- CONSUMER PROTECTION IN THE USED AND SUBPRIME CAR MARKET

[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

CONSUMER PROTECTION IN THE USED AND SUBPRIME CAR MARKET

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

HEARING

BEFORE THE

SUBCOMMITTEE ON COMMERCE, TRADE,
AND CONSUMER PROTECTION

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

__________

MARCH 5, 2009

__________

Serial No. 111-9

Printed for the use of the Committee on Energy and Commerce

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COMMITTEE ON ENERGY AND COMMERCE

HENRY A. WAXMAN, California, Chairman

JOHN D. DINGELL, Michigan JOE BARTON, Texas
Chairman Emeritus Ranking Member
EDWARD J. MARKEY, Massachusetts RALPH M. HALL, Texas
RICK BOUCHER, Virginia FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey CLIFF STEARNS, Florida
BART GORDON, Tennessee NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois ED WHITFIELD, Kentucky
ANNA G. ESHOO, California JOHN SHIMKUS, Illinois
BART STUPAK, Michigan JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York ROY BLUNT, Missouri
GENE GREEN, Texas STEVE BUYER, Indiana
DIANA DeGETTE, Colorado GEORGE RADANOVICH, California
Vice Chairman JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania GREG WALDEN, Oregon
JANE HARMAN, California LEE TERRY, Nebraska
TOM ALLEN, Maine MIKE ROGERS, Michigan
JAN SCHAKOWSKY, Illinois SUE WILKINS MYRICK, North Carolina
HILDA L. SOLIS, California JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas TIM MURPHY, Pennsylvania
JAY INSLEE, Washington MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin MARSHA BLACKBURN, Tennessee
MIKE ROSS, Arkansas PHIL GINGREY, Georgia
ANTHONY D. WEINER, New York STEVE SCALISE, Louisiana
JIM MATHESON, Utah PARKER GRIFFITH, Alabama
G.K. BUTTERFIELD, North Carolina ROBERT E. LATTA, Ohio
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA CHRISTENSEN, Virgin Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE BRALEY, Iowa
PETER WELCH, Vermont

(ii)
Subcommittee on Commerce, Trade, and Consumer Protection

BOBBY L. RUSH, Illinois
Chairman
JAN SCHAKOWSKY, Illinois CLIFF STEARNS, Florida
Vice Chair Ranking Member
JOHN SARBANES, Maryland RALPH M. HALL, Texas
BETTY SUTTON, Ohio DENNIS HASTERT, Illinois
FRANK PALLONE, New Jersey ED WHITFIELD, Kentucky
BART GORDON, Tennessee CHARLES W. ``CHIP'' PICKERING,
BART STUPAK, Michigan Mississippi
GENE GREEN, Texas GEORGE RADANOVICH, California
CHARLES A. GONZALEZ, Texas JOSEPH R. PITTS, Pennsylvania
ANTHONY D. WEINER, New York MARY BONO MACK, California
JIM MATHESON, Utah LEE TERRY, Nebraska
G.K. BUTTERFIELD, North Carolina MIKE ROGERS, Michigan
JOHN BARROW, Georgia SUE WILKINS MYRICK, North Carolina
DORIS O. MATSUI, California MICHAEL C. BURGESS, Texas
KATHY CASTOR, Florida
ZACHARY T. SPACE, Ohio
BRUCE BRALEY, Iowa
DIANA DeGETTE, Colorado
JOHN D. DINGELL, Michigan (ex
officio)

C O N T E N T S

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Page
Hon. Bobby L. Rush, a Representative in Congress from the
Commonwealth of Illinois, opening statement.................... 1
Prepared statement........................................... 3
Hon. George Radanovich, a Representative in Congress from the
State of California, opening statement......................... 6
Prepared statement........................................... 8
Hon. John Sarbanes, a Representative in Congress from the State
of Maryland, opening statement................................. 10
Hon. Cliff Stearns, a Representative in Congress from the State
of Florida, opening statement.................................. 10
Prepared statement........................................... 12
Hon. Gene Green, a Representative in Congress from the State of
Texas, opening statement....................................... 14
Hon. Phil Gingrey, a Representative in Congress from the State of
Georgia, opening statement..................................... 14
Hon. Janice D. Schakowsky, a Representative in Congress from the
State of Texas, opening statement.............................. 15
Hon. Bruce Braley, a Representative in Congress from the State of
Iowa, opening statement........................................ 16
Hon. G.K. Butterfield, a Representative in Congress from the
State of North Carolina, opening statement..................... 17
Hon. Betty Sutton, a Representative in Congress from the State of
Ohio, opening statement........................................ 18
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, prepared statement................................ 224
Hon. Doris O. Matsui, a Representative in Congress from the State
of California, prepared statement.............................. 212

Witnesses

Eileen Harrington, Acting Director, Bureau of Consumer
Protection, Federal Trade Commission........................... 19
Prepared statement........................................... 22
James H. Burch, II, Acting Director, Bureau of Justice
Assistance, Department of Justice.............................. 38
Prepared statement........................................... 40
Rosemary Shahan, President, Consumers for Automobile Reliability
and Safety..................................................... 52
Prepared statement........................................... 56
John W. Van Alst, Staff Attorney, National Consumer Law Center... 76
Prepared statement........................................... 78
Keith Whann, General Counsel, National Independent Automobile
Dealers Association............................................ 131
Prepared statement........................................... 133
Scott Waldron, President, Experian Automotive.................... 147
Prepared statement........................................... 149

Submitted Material

Letter of February 2, 2009, from Robert Ellsworth to Governor
Schwarzenegger................................................. 53
Statement of Public Citizen...................................... 159
Statement of William L. Brauch................................... 170
Article entitled, ``Buying a Used Car? Get a `Peach,' not a
`Lemon,' by Donna Miles, American Forces Press Release......... 217
Statements of National Automobile Dealers Association, submitted
by Mr. Stearns................................................. 235

CONSUMER PROTECTION IN THE USED AND SUBPRIME CAR MARKET

----------

THURSDAY, MARCH 5, 2009

House of Representatives,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:12 a.m., in
Room 2123 of the Rayburn House Office Building, Hon. Bobby L.
Rush (chairman) presiding.
Members present: Representatives Rush, Schakowsky,
Sarbanes, Sutton, Stupak, Green, Butterfield, Barrow, Matsui,
Castor, Braley, Radanovich, Stearns, Gingrey, Scalise and
Barton (ex officio).
Staff present: Michelle Ash, Counsel; Christian Fjeld,
Counsel; Anna Laetch, Professional Staff; Valerie Baron,
Legislative Clerk; Brian McCullough, Minority Professional
Staff; Will Carty, Minority Professional Staff; and Shannon
Weinberg, Minority Counsel.

OPENING STATEMENT OF HON. BOBBY L. RUSH

Mr. Rush. The committee will now come to order.
The chairman recognizes himself for 5 minutes for the
purposes of opening statement. While the mortgage and home
foreclosure crisis has garnered much-deserved attention in
Congress and in the media, there has been much less focus on
similar problems that are associated with the purchase of
automobiles although repossession rates are on the rise and
only getting worse. The National Association of Attorneys
General lists auto issues as among its top 10 in consumer
complaints. For poor and working-class Americans who do not own
a home, automobiles are usually the single biggest asset they
possess and they are essential in getting people to and from
work, church and other places. As such, it is extremely
important that when consumers, particularly low-income
consumers, purchase their vehicles, the vehicles are, number
one, in good working order, and two, affordable with reasonable
financing terms.
Unfortunately, evidence suggests that fraudulent practices
with regard to both the condition and financing of used cars
are on the rise. When it comes to the condition of vehicles,
consumers are too often unaware of previous damage inflicted on
the vehicle. Cars could have been written off as ``total loss''
vehicles by the insurance companies, sold to salvage yards and
then rebuilt and resold to consumers without them knowing the
history of the vehicle. The National Motor Vehicle Title
Information System, also known as NMVTIS, will eventually be a
valuable tool to aid consumers in obtaining the information
about the condition of their vehicle and establishing a
database in which States and other stakeholders share their
title information. However, NMVTIS remains an incomplete
project as only 13 States are participating in the system while
14 more provide information but not using NMVTIS as a primary
resource.
Moreover, even when NMVTIS is fully operational, the
database will only have limited benefits for consumers unless
the information is made available to them at the point of
purchase, that is, at the lot itself. Many car buyers,
particularly low-income buyers, do not have a computer or
Internet access to take advantage of NMVTIS. The FTC's Used Car
Rules require dealerships disclose warranty information on
every car they sell, a buyer's guide posted on the vehicle. I
believed that the Used Car Rules and the buyer's guide could be
a useful tool to provide customers with branding information on
an automobile right at the point of purchase.
Consumers are also being increasingly fleeced by abusive
financing schemes when buying cars and in most car transactions
the dealership has a dual role. It not only sells the cars but
arranges for financing as well. This one-stop shopping can be
very beneficial to customers and dealerships can play a
valuable role in assisting customers in their quest for a
creditor. However, too often the dealership and the creditor
work together to needlessly saddle customers with high-
interest-rate loans of exorbitant fees. Such discretionary
practices known as loan packing and dealer markup have a
disparate impact on people of color, particularly on African-
American and Latino consumers. Dealerships will also charge
bogus ``document fees'' ranging from $400 to $700 for
processing charges of minimal cost. Lastly, dealerships will
conduct ``yoyo sales'' where they send the customer off the lot
with a car only to call him or her back several days later to
renegotiate the terms of the loan under coercive conditions.
Let me close by saying that as chairman of this committee,
I would like us to focus our consumer protection mission on
matters that particularly affect poor and working-class people.
Too often consumer protection issues are driven by upper- and
middle-class interests and not enough attention is given to
matters that disproportionately affect low-income customers and
consumers. Today's hearing is only one of many that I hope to
conduct that will focus on consumer matters that affect poor
people.
With that, I yield back the balance of my time.
[The prepared statement of Mr. Rush follows:]

[GRAPHIC] [TIFF OMITTED] T7097A.001

[GRAPHIC] [TIFF OMITTED] T7097A.002

[GRAPHIC] [TIFF OMITTED] T7097A.003

Mr. Rush. And I recognize now for 5 minutes for the
purposes of opening statement the ranking member of the
subcommittee, Mr. Radanovich.

