[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




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                  U.S. GOVERNMENT PRINTING OFFICE
  65-005 PDF              WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001








       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.]

                                  
