading, date of
            salvage auction sale). Additionally, DMVs should make title
            data commercially available in bulk on a daily basis to the
            information industry. This information, marketed to consumers
            by private sector companies, would enable consumers to have
            more information before buying a vehicle.

        Enforcement of existing penalties is needed to prevent attempts at
    circumventing disclosure. In any system there exists an opportunity and
    incentive to circumvent the system. As described below, Congress has
    already enacted applicable penalties; they should be enforced.
    Background On Motor Vehicle Titling Laws
        The laws of fifty states and the District of Columbia govern the
    titling and registration of motor vehicles, which creates a systemic
    lack of uniformity. A motor vehicle title documents ownership of a
    specific vehicle, while a motor vehicle registration provides
    permission to operate a specific vehicle. Although the trend in state
    titling laws has been toward more uniformity during the past several
    years, the 51 jurisdictions still conduct business 51 different ways.
    Each jurisdiction has created a distinct paper title, different
    computer programs to issue and track titles and registration, and a
    separate, extensive body of statutes and regulations to govern the
    titling and registration of motor vehicles within their respective
    borders. Additionally, these discrepancies can be complicated by the
    informal policies and procedures used by title clerks, which may vary
    even within jurisdictions.
        One purpose of a motor vehicle title is to provide public notice
    about certain characteristics of a specific vehicle. A motor vehicle
    title has a unique title number assigned by the issuing jurisdiction
    and a unique Vehicle Identification Number (VIN) assigned by the
    manufacturer to the specific vehicle. The 17-character VIN conveys
    information about the vehicle, such as year, make, model, body type,
    and engine type. The unique identifiers facilitate the tracking of
    vehicles for a variety of purposes. For example, state or local taxing
    authorities may rely on VIN information to assess personal property
    taxes. The paper title includes the name and address of the owner,
    existence of a lien holder, and other information about the specific
    vehicle's prior condition or use.
        Federal and state privacy laws strictly limit the use of personal
    information obtained in the titling process. The Federal Driver Privacy
    Protection Act and similar state statutes limit the distribution of
    names and addresses included in title databases. The distribution of
    VIN-based title branding data does not include vehicle ownership
    identifiers
        In common usage, a ``title brand'' is a notation of the face of a
    certificate of title that provides notice to all subsequent purchasers
    of the damage, condition, or prior use of a vehicle. A ``brand'' is a
    word, symbol or abbreviation printed on the title itself. The 51
    titling jurisdictions use a wide variety of brands, such as
    reconstructed, salvage, rebuilt salvage, rebuilt, restored,
    reconditioned, junk, non-repairable, taxi, police, flood damage, fire
    damage, unsafe, and repaired. The complete list is extensive and
    confusing.
        While state titling laws and procedures are becoming more uniform,
    no single database contains all of the data necessary to obtain a
    completely accurate title history. In recent years, the American
    Association of Motor Vehicle Administrators (AAMVA), the trade
    association of state motor vehicle administrators, has encouraged the
    adoption of uniform definitions and procedures for dealing with title
    brands. Despite these efforts, four fundamental problems remain:

       Some states still do not brand all vehicles that sustain
            major damage. Most states typically brand vehicles that sustain
            significant damage from accidents, floods, etc., especially if
            an insurance company declares a total loss. The most
            significantly damaged vehicles are covered by the following
            brands in most states: salvage, rebuilt salvage, flood, and
            non-repairable. However, some of the current databases are
            still incomplete. As a practical matter, some states need to be
            more aggressive in branding vehicles, especially to ensure that
            total loss vehicles are branded.

       The current databases provide conflicting information. While
            many states have consistent concepts for title branding, the
            specific definitions and symbols are inconsistent and
            confusing. For instance, the percentage of damage required for
            a salvage brand varies from state to state. The private sector
            will interpret and summarize the information so that consumers
            can understand the significance of this information.

       Not all states ``carry forward'' the brands of other
            jurisdictions, and some states carry forward the brands of
            other jurisdictions to a limited extent. Even worse, some
            jurisdictions re-issue titles without carrying forward the
            brands of their own jurisdiction.

       No single database captures current state tilting
            information. (It is impossible to search all of the databases
            simultaneously.) Currently, title data reside in 51 databases
            that are not accessible by one search engine. Private vendors
            provide access, but their databases have a 30 to 60 day lag
            time. The absence of near real-time title histories literally
            invites fraud.

    Technology--The Essential Element of Any Solution
        Congress has recognized that technology should play a critical
    role. The Anti-Car Theft Act of 1992 authorized the creation of the
    National Motor Vehicle Title Information System (NMVTIS). As
    envisioned, NMVTIS would become the single source for title history
    data from all 51 jurisdictions. AAMVA has attempted to link all 51
    databases in real-time using a combination of Federal funds, state
    funds, and internal resources. The system envisioned would provide
    real-time, title clerk-to-title clerk linkage and then provide third
    party access to title histories. NMVTIS has not been completed because
    state resources are required to reconfigure state DMV systems to
    communicate with NMVTIS. AAMVA's attempts to design and implement a
    system to provide third-party access to NMVTIS have failed.
        The challenge facing NMVTIS is funding--initial costs to configure
    the system and continued operating costs. Unless the system can
    generate income through the sale of data to third parties (VIN-based
    information that does not include vehicle ownership identifiers), the
    future of the system is in doubt. The existing economic model of
    NMVTIS--relying exclusively on public funding--is not sustainable.
        Private sector information vendors are essential to the
    distribution of data to consumers. Private sector vendors already buy
    DMV data in bulk and provide title history reports to consumers, but
    the vehicle histories are not accessed in as timely a manner as they
    should be. However, incumbents in the market are well-positioned to
    leverage technology to the advantage of consumers. Any NMVTIS-based
    solution must rely on the private sector to package and market title
    histories to the general public. These vendors already buy title data
    in bulk, usually every month. If the states simply provided daily
    electronic updates instead of monthly, the private sector could use
    technology to close the window for fraud. The end result would be an
    efficiently administered, up-to-date system that would provide
    consumers with more timely information.
    Potential Legislative Solutions
        All states should ``carry forward'' prior brands when issuing new
    titles. This requirement is one of the first steps necessary to provide
    a ``closed loop'' system. Once any state brands a vehicle, every
    subsequent jurisdiction titling and registering that vehicle must carry
    forward all previous brands of all previous jurisdictions. For example,
    if Virginia brands a title as a flood vehicle and the car is re-titled
    in Kentucky, the Kentucky title should carry the notation ``VA-FL'' (an
    abbreviation for Virginia-Flood Damage). Just as important, this carry
    forward requirement would require every state to carry forward previous
    brands on duplicate titles issued within the same jurisdiction. In
    short, interstate and intrastate brand carry forward is critical.
        In addition to placing the brands on titles, states should brand
    registrations as well. Owners often do not see a title if the vehicle
    is subject to a lien, but every owner receives a registration document.
        Congress should encourage all states to, at a minimum, brand
    vehicles within these four basic categories to capture the most
    relevant data for vehicle purchasers: salvage, rebuilt salvage, flood,
    and non-repairable. The most significantly damaged vehicles are covered
    by the following brands in most states: salvage, rebuilt salvage,
    flood, and non-repairable. To avoid needless confrontation over the
    exact wording of definitions, the states should retain flexibility in
    defining these terms.