OPENING STATEMENT OF HON. GEORGE RADANOVICH

Mr. Radanovich. Thank you, Mr. Chairman. I appreciate you
calling today this hearing to protect consumers in the used-car
market.
A car is one of the single biggest purchases that consumers
make, and although a car is a depreciating asset, it is quite
often invaluable to the owner, particularly if it is the only
way to travel to work and earn a paycheck. While many in this
room live in big cities with mass transit, those of us in more
rural areas lack such conveniences. My district is an
agricultural hotspot with farms that cover vast acreage in the
beautiful San Joaquin Valley in California and workers are
often geographically separated from their place of work by many
miles with few, if any, viable alternatives for commuting.
Without a car, getting to work can be nearly impossible
regardless of income, so it is vitally important that they find
a safe, reliable car, and the last thing anybody needs is to
find out that the car she has purchased has hidden damage that
can greatly reduce the car's value, or worse, present a safety
hazard to her and her family.
In the aftermath of Hurricane Katrina, this committee's
attention was drawn to the fact that hundreds of thousands of
cars were flooded and should not be resold and put back on the
road. And although State laws usually require the title of the
damaged car to carry a brand reflecting the car's true
condition, unscrupulous people find ways to obtain new clean
title in another State, a practice referred to as title
washing. With a clean title, the path is clear to sell the car
to an unsuspecting consumer or business.
Because of the varying State laws, the NMVTIS system was
mandated by the Anti-Car Theft Act of 1992 to provide an
interoperable electronic system for the States and for law
enforcement to improve title efficiency and reduce fraud.
However, technological barriers and chronic underfunding have
prevented the system from truly helping to eliminate title
washing.
Recently, however, the DOJ has opened the system to the
public and required information to be provided by private-
sector entities such as insurance companies and salvage yards,
and while it is improving, the system remains only as good as
the information that goes into it. Unfortunately, only 27
States are currently participating in providing information,
and one of them, my home State of California, is not allowing
the information to be made public.
In the interim, American entrepreneurial spirit has filled
the information void and produced several competing information
products that are commercially available to consumers and
businesses to research a car's history. Paying a handful of
dollars to research a car for what a consumer will pay
thousands of dollars is money well spent. I am pleased that one
of the companies, Experian, will be testifying today about
their auto check service, and I am interested to hear whether
NMVTIS will become an additional tool for the consumer or a
replacement to a private-sector service.
In addition to buying a car with hidden damage, consumers
must avoid other pitfalls to purchasing a used car. In fact, a
plethora of State and federal laws already exist to inform and
protect consumers. The FTC's Used Car Rule requires information
of existing warranty to be disclosed through a buyer's guide
label on the car and many States have laws restricting certain
fees and mandating additional disclosures.
Despite these protections, reports of some abusive sales
and lending practices by a small minority of unscrupulous
actors still persist. The report comes at precisely the time
when many of our fellow Americans have lost their jobs or have
reduced income from the slowing economy and cannot afford the
additional costs. With many State budgets busting at the seams,
the State and local enforcement we depend on to protect
consumers is susceptible to the restraints of limited
resources, and under the economic climate, we must ensure that
our laws work effectively to protect consumers and eliminate
fraudulent practices that result in unnecessary costs to
consumers.
Owning a car is an expensive proposition. Financing costs,
insurance premiums, maintenance, gas and State and local taxes
require a substantial portion of income for the average
American. I don't have to tell my fellow Californians who may
see our gas prices increase and vehicle registration fees
increase this year to offset our budget cars. But cars today
are also safer, more advanced technologically and last longer
than any time in history. I think any discussion of
affordability must also examine the role of the federal and
state mandates and taxes, and I also believe that if we want to
help consumers, any measure we discuss must be carefully
examined to ensure that they do not increase compliance costs
that only result in higher purchase prices and ownership costs.
Mr. Chairman, I look forward to working with you and making
sure that consumers have access to the information they need to
make an informed car purchase and that unscrupulous actors who
would violate the law are brought to justice.
Mr. Chairman, I yield back.
[The prepared statement of Mr. Radanovich follows:]

[GRAPHIC] [TIFF OMITTED] T7097A.004

[GRAPHIC] [TIFF OMITTED] T7097A.005

Mr. Rush. I want to thank the ranking member.
The next member the chair recognizes is the gentleman from
Maryland, Mr. Sarbanes, recognized for 2 minutes for the
purposes of opening statement.

OPENING STATEMENT OF HON. JOHN P. SARBANES

Mr. Sarbanes. Thank you very much, Mr. Chairman. Thanks for
holding this hearing. You said it rightly when you pointed out
that we have had a lot of focus on the subprime mortgage
industry and all the abuses that have to be there but we are
increasingly discovering that there was and continues to be in
many respects a sort of subprime culture that has developed out
there and the tentacles of it reach far and wide, and in some
senses the place where subprime meets the financial
entrepreneur is a place where predators lurk and it is not just
about a subprime culture, it is about an emerging predatory
culture. Certainly in the arena in the purchase and sale of
automobiles the potential for abuse is high. There is a legion
of opportunities to take advantage of people and exploit people
and that is what this hearing hopefully is going to shed some
light on.
I expect we will come from this hearing with many
perspectives but among them will certainly be that additional
protections for the consumer are needed in this arena, and
another will be that the depths of this culture of subprime and
the potential for predators is very high and extends to many
arenas so we have to be vigilant for what those other arenas
can be going forward.
So thank you for calling this hearing and I am looking
forward to hearing the testimony from the panel. Thank you.
Mr. Rush. The chair thanks the gentleman. The chair now
recognizes the former ranking member of this subcommittee, the
former chair of the subcommittee, the gentleman from Florida,
Mr. Stearns is recognized for the purposes of an opening
statement for 2 minutes.

OPENING STATEMENT OF HON. CLIFF STEARNS

Mr. Stearns. Good morning, and thank you, Mr. Chairman.
Thank you for having this hearing. As you mentioned, in the
109th Congress I was chairman of the subcommittee. We examined
this problem of title washing and fraud to discuss better ways
to protect the consumers who unknowingly purchase these
vehicles and they were damaged, and I thank you very much, Mr.
Chairman, for continuing the investigation.
This year again we introduced the Damaged Vehicle
Information Act, which is H.R. 1257, with my distinguished
colleague from Texas, Mr. Green, and I thank him sincerely for
his support. Our bill would require vehicle identification
numbers, VINs, of totaled vehicles to be immediately sent to
the vehicle history databases which would then be made
available immediately to the public so that consumers would be
provided with complete information regarding any salvaged or
flooded automobile that they may be purchasing. Towards that
end, Mr. Chairman, I ask unanimous consent to put in the record
a letter from the Salvage Auto Fraud Reform Coalition, which
represents millions and millions of vehicles and a list of the
supporters including Experian, who is a witness today,
including, Mr. Chairman, the National Association of Minority
Automobile Dealers, for their support for Mr. Green and our
legislation, H.R. 1257. May I put that in the record, Mr.
Chairman, by unanimous consent?
Mr. Rush. So ordered.
[The information appears at the conclusion of the hearing.]
Mr. Stearns. We are all aware, I think, of what the problem
is, and as I pointed out, we have bipartisan support here. We
had 80 cosponsors in the last Congress and we worked it through
the National Highway Traffic Safety Administration, NHTSA, to
ensure this public disclosure of damaged vehicles. DOJ's
system, which is NMVTIS, the National Motor Vehicle Title
Information System, was only recently made available to the
public on January 30 and is operating off an incomplete
database, so NMVTIS doesn't specifically track vehicles that
have been damaged and had airbags deployed and the entry of
data on this system often lags behind the time it takes to
obtain a new title for a damaged car in another State. Thus, I
believe NHTSA is the right agency to be charged with tracking
damaged vehicle information, and of course, Mr. Chairman, as
you know, this is in our jurisdiction and we have been a very
strong advocate for the consumers, and I thank you for having
this hearing.
[The prepared statement of Mr. Stearns follows:]

[GRAPHIC] [TIFF OMITTED] T7097A.006

[GRAPHIC] [TIFF OMITTED] T7097A.007

Mr. Rush. The chair thanks the gentleman. Now the chair
recognizes my friend, the chair of the Oversight Subcommittee
of this committee, the gentleman from Michigan, Mr. Stupak, is
recognized for the purposes of opening statement for 2 minutes.
Mr. Stupak. Thank you, Mr. Chairman. I will waive my
opening as I would like to reserve my time for questions.
Mr. Rush. The chair thanks the gentleman. The chair
therefore proceeds to recognize the gentleman from Texas, my
friend, Mr. Green, for the purposes of opening statement for 2
minutes.

OPENING STATEMENT OF HON. GENE GREEN

Mr. Green. Thank you, Mr. Chairman, for holding this
hearing on consumer protection in the used car market. There
are a number of issues we will be looking at in the hearing. I
look forward to hearing from our witnesses on financing scams,
title washing and the ability of consumers to find basic
background history of used cars.
Used car scams have been around for decades but since 2001
in my hometown of Houston we have seen spikes in flood damage-
related fraud after Tropical Storm Allison, Hurricane Katrina
and again last fall with Hurricane Ike. Technology has made
Carfax and Autofax reports more accessible and programs like
the DOJ's National Motor Vehicle Title Information System,
which more States are beginning to participate in, will help
consumers and used car dealers alike. Unfortunately, some
unscrupulous used car dealers will remain and the individuals
they will take advantage of will most likely be those who are
unable to access information such as vehicle history reports or
simply don't know it is available or where to find it. The
president of the Houston Better Business Bureau stated in a
Houston Chronicle article last March that their office still
receives one or two complaints a week from individuals who have
unknowingly purchased previously wrecked or otherwise damaged
cars. For low-income individuals and families who do not own
homes, a vehicle is probably their single biggest asset and
depend on it for their income and can least afford to pay for
repairs or go without that vehicle if it in the shop.
I hope to hear from our witnesses on how we can best make
vehicle history information available to all consumers prior to
purchase. I also look forward to the testimony on abusive
practices during the purchasing and financing process. This is
something that the subcommittee has looked at in the past and
the problems in accessing vehicle history but there can be just
as much fraudulent activity in this part of the process and it
disproportionately affects the same parts of the population.
Again, I want to thank our chairman and my good friend from
Chicago for holding the hearing. I look forward to working on
legislation to solve that problem. I yield back my time.
Mr. Rush. The chair thanks the gentleman. The chair now
recognizes the gentleman from Georgia, Dr. Gingrey.

OPENING STATEMENT OF HON. PHIL GINGREY

Mr. Gingrey. Mr. Chairman, thank you. In the way of
disclosure, I want to say that my dad and my two uncles were in
the used car business almost all their adult lives, and I would
like to have a dollar for every hour I spent going with them to
New York to Jerome Avenue to buy some of these used cars and
take them south or sit around an auction lot for hours and
hours while they were purchasing cars, so I have a lot of
interest in this issue.
Chairman Rush, I want to thank you for calling the hearing
and it does affect so many Americans each year. The purchase of
a used car, the United States Department of Transportation
estimated in 2007 that almost 41.5 million used cars were
purchased in the United States. I have got four of them. In
these challenging economic times, individuals around the
country will first look to the used car sector when buying a
car to keep their own cost down so therefore it is incumbent on
this subcommittee to ensure that individuals have access to the
most pertinent and up-to-date information on the cars that they
plan to purchase.
In 1992, Congress took a large step toward preventing auto
fraud, particularly this issue of title washing, when it passed
the National Motor Vehicle Title Information System. I also
applaud, Mr. Chairman, the work of my good friend from Florida,
Mr. Stearns, for the work on this issue in both the 109th and
110th Congresses. He introduced the Damaged Vehicle Information
Act to direct the National Highway Transportation Safety
Administration, NHTSA, to provide information about the fair
market value and the safety of automobiles. So I look forward
to working with him on this legislation and with you, Mr.
Chairman, during this Congress.
You know, despite the attempts to compel the full
disclosure of auto information through NMVTIS, there have been
a number of obstacles at the State level to get the information
distributed. As a result, the private sector through a number
of sources has been able to fill the void left by the federal
and State governments to get vehicle history information
including title and damage information into the hands of the
consumer. It is my hope that any legislative remedy we may find
will not undercut the ongoing efforts that the private sector
is doing in their endeavors to help consumers.
Mr. Chairman, as we move forward on this important issue,
we must also recognize the number of existing federal and State
laws that address a number of components of the used car
industry. I would suggest that we move cautiously on the issue
because it is critically important for us to enforce the laws
that we already have before adding new layers of federal
regulation and bureaucracy, but I know it is a problem. I look
forward to hearing from all the witnesses this morning on this
important issue, and Mr. Chairman, I yield back.
Mr. Rush. The chair thanks the gentleman. The chair now
recognizes the vice chair of the subcommittee, my friend from
Illinois, Ms. Schakowsky, for 2 minutes for the purposes of an
opening statement.

OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY

Ms. Schakowsky. Thank you, Mr. Chairman, for holding this
hearing.
As has been said, for many people buying a new or used car
may be the largest purchase that they ever make outside of
purchasing a home. Far too often, consumers with a lack of
resources or poor credit are taken advantage of and it is our
responsibility to ensure that it doesn't happen to anyone
regardless of their income. Consumers should have access to
reliable and accurate information, even if they don't have
access to Web sites or Consumer Reports magazine. Likewise,
they should be assured that when they sign a contract, they are
getting the best deal possible, even if they don't have access
to a lawyer or financial adviser. It is also imperative that
outright instances of fraud are addressed and that the Federal
Trade Commission has the appropriate authority and resources to
do so. In Illinois in 2007, complaints about new and used car
sales were one of the top 10 consumer complaints reported to
the Office of the Attorney General that year. There were nearly
1,500 complaints in 1 year alone. It is clear that this is an
issue that needs more attention.
I also want to address the issue of cars sold across State
lines with titles that have been cleared of the vehicle's
history. These histories may include accident damage or other
circumstances such as natural disaster damage that is critical
for the buyer to know. For instance, cars that were flooded
during Hurricane Katrina had severe saltwater damage but were
sold with titles that did not reflect this history. Saltwater
can be incredibly destructive to cars, making them more likely
to break down. A car in the shop is costing money and isn't
getting the owner to his or her job.
It is not just a fairness-in-value issue. There are also
serious safety concerns. A California teenager, Bobby
Ellsworth, was killed in 2003 when the used pickup truck he was
riding in crashed and the airbags did not deploy. The truck had
been totaled in a previous accident and resold at auction but
the airbags had never been replaced. The spaces for the airbags
were stuffed with paper towels. The National Motor Vehicle
Title Information System is slowly being built and implemented
by the Department of Justice to share information between
States and with consumers. It is critical that this effort must
move forward quickly. I say in my district we have many public
transportation options but in general we remain car-dependent
and it is our responsibility in Congress to ensure consumer
protection for auto purchases.
Thank you, Mr. Chairman.
Mr. Rush. The chair now recognizes the gentleman from Iowa,
Mr. Braley, for the purposes of opening statement.

OPENING STATEMENT OF HON. BRUCE L. BRALEY

Mr. Braley. Thank you, Mr. Chairman, and Ranking Member for
holding this hearing.
To my friend from Georgia, I think we have had some
parallel life experiences. I have very fond memories of helping
my uncle do inventory of parts at his dealership in my hometown
of Brooklyn, Iowa, and he worked at that dealership for 60
years. My brother-in-law ended up working with him.
One of the things that concerns me about this economic
crisis is the ripple effect it is having on car dealerships all
over the country who are being weeded out by automakers who are
turning their backs on the dealership network that built their
companies in the first place. But I also know that any business
and any profession is only as strong as how the public
perceives them, and usually it is the weakest links in our
professions and our businesses that drive the demand for public
action and that is why this hearing is so important, Mr.
Chairman, because we know from the materials that have been
provided to the committee including the letter drafted by my
attorney general, Tom Miller, that there are numerous problems
that become some of the most compelling issues that attorneys
general all over the country face on a daily basis, which is
issues of consumer fraud that directly relate to these
important purchases.
I also, Mr. Ranking Member, grew up and live in a district
where there are more pickup sales, I think, than there are
automobile sales because of the large agricultural businesses
that depend on those vehicles and so when these purchases are
made, they are made with the understanding and the good-faith
belief that the vehicles that are being obtained are going to
live up to the representations that have been made, and that is
why even though these challenges are great and the solutions
are not going to be easy for many people, the more we do
together to create a system where the public and the dealers
have faith that the product they are providing lives up to the
high expectations of consumers and this government, the more we
are going to move toward a day when we have faith and
confidence that those purchases are going to be legitimate,
they are going to be dependable, and I think that more than
anything is going to restore confidence in the U.S. automobile
industry, and that is why I look forward to working with
everyone here today in making that day come.
Mr. Rush. The chair will proceed now to recognize the
gentlelady from Florida, Ms. Castor, for 2 minutes of opening
statement.
Ms. Castor. Thank you, Mr. Chairman. I will waive my
opening statement at this time and I look forward to hearing
the testimony.
Mr. Rush. With that said, the chair now recognizes the
gentleman from North Carolina, my friend, Mr. Butterfield, for
the purpose of opening statement.

OPENING STATEMENT OF HON. G.K. BUTTERFIELD

Mr. Butterfield. Thank you very much, Mr. Chairman, for
convening this very important hearing today and thank you for
your leadership. I also thank the six witnesses for their
anticipated testimony this morning.
Mr. Chairman, I cannot say that my father was a used car
dealer but what I can say is that my ex-wife's father was a
used car dealer. He is a very delightful man who is now 90
years of age and is and was very respected in our community
because he treated people right.
Mr. Chairman, according to the Hill newspaper yesterday, I
live in the fourth district from the bottom in terms of annual
median income in the United States, number four from the
bottom. That means I have a lot of poor people in my district
and so this issue really strikes home to me. The experience of
owning a car does tremendous things for a person. Not only does
it get them to work, it gives them freedom, it gives them
independence and pride, and certainly a great number of people
in the United States have had this experience but for some the
experience has not been so great. Many people including those
who have low income or minorities or they speak a different
language, they have fallen victim to predatory dealers who take
advantage of their lack of knowledge and experience when
purchasing a vehicle.
Of particular interest to me is the abusive financing
practices employed by some dealers. Many car dealers, and I
have personally experienced this, discourage customers from
securing private financing from a local bank. The dealers
prefer to finance the deal. They shop around for financing
companies that will split a higher interest rate with the
dealer, benefiting both the dealer and the financer but harming
the consumer. Another problem, Mr. Chairman, is that some
dealers charge excessive fees for processing paperwork. These
fees can be as much as $700 on a car that isn't worth much more
than that.
So Mr. Chairman, I have run out of time. This hearing today
is most appropriate. I thank you for convening it and I look
forward to the testimony of the witnesses. I yield back.
Mr. Rush. The chair now recognizes my friend from my home
State of Georgia, Mr. Barrow, for 2 minutes of opening
statement.
Mr. Barrow. I thank the chair. I will waive an opening.
Mr. Rush. The chair thanks the gentleman. Now we will
proceed to the gentlelady from Ohio. Ms. Sutton is recognized
for 2 minutes for the purposes of opening statement.

OPENING STATEMENT OF HON. BETTY SUTTON

Ms. Sutton. Thank you, Mr. Chairman. Chairman Rush, thank
you for holding this important hearing today on consumer
protection in the auto market.
For many working families in Ohio, in my district and
across the country, frankly, cars are essential to their
livelihood. Consumers in the market for used cars need accurate
and reliable information in order to make sound purchasing and
financing decisions, and the National Motor Vehicle Title
Information System went public on January 30, 2009. By
facilitating the electronic exchange of information between
States, insurance companies and salvage yards, consumes will
now have information about the history and condition of used
cars they are considering purchasing. The database system will
protect consumers from fraud and unsafe vehicles and in
addition taxpayer savings are estimated to be between $4
billion and $11 billion annually.
Now, I am proud to note that Ohio is one of the 13 States
that is already fully participating in the National Motor
Vehicle Title Information System by providing data and
inquiring into the system before issuing new titles. But we
need to ensure that all of the States are fully participating
and we need to find efficient ways to make the information
available to consumers and buyers. Not all consumers have
access to electronic media so I would be interested in hearing
from the witnesses today on ways to provide the database
services to consumers in addition to over the Internet.
I look forward to the testimony and the recommendations
from today's witnesses, and I yield back the balance of my
time.
Mr. Rush. The chair thanks the gentlelady. Now we will
proceed to the matter of the witnesses. We want to first of all
thank the witnesses collectively for taking time out of your
busy schedule to be here to share your information not only
with the members of this subcommittee and the Members of
Congress but also the citizens of this Nation. You are indeed
doing a great service for our country in that you have taken
the time out to come and provide testimony on this very
important and vital issue.
I want to introduce you now and then, as is the new custom
of this committee, we will have you sworn in for testimony
after the introduction of each and every one of you. First of
all, to my left and to your right, those in the audience, Ms.
Eileen Harrington. She is the acting director of the Bureau of
Consumer Protection for the Federal Trade Commission. We want
to welcome you, Ms. Harrington. Next to her is Mr. James H.
Burch II. He is the acting director of the Bureau of Justice
Assistance for the Department of Justice. Mr. Burch, we welcome
you. Next to Mr. Burch is Ms. Rosemary Shahan. She is the
president of Consumers for Automobile Reliability and Safety.
We want to thank you and welcome you for your participation.
Next we have Mr. John W. Van Alst. He is the staff director of
the National Consumer Law Center. Mr. Van Alst, we certainly
welcome you. Mr. Keith Whann is the general counsel of the
National Independent Automobile Dealers Association. Mr. Whann,
thank you and we welcome you. And last but not least is Mr.
Scott Waldron, who is the president of a company called
Experian Automotive, and we certainly welcome you for your
participation.
And now if you would join me in rising from your seats, we
will issue the oath. Please let the record reflect that all
witnesses once they have indicated will have answered in the
affirmative.
[Witnesses sworn.]
Mr. Rush. Now we will begin with Ms. Harrington for the
purposes of 5 minutes of opening statement.