        All states should make existing title data readily available on a
    cost structure that reflects electronic records rather than paper
    records. Currently, private sector information vendors such as CarFax
    and Experian buy title history data in bulk and aggregate the data from
    various states to provide title histories to consumers. The states sell
    this data in bulk to these vendors and the lag time may be as long as
    60 days. The laws of some states have not been updated to reflect
    economic commerce. Congress could encourage the states to make title
    data more available so that data vendors can obtain daily downloads of
    active title and registration and brand files.
        All states should be encouraged to move to electronic titling of
    motor vehicles. If every state DMV issued electronic titles, the
    benefits to the consumer would be significant. Title histories would be
    more readily available, and the perfection and release of liens, an
    essential element of motor vehicle commerce, would be more efficient.
    An electronic titling regime does not mean the elimination of paper
    titles, because paper titles will be necessary for years to come to
    facilitate consumer-to-consumer transactions.
        The National Motor Vehicle Title Information System, authorized in
    the Anti-Car Theft Act of 1992, should be reconfigured to focus on
    providing consumers transparency prior to a transaction. The vast
    majority of the resources of NMVTIS have been used in an attempt to
    link DMVs so that title clerks can talk to title clerks electronically
    before issuing new titles. Unfortunately, most title fraud occurs
    before a title clerk ever sees an application for a new title. Most
    DMVs exist to document motor vehicle ownership after a transaction has
    occurred. Moreover, DMVs do not have the statutory authority, the
    expertise, or the financial resources to package and market VIN history
    data in the general public.
        In contrast, there is an active, innovative, and highly competitive
    information industry that could provide more complete, timely and
    accurate vehicle title histories. The DMVs and the private sector must
    work together more aggressively to enhance consumer access to title
    history data.
        Congress should require the Department of Justice to implement the
    Anti-Car Theft Act for the benefit of consumers. DOJ has existing
    statutory authority to create more motor vehicle title transparency in
    a matter of months. 42 U.S.C. Sec. Sec. 30501-30505.
        Congress should compel DOJ to initiate the rulemaking that was
    originally intended and enforce the penalties under existing law for
    failing to submit data to NMVTIS. The rule should: (1) recognize that
    NMVTIS has been created; (2) require insurance companies to submit to
    NMVTIS VIN-based information on total loss vehicles; (3) require
    salvage auctions and junk yards to submit to NMVTIS VIN-based
    information for vehicles sold at salvage auctions and junk yards; (4)
    require NMVTIS to engage a private sector joint venture partner to
    market the NMVTIS data to consumers no later than June 30, 2006; and
    (5) encourage state DMVs to submit VIN-based motor vehicle title and
    registration data to NMVTIS in electronic batch form every 24 or 48
    hours. NOTE: All data marketed to the public must comply with Federal
    and state privacy protection statutes.
        Any Federal remedies must reflect federalism. Motor vehicle titling
    laws fall within the jurisdiction of the states. Federal preemption of
    this state-based regulatory regime could be challenged under the Tenth
    Amendment to the U.S. Constitution. To limit such a challenge, Congress
    could use incentives (provide grant money) or penalties (withhold
    certain Federal funds) to encourage states to change their respective
    motor vehicle titling laws promptly.
    Conclusion
        Vehicle purchasers should have the right to know about significant
    vehicle damage that may affect the safety, drivability, durability, and
    value of a car or truck. Only if armed with fully disclosed information
    regarding a prospective vehicle can a purchaser make an informed buying
    decision. Only when armed with this information will a purchaser know
    what repairs to inspect prior to purchase.
        Any solution to the title fraud problem must be viewed through the
    pre-transaction lens. The technological solution to the problem of
    flood vehicles--and all other title fraud--lies in creating near real-
    time, pre-transaction access to the vehicle history data that DMVs,
    insurance companies and salvage yards currently collect.
        The solution employs existing private sector companies. A vibrant
    third-party information industry already exists using the limited
    information currently available. Adding to that information would add
    value to the industry and value to the information currently available
    to vehicle purchasers.
        Our focus is on creating accessibility to this information, not
    providing it directly. We seek to take a currently antiquated element
    of what states do and encourage states to bring that function into the
    information age for the benefit of vehicle purchasers, not to dictate
    to states how they do it.
        On a final note: the Coordinating Committee for Automotive Repair
    recently introduced a report on the health hazards of many flood
    vehicles since ``contaminated vehicles and their parts are likely to be
    distributed over a much larger area than was directly impacted by the
    hurricane.'' Flood cars only highlight a broken title system. If we
    work together to solve flood vehicle problems, these same solutions
    will reduce all types of title fraud, such as odometer fraud and VIN
    cloning.
        It is now time to modernize the titling system and bring the
    titling system into the 21st Century. Congress can take simple steps to
    help notify vehicle purchasers that their vehicles have been seriously
    damaged. Complete and timely title information benefits us all.
    Congress should take this opportunity to take action that helps prevent
    scam artists from ``washing'' titles and keeps damaged vehicles from
    ending up back on the road.
        NADA and automobile dealers in Virginia and throughout the country
    are prepared to assist with efforts to eliminate title fraud. Thank you
    for the opportunity to present our views, and I look forward to your
    questions.

        Senator Pryor. Thank you very much.
        I know that Senator Allen will return in just a moment. We
    had a total of three votes. So I voted on the first vote. I was
    the last vote on the first vote and the first vote on the
    second vote, and I am sure he is doing that right now, and when
    he gets back I will probably have to leave to take care of my
    third vote.
        But let me, if I may, start with you, Mr. Hall, because you
    are really a critical player in all of this. Back when I was
    the Attorney General of my state I had a very good relationship
    with the auto dealers in Arkansas. You may want to check with
    some of them. But they would be the first to tell you they
    would always get nervous when the Attorney General was starting
    to look around at consumer issues relating to cars, because a
    lot of times if you are not careful the auto dealers are the
    ones who get stuck with the costs and the risk, etcetera.
        So this is a situation where a lot of times people think
    you have to make a choice, you have to be either pro-consumer
    or pro-business, but this is one of those areas where you can
    be both at the same time and everybody is much better off.
        I saw your orange book there, ``51 different ways to brand
    cars or title cars.'' I know in Arkansas before I was the
    Attorney General at one point at least the State did not have
    any branded title law. So we were one of those States that you
    could go to to wash the title. We recognized that and we
    changed our law.
        So I think that that is very positive and very pro-
    consumer. But I am very glad to hear you say that consumers--
    and you stress it over and over--consumers have a right to
    know. I agree with that. I think the marketplace is really what
    we are trying to clean up here and make sure the marketplace is
    fair and there is transparency and people know what they are
    buying because, like you said, if someone knows--if someone is
    about to buy a salvage car or a flooded car, I guarantee you in
    their mind it is not worth as much as a car in better
    condition. It is just not. So let the marketplace operate as it
    should.
        I assume that it is very common with your membership that
    they unknowingly take possession of these cars with the washed
    titles, is that right? You mentioned 30 percent of the time.
    You think it is that high in your state?
        Mr. Hall. First of all, Senator, let me say this to you. To
    begin with, what is unique as at least I appear today is this:
    We are not asking you to come down on the side of consumers
    over car dealers or car dealers over consumers either way. The
    bottom line is we want you to come down on the side of
    consumers and we are consumers. We buy those 38 million cars
    and then resell those cars.
        In my 27 years of working for auto dealers, I can
    absolutely attest to this Committee today that dealers do not
    want to sell vehicles that have brands on them without that
    knowledge and make that knowledge fully available to consumers.
    They have had dealings with the Attorney General's Office. They
    have expressed over and over again: All we want to do is know,
    but unfortunately we do not hold the information. The
    information comes from the insurance industry and those
    individuals that own those vehicles. As a result, we have a
    tough time selling a vehicle, only to find out later.