TESTIMONY OF EILEEN HARRINGTON, ACTING DIRECTOR, BUREAU OF
CONSUMER PROTECTION, FEDERAL TRADE COMMISSION; JAMES H. BURCH
II, ACTING DIRECTOR, BUREAU OF JUSTICE ASSISTANCE, DEPARTMENT
OF JUSTICE; ROSEMARY SHAHAN, PRESIDENT, CONSUMERS FOR
AUTOMOBILE RELIABILITY AND SAFETY; JOHN W. VAN ALST, STAFF
ATTORNEY, NATIONAL CONSUMER LAW CENTER; KEITH WHANN, GENERAL
COUNSEL, NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION;
AND SCOTT WALDRON, PRESIDENT, EXPERIAN AUTOMOTIVE

TESTIMONY OF EILEEN HARRINGTON

Ms. Harrington. Thank you very much, Chairman Rush, Ranking
Member Radanovich and members of the committee.
The Federal Trade Commission's formal testimony has been
submitted for the record this morning. My oral statement and
any questions that I answer reflect my views, not necessarily
those of the Commission.
Consumers in the market for a used car need access to
truthful information that will help them make good purchasing
decisions. The Commission's Used Car Rule helps consumers get
some important pieces of information. First, it prohibits
dealers from making misrepresentations about the car, and
second, it requires them to display a buyer's guide on the used
car that they are selling. The buyer's guide conveys to
consumers whether the car sold is sold as is, meaning that the
dealer assumes no responsibility for future repairs, or is
covered by a warranty. If it is covered by a warranty, dealers
must disclose what portion of the repair costs the dealer will
pay. Because this information must be displayed on each used
car offered for sale, shoppers can walk a used car lot and make
immediate effective comparisons. Since 1985 the Commission has
partnered with State and local consumer protection agencies to
enforce the Used Car Rule. This partnership has resulted in
hundreds of State enforcement actions as well as 80 federal
actions and federal civil penalty orders totaling more than $1
million. In addition, hundreds of state actions have been
brought to enforce compliance with the rule and the FTC has
directly supported those State enforcement actions by providing
training and investigative assistance.
The FTC is currently reviewing the Used Car Rule to examine
its effectiveness and to determine whether amendments could
increase that effectiveness. As part of our review, we asked
for comments and we have received many thoughtful comments,
some from the panelists you will hear from today. Generally,
commenters expressed support for the rule. Some suggest
expanding its scope to require broader disclosures and others
prefer to make only minor modifications. I can't comment on the
Commission's likelihood of adopting any particular
recommendation today but we will of course give all comments
careful consideration as the Commission considers next steps.
Consumer education materials put out by the FTC encourage
consumers to get information about a car's condition by seeking
an independent inspection and by checking the car information
against the National Insurance Crime Bureau's database of
vehicle. These steps can help consumers avoid buying cars that
have prior damage, and we are pleased, as some of the members
have also indicated, that the Department of Justice's National
Motor Vehicle Title Information System, which compiles
information from States, insurance carriers and salvage yards,
has recently been made available to consumers. The emergence of
these and other publicly available databases can help consumers
get accurate information about a car's titling, odometer data
and certain damage history, and the Commission staff is
updating our education materials to tell consumers about the
newly available DOJ system. And we certainly recognize comments
made by some of the members about the digital divide, how to
get information to consumers who don't have Internet and
electronic information access is a big challenge, and I am
happy to talk more about that later in questions and answers.
Of course, to buy a car, a consumer usually needs a loan.
At the FTC, we protect consumers at every stage of the credit
lifecycle from when credit is first advertised to when debts
are collected. The Commission does this by enforcing section 5
of the FTC Act, which prohibits unfair and deceptive acts and
practices as well as through enforcement of the Truth in
Lending Act. Most recently the FTC's work in this area has
focused on mortgage lending but the FTC has previously brought
29 cases alleging deception in the advertising of financing and
lease terms for cars. In these cases car manufacturers,
dealerships and ad agencies settled FTC charges that their ads
misrepresented credit or lease terms available to consumers.
As important as loan origination is, however, it is just as
important for consumers to avoid falling deeply into debt on a
loan secured by their car. Some debt cycles can begin with an
emergency need for cash that is fulfilled by costly car title
loans. The Commission enforces the Truth in Lending Act to make
sure consumers know the cost of credit including high-cost
payday and car title loans, and the Commission protects
consumers who fall into debt by enforcing the Fair Debt
Collection Practices Act. Pursuant to these statutes, the FTC
investigates and brings law enforcement actions against
lenders, abusive debt collectors, credit repair companies and
debt settlement firms who target delinquent customers who are
in default.
Thanks again for the opportunity to testify. I am happy to
take your questions.
[The prepared statement of Ms. Harrington follows:]

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Mr. Rush. The chair now will recognize Mr. Burch for the
purposes of opening statement. Please limit your comments to 5
minutes.

TESTIMONY OF JAMES H. BURCH, II

Mr. Burch. Mr. Chairman, Ranking Member Radanovich and
other distinguished members of this subcommittee, I am pleased
to have the opportunity to discuss with you today the
Department of Justice's efforts to protect consumers from fraud
and unsafe vehicles through the National Motor Vehicle Title
Information System, what we call NMVTIS. We appreciate this
subcommittee's interest in consumer protection by preventing
auto theft and fraud.
Fraud involving vehicles is a profitable business for
criminals and one that burdens States, the auto industry,
insurers and consumers. According to estimates in the 2007
Uniform Crime Reports from the FBI, there were 1.1 million
vehicles stolen nationwide. The National Insurance Crime Bureau
reports that auto theft alone costs consumers and insurance
companies nearly $8 billion per year. In an effort to combat
automobile theft and fraud, NMVTIS was established by Congress
in 1992. In 1996, by amendment, Congress moved responsibility
for NMVTIS from the U.S. Department of Transportation to the
Department of Justice because of the Department's overall goal
of reducing theft and fraud.
NMVTIS enables users to access automobile titling
information including brand history and certain historical
theft data through a web-based system. It also facilitates the
electronic exchange of information between States, which
improves titling efficiency and reduces fraud. This exchange of
information is particularly helpful in combating vehicle
identification number, or VIN, cloning and title washing, which
are significant problems and growing trends in the United
States. By making available in one system specific pieces of
information from motor vehicle titling agencies, automobile
recyclers, junk and salvage yards and insurance carriers across
State lines, NMVTIS protects States and consumers from fraud
and unsafe vehicles.
In January 2009, the Department announced the availability
of the National Motor Vehicle Title Information System
specifically for consumers. The system provides the public with
valuable information about a vehicle's condition and history
and helps consumers make informed car buying decisions. Through
NMVTIS, once a vehicle is titled or branded by a State motor
vehicle titling agency or is determined by an insurance carrier
to be salvage or total loss, that data and other important
information becomes a permanent part of the vehicle's NMVTIS
record. The law requires that the operation of the system be
paid for through user fees and not dependent on federal
funding. Therefore, NMVTIS is designed as a fee-for-service
system. Prior to purchasing a vehicle, a consumer can access
NMVTIS through an authorized third-party provider and view
information such as the most recent odometer reading, the brand
history for that vehicle, the history of any salvage or total-
loss determinations, and other historical data including theft
data. While authorized providers may charge a fee for their
service, consumers benefit from these services that are market
driven, and as of today do not cost more than $3.50 per
successful VIN search.
In addition to providing information to individual
consumers, the law requires that NMVTIS information be made
available consistent with relevant privacy laws to other
prospective purchasers such as businesses that purchase used
automobiles or other commercial consumers. Commercial consumers
include lenders who are financing the purchase of automobiles
and automobile dealers. Lenders, dealers and insurance carriers
are integral components of the automobile purchasing and
titling process and their ability to avoid fraud then protects
individual consumers as well.
NMVTIS also serves as a powerful tool for law enforcement.
With access to this system for the first time, law enforcement
will have direct access to State motor vehicle data in near
real time. Previously law enforcement had to contact individual
State motor vehicle titling agencies by phone during business
hours to track down title data. With access to NMVTIS 24/7, law
enforcement agencies will be able to better identify stolen
motor vehicles, enhance their ability to detect vehicle theft
rings and combat other criminal enterprises that use vehicles.
In research conducted at the request of DOJ, NMVTIS estimated
to safe taxpayers between $4 billion and $11 billion each year.
When fully implemented, NMVTIS will have data from every State
and will be queried before any State issues a new title for
vehicles coming in from another State. In addition, the system
will be available for queries before a prospective purchaser
buys any used vehicle. These efforts will protect the American
public from title fraud, keep stolen vehicles from being
fraudulently retitled and will make it more difficult, if not
impossible, for criminals to clone or conceal stolen vehicles
for criminal purposes.
This concludes my statement, Mr. Chairman. Thank you for
the opportunity to testify today. I welcome the opportunity to
answer any questions you or members of the subcommittee may
have.
[The prepared statement of Mr. Burch follows:]

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Mr. Rush. The chair thanks the gentleman. Now, Ms. Shahan
is recognized for 5 minutes of opening statement.

TESTIMONY OF ROSEMARY SHAHAN

Ms. Shahan. Thank you, Chairman Rush and Ranking Member
Radanovich and distinguished members of the committee. I really
appreciate the invitation to testify today. I am very grateful
to you and to your staff for the work that you have been doing
on this issue.
For 30 years, since 1979, I have been working on behalf of
consumers at the State and Federal level and I hear from
consumers who have car problems on a daily basis. We have
members who have had car problems. We have members who have
lost children because they were in unsafe cars. Representative
Schakowsky referred to the Ellsworths, who are members of CARS,
whose son Bobby was killed for lack of an airbag, and they
asked that a letter that they wrote to Governor Schwarzenegger
be admitted. I would request from the chair and the committee
that we would submit their letter for the record.
Mr. Rush. Hearing no objection, so ordered.
[The information follows:]
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Ms. Shahan. Thank you very much.
Their letter asks the governor to ensure that California
fully participates in the National Motor Vehicle Title
Information System, or NMVTIS, and California with some
prodding has begun to participate in NMVTIS but it is
restricting access to the information to the public, and that
is a problem. We believe that it is illegal. We were among the
consumer groups including Public Citizen and Consumer Action
that sued the Department of Justice because after so many years
the Anti-Car Theft Act had not been implemented and people need
it desperately. We need this information more now than we ever
have before and we were very grateful that Judge Patel in San
Francisco ruled in our favor and ordered the DOJ--we saw it
actually as a rather friendly lawsuit--ordered the DOJ to issue
the final rules, which it did, and starting the end of this
month for the first time ever, the insurance industry and the
salvage pools and junkyards will be submitting data to the
title system and it will be made available to the public and
competitive forces can then come into play. The cost of
accessing the information can come into play. In our comments
to the FTC, we along with other consumer groups asked that the
information also be included on the used car buyer's guide so
that consumers who don't have access to computers when they are
car shopping or for other reasons may not have access to credit
in order to get the information from the database will be able
to get it on the car at the time of purchase. According to the
National Highway Traffic Safety Administration, which
commissioned an Academy of Sciences study on where car
information is most useful, they said absolutely, you know, put
it on the car. We have the five-star ratings on cars, the EPA
ratings are on cars. That is where people want it. That is
where it does the most good and we are hoping that we can
achieve that with Congress's help.
Let me just say this. Since I have been doing this for 30
years, the irony we face now is that new cars have never been
better. We have the best cars that are being manufactured. We
are best known for initiating California's Lemon Law. That was
back in the days of the Plymouth Volare, which, you know, was
falling apart bolt by bolt. The cars are better than ever
before but the sales practices are worse than ever before, and
not only do we have problems with things like yoyo financing
and, you know, very creative ways of ripping consumers off over
their car loans, and I would like to note for the record that
there is a victim of yoyo financing who is here from Virginia,
who typifies what happens. When she purchased the car, she
thought she had a deal and about a month later she heard from
the dealer who said you have to bring the car back, and if you
don't, I will report it as stolen, and she actually ended up
losing her job because her car was taken from her--or it wasn't
taken but the tow truck driver showed up at her place of
business and it was a real problem and she is still having to
deal with that.
So we have all these problems in the sales of cars that are
shrinking our market. You know, it used to be the first
purchase people made was a new car. You know, back in Henry
Ford's day, cars didn't last as long so people would buy a new
car and over time they would go from the Chevy up to the
Cadillac, and instead what is happening now is, most people,
their first purchase, especially if they are a young person
starting out, is a used car. And if that transaction goes well,
all kinds of opportunities open up for them. They get good
credit, they have access to better education, better jobs, and
if that transaction goes poorly, they may never recover from
it. Their credit is hurt. It affects their life for a long
time, and we are hoping that that is something that Congress
will work with us on resolving.
And we also have a new problem that is emerging, and that
is so many dealers going out of business with collateral damage
to their customers where they promise to pay off the lien on
the cars that are trade in and they don't, and you have been
hearing about zombie banks. These are like zombie dealers. You
don't know from one day to the next whether the dealer you go
to is solvent or not, and consumers are buying cars where the
liens have not been paid off end up, you know, in a world of
hurt when the lien holder repossesses the car from them even
when they make every payment in full and on time. And as Mr.
Radanovich knows, this is a real problem in California that we
need help with as well.
[The prepared statement of Ms. Shahan follows:]

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Mr. Rush. Thank you so very much. We will have ample
opportunity during the question-and-answer period.
Our next witness is Mr. Van Alst for 5 minutes. You are
recognized.

TESTIMONY OF JOHN W. VAN ALST

Mr. Van Alst. Chairman Rush and Ranking Member Radanovich
and distinguished members of the subcommittee, it is an honor
for me to testify before you today on behalf of the low-income
consumers and clients of the National Consumer Law Center about
consumer protection in the used car market. I thank you and
your staff for holding a hearing on these very important
issues.
For years I was with Legal Aid in North Carolina and every
day I saw working families that lacked a safe, reliable car
because of the abuses and problems in the used car sales and
finance market. These families lost jobs and they were unable
to get their children to school or daycare and to doctors'
appointments. Since I have joined the National Consumer Law
Center, I have had the privilege to work with hundreds of
advocates and attorneys across the Nation trying to address
these issues and I have seen just how widespread and common
they truly are, and in part that was the basis for the report
that we produced on fueling fair practices, which I have
submitted to the committee, and Mr. Chairman, with your
permission, if we may have that added to the record as well, I
would appreciate that.
Mr. Rush. Hearing no objections, so ordered.
[The information appears following Mr. Van Alst's
testimony.]
Mr. Van Alst. Cars in poor and even dangerous condition are
sold to consumers as safe and reliable transportation, and this
could be avoided if dealers were required by the FTC to
disclose known defects and to post NMVTIS reports on the cars
that are offered for sale and if insurance companies were just
required to report all claims data in the United States, the
same way that those same insurance companies are required to do
so in Canada. Consumers are often charged higher interest rates
than they qualify for. You see, because the dealers typically
arrange the financing, they contact prospective lenders who
inform the dealer of the terms on which they would be willing
to lend. Often the dealer puts the consumer in a higher
interest rate loan and splits the difference with the lender.
For example, if the lender is willing to lend to the consumer
at 8 percent based upon the consumer's credit history, the
dealer will put the consumer in a loan at 16 percent and then
the lender and the dealer split that extra money that will be
paid by the consumer over the life of the loan.
These markups, as you have pointed out, have a disparate
racial impact. Litigation mounted by NCLC and others has
demonstrated that minority car buyers pay significantly higher
dealer markups than non-minority car buyers with the same
credit histories. This practice costs consumers hundreds of
millions, if not billions of dollars, and yet it is
undetectable by the consumers and most anyone else, for that
matter. While the FTC and the DOJ are charged with enforcing
the Equal Credit Opportunity Act, which prohibits such
disparate treatment, they currently lack the tools to know when
it is occurring and to combat it effectively. This and other
problems could be addressed through the creation of a federal
data collection system for auto finance similar to the Home
Mortgage Disclosure Act.
The buying process itself is intentionally structured to be
needlessly complicated and time consuming to wear down and
confuse car buyers and enable dealers to slip in overpriced
add-ons and other items that are profitable for the dealer and
often not very useful for the consumer. Excess dealer profits
are hidden in additions such as window etching service
contracts, rustproofing and vastly inflated document
preparation fees. Dealers also use tactics such as yoyo sales
where the consumer drives away in a newly purchased car only to
be called back several days or a week later and told sometimes
untruthfully that financing could not be arranged at the
original terms and the consumer has to enter into a new
contract at a higher interest rate or with a higher down
payment. Of course, if the consumer rather than the dealer had
decided that they didn't want to take the car and tried to get
out of it, the dealer would have told them the sale was final.
Sometimes the dealer will have already sold the consumer's
trade-in or tell the consumer that he or she is responsible for
extra charges if the new, less desirable terms are not
accepted. The FTC especially if it receives enhanced rulemaking
authority should prohibit such tactics as unfair and deceptive.
These abuses and all the other abuses we see in the used
car market do not just harm the individual car buyer that gets
the bad car or the bad loan. These practices make the entire
market less competitive and less transparent. Dealers that
would like to deal fairly with the public and compete on price
and quality of the car are driven out of business by dealers
using these deceptive tactics, and just as we have seen from
the problems in the mortgage industry, the inflated cost and
discriminatory loans and the outright fraud in these
transactions can spill over to the larger economy.
While many of the changes that are necessary to bring
transparency, efficiency and competitiveness into the market
will have to occur at a State level, there are a number of very
important things that the Congress and agencies and the
Administration can do to stop these abuses, and these changes
are urgently needed. The current system results in unfair
transactions and hamstrings working families that have to have
a car. We look forward to working with you, and I am happy to
answer any questions you might have.
[The prepared statement of Mr. Van Alst follows:]

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Mr. Rush. Thank you very much.
The chair now recognizes Mr. Keith Whann from the National
Independent Automobile Dealers Association.

TESTIMONY OF KEITH WHANN

Mr. Whann. Mr. Chairman, members of the subcommittee, it is
my pleasure to offer oral testimony on behalf of myself in my
capacity as general counsel to the National Independent Auto
Dealers Association here today.
My career in the motor vehicle industry has spanned the
last 25 years while NIADA has represented independent, non-
franchised motor vehicle dealers for over 60 years. NIADA and
its State affiliated associations represent more than 20,000
dealers located across the United States. We recognize how
vitally important the motor vehicle industry is and the impact
the used motor vehicle segment of the industry has on our
economy. There are currently about 249 million motor vehicles
on the road, the median age of which is approximately 8-1/2
years. There are approximately 40 million retail used motor
vehicle transactions per year roughly split between franchised
dealers, independent dealers and private individuals.
Used motor vehicles, because of what they are, carry a
history of use and condition. During the process of trade among
these vehicles, consumers and dealers alike need access to
accurate, timely information about the history and condition of
the vehicles. This information affects how much either will pay
for the vehicle. This is particularly important to consumers
because outside of housing, it often represents the largest
single purchase that they will make. In a dealer's case, his
ability to pass on timely and accurate information to a
consumer means the difference between developing a consumer
that will refer new business to him and having a consumer full
of ill will who at a minimum drives business away from him.
It should be no secret that the motor vehicle industry is
one of the most heavily regulated in the country with a maze of
overlapping and sometimes conflicting federal and State
legislation and implemented regulations. Unfortunately, the
good intentions that inspired these efforts have in large part
created an increase in the cost of motor vehicles and in many
instances led to confusion on the part of the consumer and
frustration for dealers. Nevertheless, tens of thousands of
businesses have developed practices and procedures that allow
them to carry on commerce within the confines of those
restrictions. Therefore, we do not advocate comprehensive
overnight change in this area but gradual change is needed for
the benefit of both the consumer and the dealer. I will be
happy, Mr. Chairman, to work on behalf of NIADA with those
responsible for making the changes if that should be your
desire.
My entire professional career has focused on motor
vehicles, consumer protection issues and the motor vehicle
industry as a whole. In considering my written testimony, I
realize I could discuss dozens of issues affecting consumers in
the used motor vehicle industry including everything from
advertising issues and car buyer bills of rights to spot
deliveries in the finance and insurance process as a whole, all
of which would have merit. However, I elected to comment upon
four issues that are currently at the forefront of the motor
vehicle industry at the national level: warranties, including
what they are and how they are created and disclosed, the FTC
Used Car Rule, including the content of the form itself and
complications that arise from its completion, financing of
motor vehicle transactions, and the tax treatment of a buy-
here, pay-here transaction.
Touching on this last issue, in these uncertain economic
times, it has become increasingly difficult for capital to flow
from lenders to credit-impaired consumers for the purchase of a
used motor vehicle. A person's credit can become impaired for
various reasons, often as a result of some event over which
they have no control such as loss of a job, health-related
issues or other family circumstances. Likewise, new families
just starting out may not have established credit and may have
difficulty obtaining financing. For all of these people, a car
is not a luxury but a necessity. Because of these
considerations, I am suggesting that a mechanism needs to be
implemented as soon as possible to incentivize sales of used
motor vehicles. An easy and inexpensive way to accomplish this
is to permit used motor vehicle dealers like similarly sized
businesses to utilize a modified cash or installment sale
method of accounting for transactions that the dealers finance
for their customers. Permitting such modification would provide
customers with impaired credit or no credit access to
additional financing sources for their used motor vehicle
purchases.
While preparing for this hearing, I could not help reflect
on instances where at least at first impression cooperative
resolution of competing issues might not have seemed possible.
Working with the National Highway Traffic Safety on the
implementation of the Anti-Car Theft Act of 1992 with
representatives of the IRS to develop an audit technique guide
for the used motor vehicle industry and with representatives of
the FTC in interpreting the FTC Used Car Rule and publication
of a dealer's guide to the rule come to mind. In each
circumstance, work by dedicated people with differing points of
view yielded an effective result.
Mr. Chairman, I thank you for the opportunity to
participate here today and will answer any questions later as
time permits. Thank you.
[The prepared statement of Mr. Whann follows:]

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Mr. Rush. Mr. Waldron, you are recognized for 5 minutes for
opening statement.

TESTIMONY OF SCOTT WALDRON

Mr. Waldron. Chairman Rush, Ranking Member Radanovich and
members of the subcommittee, I appreciate the opportunity to
testify before you today regarding the protection of consumers
shopping for a used car. Today I will discuss how the timely
disclosure of total-loss vehicles can help protect consumers as
well as what Experian Automotive does to help inform consumers
and businesses in the used car market.
Experian is an information services company that is a
leader in consumer credit, marketing services and electronic
commerce. Experian Automotive, based on Schaumburg, Illinois,
works with consumers, manufacturers, dealers, auctions, finance
and insurance companies and people throughout the automotive
retail channel. Our national vehicle database housing records
on more than 600 million vehicles along with Experian's credit
consumer and business information assets meets the growing
demands of our industry and consumers in providing valuable
information in a timely and cost-effective manner. Experian
Automotive is similar to other business units in that we
analyze and compile third-party information to help consumers
and organizations make good decisions.
One piece of information not usually available in a timely
manner is when an insurer declares a vehicle loss. It can take
up to 60 days to be registered in State titles. In that time
the vehicle is likely to have already been sold to an auction,
then to a dealer and then on to a consumer. This is information
that both the dealer and the consumer would want to know before
they bought the vehicle. To ensure that information on vehicles
declared a total loss is disclosed in a timely manner, Experian
believes that total-loss information should be made
commercially available and has and does support legislation
requiring the disclosure of vehicles declared a total loss.
Switching now to how Experian helps protect consumers and
dealers in the used car market, I am going to discuss the Auto
Check Vehicle History Report. Auto Check is designed to help
consumers and businesses make better vehicle purchase decisions
by quickly and easily understanding key vehicle events. Using
the vehicle identification number, or VIN, an Auto Check
Vehicle History Report reveals frequently and location of title
and registrations, title brands, accidents, odometer history
and a number of other things for consumers. The information
comes from many data sources including State departments of
motor vehicles, auto auctions, police accident reports, salvage
yards and so on. Compiling information from many sources allows
Auto Check users to view significant information about the
vehicle in a single convenient format. Consumers, dealers,
auctions and manufacturers access Auto Check information via
the Auto Check and other partner Web sites and directly through
asking dealers for a copy of the report. The extensive use of
Auto Check in the wholesale market by automobile auctions and
dealers enables the parties to more quickly decide on a fair
price.
Now, while vehicle history reports are important, confusion
often remains over the relative significance of various pieces
of information presented in them. To help quantify and weigh
various pieces of information, Experian Automotive developed a
rating methodology based on statistically valid models. The
result is the Auto Check score. This number compares a
particular vehicle to others in its class and age range in
order to help build confidence in a purchase decision. It
leverages Experian's continuously updated vehicle database in
combination with a company's expertise in data analysis to
provide a single number score from 1 to 100 for comparison
purposes, making it easy for a buyer to understand what
information they are looking at. Attached to my prepared
testimony are two examples of Auto Check Vehicle History
Reports. The first one you would see shows a clean vehicle and
the second shows a vehicle with title issues.
My last point is that there are numerous ways Experian
Automotive works with public and private organizations to
improve titling and brand disclosure. For example, Experian has
been working with the National Insurance Crime Bureau to combat
vehicle theft rings. We provide information to them at no
charge to detect fraud in vehicle identification numbers
including VIN cloning and counterfeiting. NICB has disseminated
290 leads since August of 2007 based on data provided by
Experian. From these leads, over 100 vehicles have been
recovered with a combined estimated value of about $2 million.
In conclusion, the business model for Experian Automotive
is to provide businesses and consumers with relevant
information from a wide variety of sources in a timely manner.
The information in the Auto Check Vehicle History report and
importantly, the Auto Check Score, helps consumers know whether
or not the car is a good deal for them. On a personal note,
Experian is in business to be successful but nothing is more
personally satisfying to me than the e-mails, phone calls and
letters we get from consumers thanking us for helping them pick
the best car for them or more importantly, helping them avoid a
car with a troubled history.
Thank you, and I would be happy to take questions on any of
this.
[The prepared statement of Mr. Waldron follows:]