        Unfortunately, some of the vehicles, Senator, that are
    rebuilt are done so good that, even with years of experience,
    it would be very difficult to detect until after you have taken
    it, you have driven it for a period of time, and/or it gets hot
    in Arkansas with a flood car, and so forth.
        So I am here today to tell you that we absolutely are on
    the side of the consumers with this issue. We want to know. We
    want the responsibility to tell consumers about that knowledge
    and let the consumers make informed decisions. But as a follow-
    up, in Virginia we average about 10,000 cars a year that would
    fit into this category on average. In Virginia we have passed a
    very, very tough law that deals with title branding and salvage
    vehicles. The difficulty is it only protects the good citizens
    of the Commonwealth of Virginia. It does not do much good for
    other folks and/or cars that come from somewhere else into
    Virginia.
        Our goal and our aim and the position of the National
    Automobile Dealers Association is to say, if it is good enough
    for Virginia, it is good enough for consumers and it ought to
    happen nationwide.
        Senator Pryor. Let me ask this too, before I turn it over
    to the chairman here. You mentioned that some of these cars can
    be restored and they can look great and it is very hard to
    tell. But can you fix these cars well enough to where they are
    not going to have any mechanical or electrical problems?
        Mr. Hall. Senator, to begin with, I think it would be
    difficult to say that you could absolutely fix it and not have
    mechanical problems or not. I would say this to you.
    Historically speaking, these vehicles have problems. I think
    the key is this. The price that you pay for that vehicle should
    be considerably less than what it would be if it were not a
    branded car.
        The issue is for you to understand what you are buying.
    There are folks that may want to buy those vehicles for various
    reasons. We do not want to take away their right to purchase
    those vehicles. What we want to make sure is they know what
    they are buying, what it means. If it says ``Iowa brand'' on
    it, then they have to figure out what that means and understand
    what potentially is going to happen.
        My experience in all the many years of representing car
    dealers is this: I would not allow my adult age children to
    drive around in these cars. I would not want you, Senator, or
    anyone else that I know to drive these cars, because generally
    speaking, they are not good investments for lots of reasons,
    and typically they do not drive real well and they do have
    problems that are manifested down the road.
        Senator Pryor. I am going to turn it over to the Chairman.
    Thank you.
        Senator Allen [presiding]. Thank you, Senator Pryor.
        What would anybody--Don, what would anybody want these cars
    for, the people that buy them? Demolition derbies?
        Mr. Hall. Senator, I appreciate the question. Let me say a
    couple of things to you. First of all, people want to sell
    them, as testimony that was given earlier would indicate, which
    is there is a lot of money in these cars. You buy them very
    inexpensively at the auto auction.
        Senator Allen. Why would any consumer want to buy a car
    that has been flooded when you have all the problems that would
    be associated with it to the engine, to the electrical system,
    to mold growing inside the panels? Why would anybody want to
    buy one of these?
        Mr. Hall. Senator, I would say this to you. The reasonable
    person probably would not, but oftentimes because of brands not
    carrying forward they would not know that it had been a flood
    car or a damaged car. I think the people that tend to buy them,
    if they buy them with full knowledge, then they buy them
    because the price is greatly reduced. Maybe they have some
    special expertise in working on vehicles where they want to
    take on that liability and responsibility.
        But as a general rule, unfortunately, most cases that I am
    privy to over the years are situations where consumers have
    bought them, dealers did not know, consumers did not know, only
    to find out later they in fact had a brand from some other
    state and it was manifested months later.
        Senator Allen. Let me ask all of you this, which states are
    the states where you have talked about in the beginning on
    washing titles? Are there certain States that are the States
    where you can wash titles, if any of you? Don?
        Mr. Hall. Mr. Chairman, I will chime in for a minute. You
    were not here.
        Senator Allen. Yes, I missed it; I am sorry.
        Mr. Hall. That is not a problem, sir. This book
    [indicating] is the book that has how to title cars in 51
    different jurisdictions. I have made a conscious decision not
    to mention various states so as not to embarrass the states.
        Senator Allen. I have now asked you.
        Mr. Hall. You have, so I am now obligated to answer that
    question. I would submit to you that if you had a good friend
    in Alaska, as an example, you do not send the car to Alaska;
    you send the paperwork to Alaska. Then Alaska at that point
    will issue a title and wash it.
        There are a number of states, and they are all marked here
    in this book, that in various forms either will not recognize a
    title, therefore will not carry it forward, if they can
    recognize it and it seems to be synonymous with something they
    use they will carry it forward, or they say point blank, we do
    not carry forward brands from other states. That is the problem
    in a nutshell, is the fact that they are not carried forward.
        Senator Allen. Well, how many states--are there other
    states other than Alaska, which is a good state? The value of
    that is the Chairman of this Committee----
        Mr. Hall. Is from Alaska.
        Senator Allen.--is from Alaska.
        Mr. Hall. I noticed he is not here, Mr. Chairman.
        Senator Allen. Are there other States?
        Mr. Hall. There are and I could literally go through if you
    would like.
        Senator Allen. Well, how many are there? Half a dozen, ten?
        Mr. Hall. More than a half a dozen that have different
    variations of either do not carry it forward under any
    circumstances, do not use it if they cannot recognize it, or
    will conform it to some other term in their state if they think
    they can sort of figure out what it means. In Virginia, Mr.
    Chairman, I might submit that what Virginia does, our home, it
    will take a brand from Florida, as an example, and put on that
    title and the registration card, which is critical--most of us
    never see a title, but the registration card--they will put on
    there ``Fl. brand''.
        At that point, it is up to the dealer and it is up to the
    consumer buying the vehicle to find out, what does that mean,
    ``Fl. brand'' and what does that brand involve? It may not be a
    brand Virginia recognizes, but through the wisdom of Virginia
    and our State DMV they have seen fit to carry forward brands on
    the registration card and on the title so everyone knows what
    they are dealing with.
        Senator Allen. All right. Let us assume they have that. The
    vast majority of people buying a used vehicle in Virginia, and
    I would say any other state, would have no idea of what a
    Florida brand means. I doubt if people in Georgia or Alabama or
    other states would understand it. Would the National Insurance
    Crime Bureau or would Experian information databases, would
    that help? How would either of those help a consumer if they
    tried to log onto their websites and tried to get that
    information?
        Mr. Fuglestad. Mr. Chairman, certainly Experian's national
    vehicle database does have all the historical records
    associated with that. We do go to great lengths to standardize
    and normalize our data to have some consistency. For example,
    we will bring the multitude of brands into 51 key types that we
    currently have and support in our database.
        But certainly the brand history and all of those
    transactions will appear on a vehicle history report if
    obtained by a consumer at the time of purchase. That should
    throw up the red flags at that point that there was something
    in the history of this vehicle. Whether or not the brands do
    carry in the formality of registering or titling with the DMV
    organizations between States, it will occur on the vehicle
    history report.
        Ms. Shahan. Mr. Chairman.
        Senator Allen. Yes, Ms. Shahan.
        Ms. Shahan. That was a very good question, I think, about
    which States do not recognize different titles. What we have
    found is that really all it takes is one State not recognizing
    titles and then the titles can be sent there from anywhere in
    the country. In California, we had a problem where the highway
    patrol found a lot of salvage cars that had been brought in
    from Arizona and they physically stayed in California, but the
    titles were sent to Oregon, and Oregon did not recognize
    Arizona's salvage brand and they put on there something like
    ``prior something,'' not anything that would raise a lot of red
    flags. When it came back to California, then it got a clean
    title because California did not recognize whatever Oregon was
    using as its terminology as meaning salvage.
        I think that is one reason we are looking to electronic
    databases to solve this. One flaw with title branding, even if
    we had 100 percent carrying forward of titles, is that more
    sophisticated thieves are now counterfeiting titles, and you
    cannot even rely on the titles. Sometimes they just use
    whiteout. There were some flood cars from Hugo that were sent
    to Florida where they used a paper punch to punch out the place
    physically on the title where ``Flood'' had been stamped in
    North Carolina, and then they duplicated that and had a clean
    title coming from Florida.
        So paper titles----
        Senator Allen. So you catch that by what, by having the
    vehicle ID number?
        Ms. Shahan. By having an electronic database, hopefully.
        Senator Allen. But having it all on the vehicle ID number
    on the electronic database?
        Ms. Shahan. That is right, and then it is a permanent
    record that is not in the control of someone who can just----
        Senator Allen. Tamper with it.
        Ms. Shahan.--tamper with it, right. Hopefully, it would be
    a secure database, and then it is part of that vehicle's
    history for the rest of its life. You know, there are potential
    problems with the VIN numbers being inaccurate. It is not going
    to be 100 percent, but it is so far superior to--it is sort of
    the 21st century solution for the problem.
        Senator Allen. Mr. Brauch, let me ask you this, because I
    think the attorney general's office clearly can have an impact
    on this. Let us presume--and Ms. Chappell, you may want to
    answer this, too. Let us presume that the National Motor
    Vehicle Title Information System were up and running and all
    across this country, in every State, and anybody who wanted to,
    whether they were a dealer or whether they were a consumer,
    could have access to the database, or anybody else involved in
    the industry.
        It seems to me that this is where we are getting to. Would
    this be the most advantageous approach? I am just listening to
    how you get around this fraud and so forth using data that
    cannot be tampered or altered, with relevant information
    quickly and easily accessible.
        Mr. Brauch. Mr. Chairman, yes, the answer is yes. That is
    one of the most effective parts of what we can do here. One of
    the most effective solutions is to actually make NMVTIS work
    the way it was designed to work. What you described is how it
    is envisioned to work, and getting the information real-time,
    not just at the point of titling, but for consumers, well in
    advance of making a decision whether to purchase, this is so
    vitally important that they know about this history.
        We can talk about branding titles, but, as we have noticed
    when we talk about ``Fl brand,'' we do not know what that
    means. The title, as I mentioned, is not often present at the
    time of sale and so consumers do not see it in any event.
        So having that kind of availability, whether it is through
    NMVTIS, through AutoCheck, Carfax, or all of those, would go a
    long way. But we still have to have enforcement to be able to
    go after the folks who lie, who do the sorts of things Rosemary
    described.
        Senator Allen. Who would you say would be in the best
    position to go after those who are fraudulently passing on
    these vehicles?
        Mr. Brauch. Federal and State law enforcement, sir. I think
    that we have a very good model in the odometer statute, where
    you have Federal criminal, you have State civil, and some
    States have enacted their own State laws. But what those
    provide are basically 51 cops on the beat, the AGs plus U.S.
    DOJ. I know this committee has jurisdiction over the FTC, if
    there is some way to authorize the FTC as well to bring action,
    kind of modeled on the do-not-call process that we have in
    place. That works very well and it really provides us the
    ability to prioritize, where the Feds can go after the biggest
    operators and the states can go after regional or other
    national operators and really hit them where it hurts, because
    we really want to knock the crooks out of this area.
        So by getting the information into NMVTIS, getting it out
    to consumers, and having strong enforcement capability, we can
    really, really put a dent in this.
        Senator Allen. The reality is apparently that this
    information as far as NMVTIS is concerned, it is not all in
    there.
        Mr. Brauch. Right.
        Senator Allen. First of all, they have not accumulated all
    the information on all the vehicles because different states do
    it differently.
        Mr. Brauch. Yes, sir.
        Senator Allen. So would we have to have a Federal mandate
    that all States require this? Go ahead.
        Mr. Brauch. I just want to answer that question. I think a
    Federal mandate that States recognize each other's titles is
    important. A Federal mandate that States carry forward those
    brands on each other's titles is very important. I do not know
    if we have to mandate a bottom line definition of salvage or
    not. I mentioned that in my comments, that it might be helpful
    to have a minimum and allow the States to be more expansive.
    But if that proves unworkable, and that has been one of the
    problems that we have had in the past in trying to enact this,
    at least by requiring the States to recognize each other's
    title brands, carry them forward, have reporting across the
    country, and enough resources out there for NMVTIS to be up and
    operational as it is envisioned, those are the things that are
    going to make a huge difference.
        Senator Allen. Ms. Chappell.
        Ms. Chappell. AAMVA would like to see, first of all, the
    uniform salvage branding legislation, which would ensure that
    we are all calling the same type of damage the same thing and
    carrying that forward. But NMVTIS really is the solution to the
    problem. If all 51 jurisdictions were participating in NMVTIS
    today, nobody would be able to wash a brand from a title
    because there would not be a DMV in the country who would title
    that vehicle without first checking this database and comparing
    what was on that paper title that the clerk is looking at with
    what the database is telling them.
        To get to that point, we are going to need additional
    funding.
        Senator Allen. Has anyone--has anybody estimated what the
    funding would be for and the amount?
        Ms. Chappell. We do have some estimates. I do not know if--
    $25 million is what we need to bring the additional States
    online. But full participation in NMVTIS is bigger than that,
    as I mentioned in my testimony. We have got a requirement for
    the insurance industry and the junk and salvage yards to
    provide information to NMVTIS as well, and without the
    regulations, that has not happened.
        Senator Allen. What is your bottom line figure for the
    States?
        Ms. Chappell. $25 million.
        Senator Allen. $25 million. All right. Now, if it costs $25
    million, with Experian and Carfax and those in the private
    sector, are they not of use and benefit in this sort of
    discerning or title search?
        Ms. Chappell. I think that they are essential, that there
    needs to be a partnership between the DMVs, AAMVA, and the
    information resellers. Historically, there has been a
    partnership with those three entities and I think that we are
    all major players in this.
        Mr. Fuglestad. I agree with that, Mr. Chairman. If you look
    at the power that can be brought, I will not say by flipping a
    switch, but very quickly, by marrying these initiatives,
    talking about private industry with their breadth and depth of
    data, collecting that today, standardizing, managing those data
    repositories today, marrying that with the real-time notion of
    NMVTIS, I think would be a very powerful solution, and in fact,
    it would probably make NMVTIS a more viable solution in the
    short term since it will be comprehensive.
        Obviously, the States that are not participating directly
    in NMVTIS, we would not have real-time data. They would still
    be feeding through our typical batch transaction cycle and the
    validation and normalization. But it would be basically
    overnight to have all of the breadth of the 51 jurisdictions'
    data available, with much of it available real-time through the
    NMVTIS system and then what is not available real-time could be
    brought forward by private industry.
        Senator Allen. So you envision--I would hate to put a
    private enterprise out of business in the midst of all of this
    when you can actually find a public/private partnership, so to
    speak, to take the best minds and creativity of the private
    sector and the government to satisfy a desire on the part of
    consumers to receive accurate title information. And I add car
    dealers as consumers because, ultimately, they would want to
    know what they are buying. In many cases there are no titles
    and that is one of services you get at a dealership. Ah, I do
    not know where the title is, it is lost. You find a few
    inspection stickers around and so forth, and they have to go
    through DMV. It is kind of a DMV office at a car dealership. So
    you have all of that.