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Mr. Rush. The chair thanks the gentleman. The chair
recognizes himself now for 5 minutes for the purposes of
questioning the witnesses. But before I proceed, I would like
to request unanimous consent to enter into the record a
statement by Public Citizen and the testimony of Mr. William
Brauch, the director of the Consumer Protection Division in the
Iowa Attorney General's Office. Hearing no objections, so
ordered.
[The information follows:]

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Mr. Rush. To all the witnesses, we certainly hope that the
NMVTIS system will be a useful system when it is fully
implemented but it is only available online. Its use will be
limited. A shopper comparing several cars at a used car lot may
not be able to leave the lot, find a computer and log on to
access information about the different cars. At some point
buyers may not have a credit card to even pay for this report.
Now, several of you mentioned in your testimony the value of
having this information available to buyers at the time of the
sale, and I would like to explore for a couple moments how this
can be done.
Ms. Shahan, you recommend that adding National Motor
Vehicle Title Information System information to the buyer's
guide that is currently required to be posted prominently on
the car, that this will help. Is my assessment of what you
recommended, is that correct, and can you explain why this is
the right place for this information to be displayed on the
vehicle?
Ms. Shahan. Yes, Chairman Rush, you are totally right. We
strongly recommend and we have for a long time that there be
disclosure on the used car buyer's guide and it won't apply to
cars that are private-party sales but we believe that consumers
have a different expectation. When you walk onto a car lot and
you are buying a car from a licensed dealer, you tend to think
that it is different from buying from Joe Schmoe on the street.
So since 1985, the Federal Trade Commission has required all
used car dealers in the country to post a used car buyer's
guide on the car. It is very minimal in the level of protection
it gives consumers now. It could be far more valuable if it
also included whether the vehicle was in the National Motor
Vehicle Title Information System as having been salvaged, and,
you know, if I had my way, actually those cars would be
segregated on the car lot and like cordoned off so that they
are not mixed in with other cars. Because these are cars that
overwhelmingly with very rare exceptions pose a real safety
hazard to the public. They may have bent frames. The Katrina
cars, the flood cars, if they are saltwater flooded, all the
electronic systems in those cars are going to corrode. They are
basically rotting from the inside out. There is no way they can
possibly be made safe, and a car with a bent frame, if it is an
SUV, it is very likely to roll over in an emergency braking
situation or even just in normal use if it is in a subsequent
collision. The cars today are built with unibody construction
so that they in order to protect you have to have some
structural integrity, and if they have already been in a crash
severe enough that they had to be totaled, chances are very
good that they don't have that same structural integrity.
Mr. Rush. Thank you very much. I really appreciate your
answer.
Let me move on to Mr. Burch. Mr. Burch, you noted that DOJ
is exploring methods of access that do not rely on the Internet
or credit cards. Would you please care to elaborate?
Mr. Burch. I will. Thank you, Mr. Chairman. We have talked
with each of the consumer access providers that are currently
making access to NMVTIS available to see if they have the
business processes established to accept requests for payment
via mail where it could be provided via check, et cetera, or
some other type of payment process that does not involve
commercial credit. They are looking into that and have promised
to get back to us, but we are also looking at other options as
well. In particular we know that some of the nonprofit
organizations that are dedicated to addressing these kinds of
issues specifically, particularly the consumer organizations,
we have asked that they consider being a consumer access portal
provider. We would like to facilitate that. Additionally, we
have asked the States to consider being a consumer access
portal provider where consumers can walk up to the counter and
pay for and request a NMVTIS search there in person, which
clearly would not require credit. So we are looking at all of
those options.
Mr. Rush. Thank you.
Mr. Whann, in your testimony you express some concerns
about including NMVTIS information in the buyer's guide,
arguing that dealers could be liable for gaps in the NMVTIS
database. First of all, is that correct, and would you please
explain it more?
Mr. Whann. Yes, Mr. Chairman. I think everyone can agree
that a car that has been damaged and been repaired improperly
is unsafe and shouldn't be on the road, and cars that have been
in a flood or had saltwater damage, that is the most insidious.
The problem isn't necessarily with the disclosure of the
information but the problems it causes. If NMVTIS was a
database that was comprehensive and everyone had access to it,
dealers would be happy to pass on the information that is
available to them. The unfortunate reality is, is this database
is being updated on an ongoing basis so when a dealer takes a
car in on trade or purchases one and completes the FTC sticker,
that information might be accurate at that time and the very
next day may be inaccurate. We also have concern that consumers
would rely too heavily at this point on information that is not
going to be complete and therefore if a statement posted on the
motor vehicle is there, it is going to be considered an
advertisement under the State's unfair and deceptive practices
act and the dealer is going to be liable for the untruthfulness
of the report that they can't control. I think NMVTIS is a very
useful tool and I think there will come a day when there will
be access and we can talk about that type of disclosure. We
just don't think we are here yet.
Mr. Rush. Thank you very much.
My time is up, so I will now recognize the ranking member,
Mr. Radanovich, for 5 minutes for purposes of questioning the
witnesses.
Mr. Radanovich. Thank you, Mr. Chairman, and good morning
to all the witnesses. Thank you for your testimony. It is a
pleasure to have you here today.
I am going to start off with you, Mr. Waldron, if I may. I
have a couple questions about NMVTIS and how you being somebody
who is in the business as well and the relationship that you
might have with that reporting system. What would be the NMVTIS
system, what would it do to existing contracts that you have to
purchase data from States, salvage yards and insurance
companies?
Mr. Waldron. At this point we are continuing to work with
the States and all of those companies and we don't see a
specific difference under NMVTIS itself. The total-loss
disclosure, on the other hand, would give us the ability if we
can get that on a consumer basis, you know, to put that out
into our Auto Check Vehicle History Report so that would be
very helpful for us.
Mr. Radanovich. I think what you would like to see if
NMVTIS can be a resource to you, for you to be able to gather
the information just as much as you gather the information from
the State of California or from salvage yards or the like. Is
that correct?
Mr. Waldron. That is correct. NMVTIS would in doing that
make a good source of information. We have in the past, you
know, as you mentioned earlier, filled that void. For example,
after Hurricane Katrina we put out a free database so that
consumers could check to see if their vehicle that they might
consider purchasing had been in the hurricane zone at the time
of the hurricane. That was before the States or insurance
companies or anybody else could do anything. At least we could
offer consumers a level of protection to say check this for
free and see if this vehicle might have been here for them to
ask more questions.
Mr. Radanovich. Do you view NMVTIS as being a threat to
your private enterprise or----
Mr. Waldron. As it is written we do not view NMVTIS being a
threat because we provide a lot more information. Should NMVTIS
continue to morph into something larger and larger and larger,
it could certainly become competitive with what we are doing in
the private sector.
Mr. Radanovich. Very good. Thank you, sir.
Mr. Whann, a couple of questions. What cost do you or the
manufacturer bear for compliance due to State and federal laws,
and does the consumer bear these costs in the sale price of the
vehicle?
Mr. Whann. Well, I think any costs obviously that relate to
compliance with those type of issues at some point are going to
be rolled into the cost of doing business. So there are some
costs such as title and filing fees and some of those type of
things that are directly passed on to the consumer. When we
talk about things like documentary fees, most of those are
established by State laws except those that don't have caps and
therefore that is like any other charge that could be levied--
--
Mr. Radanovich. That is a vote call. You can choose to talk
through it.
Mr. Whann. OK. Thank you.
Mr. Radanovich. It goes on all the time.
Mr. Whann. So those charges are not passed on but I will
tell you, with the amount of regulation that has been placed
upon car dealers in particular, Gramm-Leach-Bliley Act, the
safeguards rule, the red flags rule, the cost of compliance
today is immeasurable. You couldn't go and put a dollar amount
on it. Cost of compliance is cost of doing business and it is
not directly passed on to the consumer but realistically
speaking, it is included in the cost of doing business.
Mr. Radanovich. Can you give me too a sense of how much the
consumer pays in State and local taxes and fees in the average
purchase of a car? Can you give me a ballpark figure?
Mr. Whann. It varies across the country. I know that in
some States documentary fees are less than $100. In probably
the vast majority if you looked at an average, it may be in the
$250 range. There are some that don't cap them and, you know,
we have heard some researcher testimony today that it could run
as high as $400 to $700. I don't have any research to suggest
that. You know, taxes obviously, the sale tax on the car, and
then title and filing fees are usually, I will say nominal in
the terms of thousands but when you are buying a car, every $10
or $20 bill in there if you can't afford to buy the car
obviously is significant.
Mr. Radanovich. Thank you, Mr. Whann.
I have one more question for Ms. Harrington. Is the FTC
equipped with the manpower to enforce its Used Car Rule or is
enforcement better left up to the States?
Ms. Harrington. Well, as I indicated, the FTC has partnered
from the beginning with the States and it really depends I
think on the market and the size of competitors in the market
as to whether it makes best sense for State and local
government to take the lead or the FTC. In Chicago, for
example, for a long time we have partnered with the
commissioner of consumer services and sometimes with the State
of Illinois Attorney General Office's to join forces for Used
Car Rule enforcement.
Mr. Radanovich. Last question is, are violations of the
Used Car Rule a problem of national scope or so widespread in
nature that it fits into the FTC's prioritization?
Ms. Harrington. No.
Mr. Radanovich. Thank you, Mr. Chairman.
Mr. Rush. There is a vote going on right now. We have 12
minutes and 20 seconds unless we want to proceed to Ms.
Schakowsky for 5 minutes. The chair does intend to have a
second round of questions if members would want to return. But
there is a vote. I think there will be four votes in
succession, so the chair will recess the subcommittee and then
come back for an additional round of questions if we don't
complete the first round before we have to depart for votes.
The chair recognizes Ms. Schakowsky for 5 minutes.
Ms. Schakowsky. Thank you, Mr. Chairman.
Ms. Harrington, you said in your testimony that the
Commission will give careful consideration to all comments and
suggested amendments to the Used Car Rule as it determines next
steps. Have you heard anything today in the testimony that
would suggest that there ought to be changes to the rule?
Ms. Harrington. What we have heard today I think is
reflected in the comments that we have received so I haven't
heard anything today different than what we have seen in the
comments.
Ms. Schakowsky. And so what is it that you might be
contemplating changing in the Used Car Rule?
Ms. Harrington. Well, there are questions that we always
look at when we do a rule review about whether there are
changed market conditions that should require consideration of
additional provisions in a rule. There are questions about
whether the rule is needed, is this the best approach. You
know, when we do rule reviews, we start with a very basic
question about----
Ms. Schakowsky. Well, let us see if there are other
concrete suggestions here about changes to the rule so we are
sure that if there is anything new you have gotten it.
Mr. Van Alst?
Mr. Van Alst. Yes. Thank you. There are several changes
that we certainly recommend and we have submitted comments on
behalf of our low-income consumers for changes that we think
would be most effective in the Used Car Rule. You have already
heard today that there is a very urgent need to make sure that
the results of the NMVTIS would be available to consumers at
the time that they are looking at buying a car and the best
place to do that is to have it directly on the car. Currently
the Used Car Rule doesn't really disclose much about the car
other than the existence of the warranty and certainly even
NIADA previously in its comments earlier back in the early
1980s on the Used Car Rule said that there would be a fair
balance for dealers to disclose known defects to consumers as
part of the Used Car Rule so certainly what we see here is a
lack of balance of information, things that the dealers know