        So a dealer on a trade-in will be a consumer as well. To
    the extent that a public/private partnership could work out,
    that would be the approach, because I do not care to put
    creative entrepreneurs out of business.
        You may have different recollections, but this is not an
    issue of first impression. When Senator Pryor brought this up,
    I said, let us have a hearing, figure out what all the
    stakeholders and knowledgeable people think about this concern
    that he saw as attorney general of Arkansas. There were some
    shows. I cannot remember which one of the broadcast networks
    had it, but it was actually a car from Virginia that was washed
    through Mississippi to Arkansas from Hurricane Floyd, I think
    it was.
        But in the past this has failed, this effort in the Senate
    has failed. What is different now or why did that fail? I know,
    Mr. Hall, you have been involved and probably some of the other
    panelists have. And what can we do now to make sure that what
    we are doing is appropriate for Federal jurisdiction at the
    least cost, but effectuating the desire that consumers,
    purchasers, whether they are individuals, whether they are
    companies, whether they are dealers, know what they are buying
    and making an informed choice?
        So what is the difference now? Or what were the pitfalls
    that stopped this previously so that we can actually effectuate
    something positive and constructive?
        Mr. Hall. Mr. Chairman, I am sure that others could comment
    as well. I think part of the problem in the past was a desire
    to create a standardization of what brands are, so that the
    Federal Government would say there are certain brands that
    would be accepted. As an advocate of States' rights, we knew
    back then that was a problem, the idea of telling each State
    how they would have to handle this and not handle it. And
    frankly, the cost of doing this whole program was a major
    concern.
        I think part of the message here today is that the private
    sector has it available. What has happened, though, is the
    insurance industry up until recently has not seen fit to
    release a lot of this information, and as a result of Katrina
    now, because of the number of cars that are out there, they
    have seen fit, and I respect that fact and I appreciate it, to
    release that information, those VIN numbers and the fact that
    they are flood cars.
        The concern we have is that Katrina is only one part of
    probably another half a million cars that are going to exist
    this year as well. So in the past it was a combination of the
    complexity of trying to have one uniform way of doing it, and
    the protection of States' rights and States having the ability
    to do things the way they want to do things; two, kind of an
    unfunded mandate, if you will; and three, just the overall
    expense of providing this.
        What has brought this to the forefront today as far as we
    are concerned, I am certain, is the fact that Katrina with that
    many cars at one time--it would take us years to get 500,000
    cars out of the Commonwealth of Virginia in this situation. But
    when you have one particular national tragedy like Katrina and
    the number of cars, so now it is such where there are a lot of
    folks, including the insurance industry, have said, let us do
    something about it, let us make that information available.
        Our comment is to go one step further, make all cars
    available. Probably the easiest way to have this happen, the
    first baby step, if you will, Mr. Chairman, is the idea of
    carrying brands forward from State to State. It may not be a
    perfect system. It is not going to tell you what an ``Fl
    brand'' is at that time. You are going to have to do some due
    diligence as a consumer. You are going to have to work with
    your dealer--that obviously is going to be noted to you--and
    talk about it.
        But it is a system that at least gets the brands going from
    State to State and prevents the washing of titles in other
    States.
        Senator Allen. Any other?
        Mr. Brauch. Mr. Chairman, I was very involved in the
    process back in the 1990s and I would agree with Mr. Hall
    primarily in what he has described. From the perspective of the
    State attorneys general, it was the lack of flexibility that
    the Federal proposals were providing. They were telling the
    States, this is how you must define ``salvage,'' it must be 75
    percent, and if a State wanted to define it more broadly the
    proposal would not allow that.
        The other thing that it did was it limited the number of
    years that were covered by the proposal. In other words, the
    car had to be something like six model years old or newer, and
    it was not picking up at all older vehicles. We were very
    concerned about that as well. Again, we wanted States to be
    able to be broader in their perspective, broader in what they
    covered, than that.
        Ms. Chappell. Mr. Chairman, if I may, from the AAMVA
    perspective.
        Senator Allen. Ms. Chappell.
        Ms. Chappell. I would have to say that the reason NMVTIS
    only represents 52 percent of the vehicle population at this
    point-in-time is primarily a funding issue. So anything that
    could be done to find new funding sources to bring the rest of
    those jurisdictions on should get us to where we need to be, as
    well as ensuring that the regulations are done for the insurers
    and the junk and salvage yards to report their data.
        Senator Allen. Back to this funding, this $25 million--why
    do some States fund this and do not look to the Federal
    Government to assist them in doing it, like Virginia, and I
    reckon Iowa and California, also? Why do some States recognize
    it is important to fund NMVTIS, and others do not?
        It can be looked upon as rewarding the less diligent by
    saying that the taxpayers, the Federal taxpayers, are going to
    help out those that have been slow to do it or inattentive,
    whereas others, whether it is California, Virginia, Iowa,
    Florida, spend their own funds on maintaining NMVTIS. How do
    you handle that?
        Ms. Chappell. As of today we have 15 jurisdictions that are
    participating in NMVTIS.
        Senator Allen. 15.
        Ms. Chappell. Nevada came online today. And as far as I
    know, Federal funding was used by each of those jurisdictions,
    including Virginia.
        Senator Allen. Well, was Federal funding available--Nevada
    undoubtedly got some Federal funding. Let us assume there are
    other States, the other 35 States that have not gone to this
    sort of reporting and branding. Is that funding available to
    those States presently?
        Ms. Chappell. Federal funding?
        Senator Allen. Right. How does Nevada get Federal funding?
    Does Nevada have some special legislation or pot of money that
    it allocates the Federal funds in one way, and another State
    allocates Federal funds a different way?
        Ms. Chappell. The way the Federal funding has worked
    historically with NMVTIS is that a pot of money is given for
    implementing NMVTIS and then States that are interested in
    pursuing it this particular year who have IT resources
    available to do the work this particular year will go to AAMVA
    and request that they be given a piece of that Federal money to
    help support their development efforts.
        Senator Allen. Is there a State match to this?
        Ms. Chappell. In some States what it has cost has been more
    than what the Federal funds that have been used by that State,
    so the State has contributed. I cannot tell you that it was a
    50-50 match or anything.
        Senator Allen. But there is some State share usually to it?
        Ms. Chappell. Yes.
        Senator Allen. Well, when Virginia did it, how much was
    Federal funding, and how much was State funding?
        Ms. Chappell. Virginia's cost for NMVTIS as a pilot state
    are higher, were higher than what it costs a State to do today,
    because we were involved in defining the requirements for both
    sides of the system. We spent approximately $2 million to bring
    up NMVTIS and we got $750,000 from the Federal funds.
        Mr. Brauch. Mr. Chairman, can I add something to that? I
    think that the information regarding NMVTIS we got from the
    Iowa Department of Transportation just this week was that that
    had 13 States participating online, so it must be up to 15 now.
    But there were an additional 10 states that are participating
    by batching information in, plus another 9 that are in
    development for either batch or online. So there are over 25
    and maybe more than 30 states that either are participating
    right now or may very soon participate in NMVTIS.
        Senator Allen. So it is not as bad as it sounds.
        Mr. Brauch. It is not as bad as it sounds. But there is a
    strong need out there for more assistance. There was Federal
    funding at the very outset. In Iowa, I found out, we were able
    to bring ours online because we had Federal funding and because
    the timing was right. We were also in the process of upgrading
    our State system with State funds. We were able to combine it,
    as you say, a State match, and therefore get it done. But some
    other States may not be in that position yet and maybe need
    that Federal funding to help get them over the hump.