and the consumers don't, and so if we could make that a part of
the disclosure to make sure that if the dealer knows there is a
defect with the car they ought to go ahead and disclose that at
the time that they are selling the car.
Ms. Schakowsky. So that seems to be a common theme of what
information ought to be available on the car, and I imagine a
number of the comments include that. Is that something that you
are considering putting in the rule?
Ms. Harrington. Certainly.
Ms. Schakowsky. Let me ask about other federal issues that
we could address, minimum standards nationwide, for example,
for title brands. A State like Arizona might not have a title
brand for flood damage obviously. It is not a common reason for
cars to be destroyed in that State. But the absence of a flood
brand made such States ripe for title washing after Hurricanes
Rita and Katrina. Let me ask Ms. Shahan, do you believe that
there should be minimum standards across the States for signing
the title brands most important to consumer safety?
Ms. Shahan. I think that is a complicated issue, and I wish
I had a simple answer for you but, you know, the title brand is
not that helpful for consumers frankly because consumers
usually don't see the title before they buy the car. Most
consumers are getting a loan so the title goes to the lien
holder and the disclosure to consumer, really, you know, having
it on the car buyer guide is far more useful. And what we are
hoping is with NMVTIS, since insurers are going to be providing
data on all the cars they total, regardless what is on the
brand and there are some insurers, you know, who have violated
the law and not properly branded titles even when they are
supposed to, if they are captured in NMVTIS anyway, then a lot
of these problems about title washing across State lines or
lack of uniformity get addressed because you have uniformity by
virtue of having uniform access to the same information
regardless what goes on with the brand, and that is one reason
we felt so strongly about having DOJ issue the rule, and
frankly we are not really anxious to have DOT and NHTSA get in
on the act. We believe that properly DOJ should keep that
program and keep implementing it, and if we want to tweak the
law and tighten the timeframe for insurers to report the data
to NMVTIS, great, let DOJ handle that.
Ms. Schakowsky. That is helpful. Thank you.
Thank you, Mr. Chairman.
Mr. Rush. Mr. Sarbanes, you are next. However, we have
about 6 minutes, 41 seconds. If you want to, the chair will
wait with you for 5 minutes.
Mr. Sarbanes. OK. I will go ahead. I will try to dash over
there.
Mr. Rush. Mr. Sarbanes is recognized for 5 minutes.
Mr. Sarbanes. Thank you, Mr. Chairman.
I am most interested in the financing part of the
discussion that you presented today and I would ask you, Ms.
Shahan and Mr. Van Alst to maybe describe what you view as the
most egregious practices when it comes to the financing of
autos.
Mr. Van Alst. Sure. I would be happy to. Obviously many of
these practices are difficult to easily describe but there are
a few that I think in just a sentence or two I can explain to
you. We see a lot of the same things happening in car finance
that we have seen create such problems in the home mortgage
industry. We have seen when someone goes in to buy a car, there
is fraud involved in the applications, there is fraud involved
in the amount of the down payment that is represented to the
lender, and the reason all this arises is because the
incentives are so skewed. The incentive for the dealer is to
get this deal done and especially if they can get a kickback
from the lender if they can increase the amount of the interest
rate, they make more money. They don't have any interest in
whether or not the consumer can actually pay for this car. So
obviously their incentive is to get the deal done and it really
hampers any efforts to try to make sure that there is a fair
transaction. The same way that appraisers, you know, created
false appraisals in the mortgage industry created such a
problem, a lot of the current flaws in trying to get accurate
information about these vehicles, whether or not there is
damage, creates the same problem in this instance. If you buy a
car with significant damage that you aren't aware of, well, it
is really going to make you either unable or less likely to
make your payments, you know, six months down the line when the
car either doesn't run or you have had an accident because of
the frame damage.
Mr. Sarbanes. Who are the financing companies that are
doing this? Describe some of the financing entities that are in
the mix here.
Mr. Van Alst. There is a range. There are some very large
national financing companies which were predominantly the
defendants in the class action lawsuits that I mentioned that
we had regarding dealer markups and their disparate racial
impact where they were charging higher dealer markups to
African-Americans and Latinos but then there are also a number
of regional finance companies that do a smaller business and
then as was alluded to earlier, there are also the buy-here,
pay-here places where the dealer is financing the purchase of
the car there on the lot and there the business model really is
to try to get a down payment that is the full price of the car
and any payment the consumer makes is kind of gravy.
Mr. Sarbanes. Are those finance companies packaging those
loans and selling them up the line like we have seen in the
mortgage industry?
Mr. Van Alst. They definitely are.
Mr. Sarbanes. And where are they selling them?
Mr. Van Alst. They are securitized and sold on Wall Street
the same way that the mortgages are.
Mr. Sarbanes. Have you seen any evidence as we saw in the
home mortgage industry of people at the higher levels putting
pressure, having an appetite for those securitized loans that
translated into these financing companies going out and looking
for more subprime borrowers?
Mr. Van Alst. That is the business model pretty much, yes.
Mr. Sarbanes. Well, I mean, I am going to cut short my
questioning so we can get over to vote but my interest is in
the hidden hand here, and we can focus a lot on the consumer
protections that are required for that, you know, on the car
lot transaction and those are very important, but when it comes
to this subprime culture and the predatory lending that goes
on, you can trace it back or you can trace it up to players who
would probably have familiar names based on the inquiries we
have made into the home mortgage arena, and I am very curious
to see where the fingerprints of this hidden hand are, and we
are seeing it in the auto industry as we saw in the home
mortgage industry and there is probably other places as well
and so the inquiries will continue.
Thank you, Mr. Chairman.
Mr. Rush. The chair thanks the gentleman. The chair will
invite the witnesses if they will remain, we have a series of
about four votes, and when we come back we will conclude the
first round and then if there is interest we will have a second
round of questions. So I would just beg you to please remain
with us for a while. Thank you so much.
The committee stands in recess now. We will convene 15
minutes after the last vote.
[Recess.]
Mr. Rush. The committee will be called back to order. Again
I want to thank the witnesses for your patience, and now
without any further delay, Ms. Sutton, you are recognized for 5
minutes of questioning.
Ms. Sutton. Thank you, Mr. Chairman.
Mr. Burch, as I indicated in my opening statement, Ohio is
fully participating in the National Motor Vehicle Title
Information System but under the rules, States aren't required
to fully participate until January 1, 2010. Do you expect that
all 50 States and the District of Columbia to be in the system
by January of 2010?
Mr. Burch. Yes, ma'am, that is our expectation at this
time. We had conversations with States and I know that some of
the States have concerns about meeting that date but we have
assured them that we will work with them, make it a priority to
work with them to meet that date.
Ms. Sutton. And just so I can get a little bit more
clarification, there are 10 States described in your testimony
as in development. Can you just tell me what that means, where
things stand?
Mr. Burch. Yes, ma'am. In development means that these
States have established a timeline for establishing their
participation either at the data provision level or their full
participation. They have established a timeline. They have
identified resources and are actively working towards meeting
those goals and so my understanding is that some of those--I
apologize. Are you asking about the gray States in development
or the 10 States in development or the States that are not
participating?
Ms. Sutton. The 10 States that are in development and then
of course there are 14 that aren't participating at all, so I
want to know about them both.
Mr. Burch. OK. So the 10 states in development have
identified a timeline, they have identified the resources. They
are working towards participation. That is my understanding
that as soon as--within the next 90 days some of those States
may have completed some of the initial processes and their data
may begin to be contributed to the system. In terms of the 14
that are not participating, as I mentioned previously, we have
had conference calls and meetings with a number of those States
and we are now in the process of arranging individual
conference calls and consultations with those States to
identify in which ways we can be helpful to them in meeting the
January 1, 2010, deadline. I also expect that some of those
States may have submitted a proposal. We recently had a
solicitation on the streets to provide some funding support for
States that are not participating to bring them online, and it
is my understanding that some of those States may have also
applied for those funds.
Ms. Sutton. And what about California, who is providing
data to the system but not allowing it to be shared with the
public?
Mr. Burch. That is something that we are working on on a
daily basis right now with the point of contacts in the
California Department of Motor Vehicles. I think it has been
mentioned already, this is the subject of a federal district
court order that requires us to work together with California
and with the plaintiffs in the litigation to try to resolve
these issues. Right now our timeline is to have these resolved
by the end of this month.
Ms. Sutton. OK. And if I could just move quickly, Ms.
Harrington, I am a bit perplexed by some of the answers that
you have given to questions earlier in the discussion.
Following up on Ms. Schakowsky and some other things that I
have heard here, the Used Car Rule does not require the
disclosure of the condition or history of the vehicle even if
the dealer is aware of specific defects, correct?
Ms. Harrington. Right.
Ms. Sutton. OK. And last year the FTC sought public comment
regarding the Used Car Rule, and in your testimony you state
that the Commission is currently giving careful consideration
and you restated that here again when you were asked about if
you heard anything here today, and of course then Mr. Van Alst
gave us a lot of information here, whether or not you heard
anything here that would change or add to your determination,
and I didn't really understand your answer. You just said we
consider a lot of things, and I guess I am just perplexed
about, you know, the comment period closed 4 months ago. What
is your timeframe for making a decision?
Ms. Harrington. This is a rule review. It is not a
rulemaking.
Ms. Sutton. OK.
Ms. Harrington. The timeframe, I would expect that there
will be a recommendation for the Commission shortly. The
requirements for rulemaking under the Federal Trade Commission
Act are not the same as the requirements for rulemaking that
most agencies use under the Administrative Procedures Act. The
Federal Trade Commission Act has very cumbersome and slow
procedures in it and so I can't give you a timeline if the
Commission should commence a rulemaking because----
Ms. Sutton. OK, but when are you going to make decisions
about the comments that you received?
Ms. Harrington. Well, as I said, the staff should have a
recommendation for the Commission I would think within the next
month. I am not the Commission so I can't say when it will make
decisions. But what I want to caution on is that the provisions
in the Federal Trade Commission Act that govern rulemaking are
such that, for example, in the original rulemaking under the
Used Car Rule, that went on for years because interested
parties have a right to request hearings, and then the
Commission has to conduct hearings in numerous locations and
make available for cross-examination all interested parties.
Ms. Sutton. And Mr. Chairman, I know I am out of time but I
am hoping that we will have opportunity to follow up. Thank
you.
Mr. Rush. There will be a second round of questioning.
The chair now recognizes the gentlelady from California,
Ms. Matsui.
Ms. Matsui. Thank you, Mr. Chairman, and thank you very
much for calling today's hearing. I would like to thank today's
panelists for sharing their expertise with us today and I
especially would like to welcome Rosemary Shahan to our panel.
She comes from Sacramento, and her organization, Consumers for
Automobile Reliability and Safety, is well respected and widely
viewed as one of the country's leading voices on car condition
issues, and I am really happy she is here today.
One of the questions I wanted to ask was about subprime car
financing. My home district of Sacramento is among the hardest
hit cities by home foreclosures, and unfortunately, like many
of our homeowners, California car buyers are also victim to
predatory car financing loans. Many consumers were steered into
subprime car loans. I understand that some auto financing
practices closely resemble the predatory lending practices that
have affected so many homeowners. Thus I think this is a good
opportunity to shed light on how these issues are intertwined.
[The prepared statement of Ms. Matsui follows:]
[GRAPHIC] [TIFF OMITTED] T7097A.177