        Senator Allen. Would a company like Experian be able to buy
    data from NMVTIS?
        Ms. Chappell. At this point in time they do not purchase
    data from NMVTIS, but we do envision giving them access to
    NMVTIS data. In fact, when we were talking earlier about the
    consumer having basically real-time access to NMVTIS data, one
    model would be that the consumer works with the third-party
    reseller, such as Experian, and they would not come directly to
    a department of motor vehicles, nor would they go to AAMVA.
        Mr. Bryant. Senator.
        Senator Allen. Yes, Mr. Bryant.
        Mr. Bryant. Could I make a comment? The answer to our
    issues here is NMVTIS and this issue needs to be funded and
    standardized and it needs to be done now. The reason that there
    is concern now is because you have 350,000/500,000 vehicles
    that are out there. Before the hurricanes hit, NICB had around
    40 to 50 cloning--I am sorry--title-washing vehicles, title-
    washing investigations going on from Alaska, Alabama, et al.
    These investigations are very complex because the vehicles go
    from state to state. The way you stop that is by having
    standardization of terms and communication and electronic
    databases.
        The funding for NMVTIS is the real issue. When we created
    the Katrina database, there are 200,000 VINs in that database
    that NICB put together with law enforcement authorities,
    insurance companies, and from salvage pools. We are trying to
    prevent title-washing and fraud. It is going to hit us like a
    plague, and that is our concern.
        Once again, I reiterate, NMVTIS is really the answer and it
    needs to be seriously considered.
        Senator Allen. Thank you.
        Senator Pryor. Ms. Shahan, did you want to say something?
        Ms. Shahan. I just wanted to add that I think NMVTIS is
    part of the solution, but it is not the entire solution. I
    think it is important to put some information on the car
    itself. When the National Highway Traffic Safety Administration
    was tasked by Congress with coming up with the best way to get
    information to consumers about vehicle safety, they contracted
    with the National Academy of Sciences to look into that issue.
    The Academy of Sciences came back and recommended putting
    safety information right on the car. They said that is when it
    is most useful.
        Senator Allen. On the automobile itself?
        Ms. Shahan. That is right.
        We already have a requirement that has been in effect since
    1985. The Federal Trade Commission requires every licensed
    dealer selling used cars to put a buyer's guide on the car
    explaining whether it is being sold with a warranty or without
    a warranty. That would be the logical place to put some
    information saying: ``This is a problem vehicle and you need to
    look further into the database to get more information from
    it,'' so you can tell on the car.
        As Mr. Brauch has pointed out, usually consumers do not
    have access to the title, so they are unaware at the time of
    purchase about the brand on the title. But as the National
    Academy of Sciences found, if you put it on the car, it's very
    useful. That is the time when you need to know, when you are
    looking at the car physically.
        It does not resolve the question of what you do with online
    purchasing. There is probably a way to deal with that. But it
    is the most cost-efficient way, using existing requirements and
    just building on those. It is at least as important for the
    consumer to know that this is a car that swam with the fishes
    as it is to know whether or not it has a warranty.
        As a matter of fact, usually if it has a damage history,
    even if the buyer's guide says there is a warranty on it, the
    manufacturer has voided the warranty, maybe for the entire car,
    or certainly for the part that is damaged, because
    manufacturers for some reason do not want to warrant parts when
    they have no idea whose parts are in that car. They could be
    totally different parts, not original equipment manufacturer
    parts. They have no control over who did the repairs. So, of
    course they are not going to honor the warranty on those cars.
        Senator Allen. Right. And in some cases, though, the dealer
    may not know. If you only have 15 states, or let us assume half
    the States have some sort of way that you could determine the
    prior condition or whether it is a salvage vehicle or whether
    it had been flooded, the dealer may not even know that.
        Ms. Shahan. That is right, and that is why I would agree
    that dealing with NMVTIS and having uniform access that is very
    timely makes perfect sense. Then it would be very easy for a
    dealer to download information, by vehicle VIN from NMVTIS,
    whatever, when filling out the buyer's guide to say whether
    there is a warranty or not, and then include in here, lo and
    behold, this is in the Federal database as a damaged car and if
    you are looking at this, you are a teenager buying your first
    car, you are a parent looking for a car, it is right there on
    the car, so you can factor that into your decision before you
    get to the point where you have agreed on a price, before you
    get into the little room where things happen.
        Senator Allen. That is just plain old horse-trading. That
    is the most fun part of it, almost.
        Senator Pryor, any questions?
        Senator Pryor. Thank you, Mr. Chairman. I do have a couple
    of questions probably for each witness, if that is OK.
        Senator Allen. Of course.
        Senator Pryor. Let me--I am sorry; is it ``CHA-pell'' or
    ``cha-PELL''?
        Ms. Chappell. ``CHA-pell.''
        Senator Pryor. ``CHA-pell.'' I am sorry, I mispronounced
    that earlier.
        Ms. Chappell, let me ask you. We have talked a lot about
    NMVTIS here.
        Ms. Chappell. Yes, sir.
        Senator Pryor. I am not as familiar with it as I am sure I
    will be. Tell me, what is the purpose of NMVTIS? What does it
    accomplish?
        Ms. Chappell. The basic concept of NMVTIS is that for each
    vehicle there is only one record and only one title.
        Senator Pryor. So this, NMVTIS, is designed to thwart
    title-washing, right, and different terminology in different
    States; is that right?
        Ms. Chappell. It is designed to make available all
    information----
        Senator Pryor. In one place.
        Ms. Chappell.--in one place, on every vehicle that is on
    the road.
        Senator Pryor. When you say ``all information,'' do you
    mean like insurance information, like it was in an auto
    accident back in 2001? Is that the type of information, or is
    it who has owned it? I mean, tell me what type of information?
        Ms. Chappell. There is no personal information in NMVTIS,
    so name of owner, address of owner, none of that is there.
    Information that is about the vehicle itself--the year, the
    make, the model, the VIN, whether it has been branded, what
    those brands are, what the odometer reading was at the time of
    each titling transaction.
        Senator Pryor. So it is basic consumer protection and just
    basic information transparency on this vehicle?
        Ms. Chappell. Yes, sir.
        Senator Pryor. Now let me ask this. Is NMVTIS a Federal
    Act? Is it a State-to-State compact? What is it?
        Ms. Chappell. NMVTIS is the name of the actual automated
    system.
        Senator Pryor. Right.
        Ms. Chappell. It was created to comply with language that
    is in the Anti-Car Theft Act.
        Senator Pryor. Right.
        Ms. Chappell. Which required that there be a national
    database.
        Senator Pryor. But is it just an agreement among the
    states? Is that what it is? Or is it something the State
    legislature has to pass?
        Ms. Chappell. In Virginia we did not. It was an agreement
    between us and AAMVA. I do not know--it is federally-mandated.
        Senator Pryor. OK, I got you. I know how that works
    sometimes.
        Ms. Chappell. Probably better than I.
        Senator Pryor. Unfortunately.
        The other thing is, I was just going to ask you, Ms.
    Chappell, is about real-time. You talked about real-time a few
    minutes ago.
        Ms. Chappell. Yes, sir.
        Senator Pryor. What is your definition of ``real-time''?
        Ms. Chappell. Real-time means that if somebody comes into
    an office today to title a vehicle, the vehicle identification
    number that is on the application they provide the front teller
    clerk is put into the Virginia automated system and that
    information is sent out through AAMVANET, which is the network
    for AAMVA, and AAMVANET knows where that vehicle is currently
    titled, so it points the query to the current state of title
    and the information that that other State has--let us say it is
    Kentucky--comes back and shows to the clerk standing at the
    front counter.
        So I have got the Kentucky title in front of me and I am
    able to compare what is on the record with what is on this
    piece of paper in front of me. And if there is a discrepancy, I
    can stop the title transaction right then. If it comes back
    that the vehicle is stolen, I am certainly not going to title
    that vehicle.
        Senator Pryor. Right, OK.
        Mr. Brauch, let me ask you, if I may, based on your
    experience in the Attorney General's Office there in Iowa and
    also just your experience with NAAG, et cetera, looking at this
    as a national problem as well, is washing titles a problem with
    a few bad actors or is it spread across the entire U.S. with
    people that are just selling their own vehicle engaged in this
    practice, or are there more like companies out there that
    almost specialize in this, that know all the tricks of the
    trade and do that?
        Give me a sense of the scope of what we are talking about?
        Mr. Brauch. It is a very broad scope. Unfortunately, there
    are large companies that operate nationally that may, in some
    respects, violate the laws and there are individuals operating
    out of their back yards who do it on an occasional basis. So it
    is large, it is small, and it is all over the place.
        It is something that is not hard to do if you know how to
    work cars and you have larceny in your heart and you want to
    rip people off. So it can be done by individuals, it can be
    done by small used car dealers, it can be done by larger
    companies.
        Senator Pryor. Let us say if a consumer in your State is
    going to buy a used car. Right now as I understand it he can
    get--there are a few services--I think Carfax is one and I do
    not know how many there are total, but Carfax is the one that I
    know the name right off the bat. But what do they have to do,
    pay a fee to access Carfax? They type in the VIN number?
        Mr. Brauch. That is correct. Other than this new service
    that they and NCIB and AutoCheck are providing here on the
    flood vehicles, which is a wonderful service----
        Senator Pryor. Right.
        Mr. Brauch. But generally, yes, they pay a fee to get
    information about that vehicle. I do not know whether the
    services maybe offer the first one free to somebody who signs
    up or something of that nature. But the bottom line is there is
    a fee for it.
        There are alternatives. For example, consumers in Iowa for
    a number of years have been able to contact the Department of
    Transportation and they will provide them that kind of
    information to the best of their records. So that is available
    out there.
        Senator Pryor. Will a company like Carfax be able to catch
    a washed title? Will they be able to say, well, it was titled
    in Kentucky and then it went to Mississippi, then it went
    somewhere else and somewhere else?
        Mr. Brauch. Often they are. They do not always catch it,
    but often they do, very often. Those kinds of services and
    NMVTIS itself are extremely helpful in going back and saying,
    oops, before it was washed in whatever State it was titled as
    salvage in New York or whatever it might be.
        Senator Pryor. Right.
        Mr. Bryant, let me jump to you if I can quickly. You--and
    again, I am glad you are doing it, but you have this web-based
    listing system now in the aftermath of Katrina, right?
        Mr. Bryant. Yes, sir.
        Senator Pryor. Is that available to the general public?
        Mr. Bryant. It is available to the general public and it is
    free. There is no charge.
        Senator Pryor. OK. And are you contemplating trying to
    expand that or trying to build on that? Do you have a sense of
    the success rate based on what you have done?
        Mr. Bryant. We have had a lot of internal discussions of
    whether we should expand that over a period of time, because
    natural disasters unfortunately are not going to go away.
    Frankly, there are other issues here as far as title-washing
    and so forth. We are having discussions, and have not made any
    final decisions.
        Senator Pryor. What percentage of the automobile insurance
    companies participate in what you are doing? Is it everybody?
    Is it just one or two companies?
        Mr. Bryant. The rules of the game in the Gulf Coast area
    affected by the hurricanes is that we take vehicle
    identification numbers from anybody and everybody. They do not
    have to be members of NICB. We have had--all the major
    insurance companies are involved. They are supporting it and
    furnishing information. We have certainly some of the salvage
    pools; most of them are furnishing us information, even down to
    Orkin Exterminating giving us a car.
        We are taking information and entering it in a database.
    That is what we are doing in coordination with the Louisiana
    State Police, the Mississippi State Police, and some other
    authorities.
        Senator Pryor. Ms. Shahan, let me ask you. You were telling
    a story. I was in and out on voting, but you were telling a
    story about a Mercedes-Benz and the person bought it as a
    certified car. You mentioned this Mercedes story, but are other
    auto manufacturers doing the same thing? Are they selling cars
    as certified or whatever their program may be called, but
    certified, and then not honoring the warranty because they have
    a salvage title?
        Ms. Shahan. Yes, that is correct.
        Senator Pryor. Is it your impression that all the auto
    industry is doing that?
        Ms. Shahan. Yes.
        Senator Pryor. Are you familiar with the California Car
    Buyer's Bill of Rights?
        Ms. Shahan. Yes.
        Senator Pryor. Will that help the people in California with
    that problem?
        Ms. Shahan. I hope so. Unfortunately, it does not outlaw
    selling flooded cars as certified, but it specifically outlaws
    selling any vehicle that has sustained any frame damage. We are
    hoping that that is applied literally and broadly, to include
    vehicles that have unibody construction. You know, there was
    some question. Some dealers said, well, it may not apply to
    unibody, and 95 percent of passenger cars are unibody. It was
    certainly our intention that it would include those cars.
        Senator Pryor. I like your idea about somehow thinking
    through a way of actually posting it on the windshield or the
    window when you buy it, because the buyer's guide is already
    required. Again, I do not know all the mechanics and the
    logistics of how that would work and how the responsibility of
    that would flow, but I think that is a common sense idea that I
    would like to pursue with you.
        Let me ask one thing. I missed part of your testimony. I am
    not sure you mentioned it. But my understanding is some
    companies with large fleets, like a rental car company, somehow
    or another, given the way they are structured and how they do
    their business, they may not be picked up in the system, so to
    speak, maybe because they do their own repairs. I am not quite
    sure, but is there--are they in a special category, these
    rental car companies?
        Ms. Shahan. They are, because they are self-insured. What
    has happened in some States in the past is that self-insured
    entities do not report to NICB necessarily. This is one of the
    flaws we have found with the Carfax database. We recommend to
    consumers that they check Experian or Carfax as one of the
    components of finding out the history, but we also tell
    consumers it is not a substitute for getting your own
    inspection done, because there are flaws with those databases.
    I am not faulting those companies, but it is only as good as
    the information that goes in.
        So for instance, in the State Farm case, State Farm has
    admitted to the State AGs that it withheld salvage titles, it
    did not brand. About 30,000 to 40,000 vehicles that were
    salvage did not get salvage brands. For that reason, they would
    not show up as salvage in those databases.
        Senator Pryor. That makes sense.
        Mr. Fuglestad, let me ask you a couple of quick questions.
    That is, back--let me preface by saying that when I was the
    attorney general in Arkansas we passed a do-not-call law. One
    thing that was very important to us is that the do-not-call law
    actually worked and actually made sense and it was workable. So
    we spent a lot of time with the phone companies and others to
    try to make sure that we could iron out all the details and all
    the kinks in the system before we passed the legislation.
        So I am glad that you are here in part of this discussion,
    because you have some real world experience that I think would
    be very helpful to the Committee and very helpful to the
    Chairman and I as we do our follow-up on this.
        But let me ask about Experian. You pay for that service,
    right?
        Mr. Fuglestad. Yes.
        Senator Pryor. I mean, for me. If I come in----
        Mr. Fuglestad. Yes, consumers pay for that service.
        Senator Pryor. And what is that? How does that work? Is
    that a one-time fee or what?
        Mr. Fuglestad. Yes, there is a one-time fee for consumers
    that go to AutoCheck.com to get a vehicle history report. There
    is really two flavors. One is a single report, or if I am in
    the market for a used car, I can get an unlimited number of
    reports for a 60-day period. There are two different ways to do
    it.
        Senator Pryor. I see.
        Mr. Fuglestad. We also work with many of the dealers in
    providing history reports to them, with manufacturers on their
    certified pre-owned vehicle programs. So there is a variety of
    ways we get the vehicle history information out.
        Senator Pryor. You have about 500 million cars?
        Mr. Fuglestad. 500 million, about 530 million vehicles that
    are represented in our database. We do not retire the records
    after they may have been retired on the road. Through our
    internal calculations, we have 280 million vehicles in
    operation or on the road today.
        Senator Pryor. Your report does include the brand? If title
    has been branded in one state or another----
        Mr. Fuglestad. That is correct.
        Senator Pryor.--you pass that on. Do you explain to the
    consumer what the brand means in that state?
        Mr. Fuglestad. Yes, there is a lot of explanation on what
    the different brands are. We do try to standardize to a certain
    degree. As I stated earlier, we have 51 brand types that we try
    to bring in into those types, because there is a lot of
    diversity across the States.
        One of the things that we do, I guess I should mention that
    is a little bit different from the NMVTIS model, is we take on
    the standardization. We do not necessarily have the ability to
    require States to get their formats specific for us, so what we
    have to do is take it as it comes to us, typically
    electronically, daily, weekly, monthly, depending on the State,
    and we take that, standardize it, normalize it, instead of
    asking the States, obviously, to change their formats to abide
    by what we do.
        So we do a lot of that data management and that is what,
    when I talk about leveraging private industry, it is on that
    management, it is on the breadth and depth. We have been
    collecting this data for years. I think we will see, obviously,
    in the States that are not participating in NMVTIS, but even in
    some of the States that are participating, we might see deeper
    and richer information. I think some deeper analysis can be
    done to bring that to the table.
        I think that would be very effective, to analyze that. Even
    on the distribution side, we talked a little bit about how we
    get this out to the marketplace and to consumers and dealers
    and such. We have a variety of flexible, secure means for
    getting that information in the vehicle history reports out to
    consumers on a very, very high-scale basis.
        Senator Pryor. Do you have any sense of how many people use
    your service and change their mind on a car they are about to
    buy? Do you have any sense of that?
        Mr. Fuglestad. We do not have any sense other than
    testimonials. We have received several testimonials that allude
    to that. In fact, we do not have any mechanism for really
    tracking that. We do turn out, in different flavors now, we do
    turn out about a million either branded title vehicle history
    reports or vehicle history checks, depending on the customer or
    the partner we are dealing with, a month. So it is a very high
    volume and it is rolling through.
        We provide all the branded title reporting to the auction
    houses as the vehicles go through the auctions. They are using
    AutoCheck's services to check the vehicle for any historical
    brands or potential problems. So it is a very high-scale volume
    there.
        Senator Pryor. Let me ask you about Ms. Shahan's idea about
    having the information posted on the window, like the buyer's
    guide. What if there was a law that required retailers, I
    guess, to post some sort of information on the windshield or
    the window like they do with the buyer's guide? Would--at
    initial first blush, do you think that your company would be in
    favor of something like that?
        Mr. Fuglestad. I think so, as long as we include the
    AutoCheck vehicle history report with that.
        [Laughter.]
        Senator Pryor. I understand that. Well, actually that is
    kind of what I am getting to. It sounds like a consumer would
    have more than one option, or seller, let us say a seller, like
    a car dealer, on the used car lot would have more than one
    option to choose from, maybe if we left it to their discretion,
    for them to post some sort of standardized type format, so that
    when a consumer goes from lot to lot to lot they would see
    pretty much the same type of information posted.
        But if your company was one of those that was providing
    that information, it might change a little bit the nature of
    your business because you would be dealing more with sellers
    than buyers. But it is something to think about.
        Mr. Fuglestad. Sure. And Senator, just briefly, that is
    something that is done today, not necessarily posted on the
    vehicle, but many dealers again through our service or our
    competitor's service Carfax, they do provide that history
    report to the buyer. So the seller in that case is actually
    paying for that service.
        Senator Pryor. Let me ask this, the last question for the
    car dealers in Virginia. Let us just say hypothetically right
    now in your State, if a car dealer does the background check on
    the vehicle, finds out it is salvage, but does not disclose
    that to the consumer, what does that do to your liability or
    your member's liability? How does that--does that make you
    responsible in any way? Are you--is that some sort of deceptive
    trade practice?
        Mr. Hall. First of all, Senator, as a former attorney
    general you have much greater expertise in this area than I
    would. I would submit this to you. The bulk of all new car
    dealers nationwide retail the most used cars nationwide, Number
    1.
        Number 2, if a dealer were to determine that, I can assure
    you that in Virginia, and I am certain with Dennis Yungmeyer in
    Arkansas and his folks, they are going to make sure that that
    car is never sold at a retail dealership. Unfortunately, what
    happens is we have got the car, we are stuck with it. So it is
    wholesaled then and ends up on a used car lot someplace, who
    knows where, and it may or may not have the title washed later
    on.
        But the answer is certainly there is significant liability.
    Car dealers are very much aware of that and are very much
    uninterested in selling cars of that nature with that
    knowledge. Part of the problem we have got is, Experian is a
    wonderful company, as is Carfax, but the data is very
    incomplete today. So therefore we are selling those cars as we
    speak, without knowledge. We have run the reports, we have
    represented them as such, and even, unfortunately, having done
    that, we lose in court, frankly, honestly stated.
        But we find out after the fact because the information
    takes months to get in and/or it never gets in the system, but
    it is determined later, months later, the car in fact was put
    together, two cars put together, or it was under water or
    whatever else.
        But I can assure you that the typical new car dealer who
    sells the majority of all used cars retail is not interested in
    selling a car with that information. They do not want to sell
    it. They want to get rid of it.
        Senator Pryor. That is where we get back to, you are on the
    side of the consumer.
        Mr. Hall. Yes, sir.
        Senator Pryor. And you want to see this have a good
    resolution.
        Mr. Chairman, that is all I have.
        Senator Allen. Thank you, Senator Pryor.
        I do not have any further questions. I want to thank all
    our panelists today for your interest and your expert insight.
    I am particularly proud of Ms. Chappell and Mr. Hall from
    Virginia, but all of you, from California and Iowa and
    Illinois, and Mr. Bryant is headquartered there in Virginia as
    well. Thank you.
        This issue of flooded and salvage vehicles, we want to go
    about this in a thoughtful, logical, and effective way. Your
    insight and your perspectives have really given us--I have
    taken notes and our staffs have been taking notes. I thank you
    also for bearing with the way the Senate operates. We did want
    to keep this moving and you have provided us with a very
    valuable perspective. As we cobble together some legislation,
    we are going to keep in contact with each and every one of you
    and others in your association to make sure that we can move
    forward, because there was a pretty good unanimity and
    convergence of approaches here. So we want to make sure that as
    legislation goes forward it is appropriate, while also
    recognizing that the Federal Government cannot do this alone.
    It will be in partnership with the states and obviously the
    private sector as well, and others who care about the
    consumers, as we all do.
        Thank you so much for your attendance, your interest, and
    your sterling leadership.
        [Whereupon, at 4:20 p.m., the Subcommittee was adjourned.]