Ms. Matsui. Ms. Shahan, what are the parallels between the
problems we have been seeing in the mortgage industry and the
auto loan financing industry?
Ms. Shahan. Thank you very much. There are many parallels
between home mortgage lending practices and car lending
practices, and one of the biggest things that they have in
common is that there is an incentive to get consumers into
loans that aren't really in their best interest or don't
appropriately reflect their credit worthiness and there is a
disparity very often in auto loans between the rate that
consumers should get, which is the buy rate for the car, the
rate that they actually qualify for based on their credit,
versus the rate that they are given because there is a hidden
undisclosed charge for the consumer in the form of what is
known as the dealer markup and it is very similar to what you
seen in home mortgage lending where the brokers have an
incentive for raising the interest rate, and the dealers have
actually made this a major profit center for them, and part of
why it is such a problem for consumers is that it is not
disclosed and the Federal Reserve found that even when there is
some form of disclosure regarding this, that it is confusing to
consumers, it doesn't work. We would like to see it just flat
out prohibited because there is a conflict of interest there
that consumers don't perceive, and very often they are led to
believe that this is the best rate they could qualify for and
they are sometimes flat out told we shopped you around for
credit and this is the best rate you could get when it is not.
Ms. Matsui. Well, thank you.
Mr. Van Alst, I understand that some are suggesting that
the government create a data collection system to track for
auto financing loans. What uses would such a system serve?
Mr. Val Alst. Numerous uses. One of the problems we have,
as Rosemary Shahan pointed out, is that consumers don't realize
when this happens to them. They don't know that they are the
victim of a consistency between the lender and the dealer, and
also those of us that are trying to combat this practice and
trying to make sure that minorities aren't especially harmed by
this practice by even higher dealer markups, it is very
difficult to do that. In fact, I mentioned earlier that NCLC
had been involved in some cases regarding this very issue and I
would point out, those were the first sort of private
enforcement cases regarding disparate impact under the Equal
Credit Opportunity Act in 30 years, and the reason we don't see
that happen more often is because it is incredibly difficult.
You can't just have sort of anecdotal evidence and show that
there is a discriminatory impact. You actually have to have
statistically significant evidence. In our case, there is over
$1 million up front that people had to put to get all this
information together and get it analyzed, and it involved a lot
of sort of very tenuous, well not really tenuous but very
difficult connections drawing the lines between the loans that
were made and then looking at States where there is racial
information on driver's licenses and things like that so trying
to connect all those points with the information we have
presently is almost impossible. As I pointed out, you know, the
FTC and the DOJ are certainly charged with enforcing the Equal
Credit Opportunity Act and this would be a tremendous tool for
them and for others who are interested in these issues.
Ms. Matsui. Well, could I also ask you, are there any
marked-based solutions that can properly address some of these
subprime car loans and car condition abuses?
Mr. Van Alst. There are real efforts. There are some
tremendous organizations. Opportunity Cars is sort of an
overall blanket organization that has a lot of member
organizations that provide cars to low-income folks at reduced
and subsidized rates but that is not going to do it if we look
at the scale of the problem across the country. Credit unions,
the direct loans to their members used to be sort of the credit
union's bread and butter, and what we have seen in the past 10
or 20 years is a huge shift where they are now predominantly
making these loans indirectly through the dealerships, and
these loans are much worse than the direct loans that the
credit unions made previously.
Ms. Matsui. Thank you. I will follow up in my next round.
Thank you.
Mr. Rush. The chair thanks the gentlelady and now
recognizes himself for a second round of questioning for 5
minutes and each member who wishes will be given 5 minutes on
this second round.
Mr. Van Alst, you highlighted earlier a litany of financing
abuses that used car dealerships employ to fleece consumers,
yoyo sales, markups, et cetera, et cetera, et cetera. Does
empirical evidence show that such predatory practices are
widespread and also on the rise, and in your opinion, how has
the FTC handled these abuses and what suggestions do you have
for mitigating any problems or abuses in the future? I know you
might have answered that before but I want to give you a chance
to expound on it a little bit.
Mr. Van Alst. Thank you, Mr. Chairman. It is sort of a
multi-part question. I would be happy to try to answer all of
those. I think there is, there definitely is empirical evidence
as to the disparate impact that these markups have on
minorities, and the empirical evidence we have comes primarily
from those cases I was mentioning earlier that we were able
actually to review hundreds of thousands of these transactions
to show what was taking place. Unfortunately, I can't answer
whether or not that something that is increasing or anything
else about it because that really is information that is not
available to people absent one of these very large, difficult
sort of litigation efforts and it is not something that you can
find out without going through that process. That is one of the
real problems, and certainly I think that is one of the reasons
that maybe there has not been as much enforcement by the FTC
and the DOJ of protections regarding disparate impact is
because you can't really get a handle on it without that
information. We have got a wonderful tool that the FTC does use
the Home Mortgage Disclosure Act looking at issues such as this
in the mortgage arena. Unfortunately, they don't have that same
tool in the arena of car finance and so while I think that
there are failings on the part of regulatory agencies to
perhaps enforce some of these laws, it is understandable when
it is difficult to track and difficult to really combat these
issues with the tools we have available right now.
Mr. Rush. Ms. Harrington, do you feel as though the Home
Mortgage Disclosure Act is a model that could be adapted to
disclosing information relative to automobile purchases and
discrimination and exploitation in the automobile retail
industry?
Ms. Harrington. Mr. Chairman, I don't know what the
implications of requiring disclosures by lenders in the car
finance area would entail fully. I think that the network of
lenders and finance companies involved in auto finance is
larger and in many instances operates on a more localized basis
than much of the home mortgage financing does. So I can't say
with confidence what would be involved in putting a broad
disclosure requirement on all entities involved in auto finance
the way that the Congress did with the Home Mortgage Disclosure
Act. I will absolutely agree with Mr. Van Alst that without the
HMDA data, we would have a very difficult time finding
evidence, getting the data that we can analyze to determine
whether there are Equal Credit Opportunity Act violations in
home mortgage lending, and you know, we don't have a good
source of data in the auto finance area.
Mr. Rush. I thank you.
The chair has concluded his questioning. The chair now
recognizes the ranking member for an additional 5 minutes.
Mr. Radanovich. Thank you, Mr. Chairman.
I have a question again for Mr. Whann, if I might, on the
issue of cram down or court-forced lowering of loan principals.
If that were to come into effect in the auto industry with the
people that you represent, the auto dealers and those wanting
to sell cars and nine times out of 10 you have to arrange
financing for the people that are buying the cars, if cram down
were in effect in the automobile industry, what kind of effect
might it have on your auto dealers and if you have an opinion
on the banks that provide auto loans as well for the consumers?
Mr. Whann. Well, speaking on behalf of the auto dealers,
you are going to take something essentially a receivable that
they are going to collect and it is going to be worth much less
stretched out over time and the industry adjusted. Given that
this primarily affects not the average used car dealer but
somebody in the buy-here, pay-here industry, that would
probably upset their business model and it would likely put
them out of business. Now, hopefully when they are engaging in
these types of loans, you hope the portfolio is--it is your own
money that is in the street and based upon the research I have
seen in the buy-here, pay-here industry, the average consumer
puts down roughly $1,000 and the average cash in deal for the
dealer is somewhere between $4,000 and $4,500. So if in fact
the dealer who is already paying tax on the income before they
receive it so the dealer essentially has an interest-free loan
to nobody, they are going to pay tax on the income, and then if
in fact somebody for whatever winds up in bankruptcy through no
fault of their own or not and the loan is crammed down, that
dealer is going to be squeezed on both ends.
Mr. Radanovich. In your opinion, do you think banks would
be less or more likely to lend if court-ordered cram down was
in effect in that industry?
Mr. Whann. I would say that they are probably less likely
but I will tell you, based upon a lot of the testimony I hear
today, I obviously am experiencing something different than
maybe some of the other people who are testifying because in
the industry that we have with the independent dealer, we are
having trouble getting lenders, so our biggest challenge right
now is having lenders who will finance a transaction. We don't
have finance reserve that is going to be eight points or five
points. If there is finance reserve, it is a point and a half
or two. We feel very strongly that service contracts are
something of value at a fair price because the consumer doesn't
have the money to be able to pay for the car if something goes
wrong. A gap product may be there. But beyond that, we don't
have anything to sell to the consumer. You have the front end
of the deal, the profit from the car sale. You have got the
back end from the finance and insurance process. Our biggest
challenge is getting banks to want to do business, not to work
so hard to have a customer come in and get them financed and
have them leave to bring them back for some sort of false
circumstances. That is not my experience.
Mr. Radanovich. I understand. Thank you very much and I
yield back, Mr. Chairman.
Mr. Rush. The chair now recognizes the gentlelady from
Ohio, Ms. Sutton, for an additional 5 minutes of questioning.
Ms. Sutton. Thank you, Mr. Chairman.
Ms. Shahan, in your testimony you note that members of the
armed forces are particularly vulnerable to deceptive
financing, and I would like to talk a little bit more about
that. Mr. Chairman, I would like to enter into the record an
American Foreign Press Service article from July of 2000
written by an Army reservist who also works for the FTC. This
article details many of the same harmful lending practices we
have heard about today and the shameful frequency with which
they seem to target military personnel.
[The information follows:]

[GRAPHIC] [TIFF OMITTED] T7097A.178

[GRAPHIC] [TIFF OMITTED] T7097A.179

Ms. Sutton. Ms. Shahan, based on your testimony, it appears
that little has changed in the 9 years since the article was
written. Can you explain why car dealerships or how car
dealerships are targeting military personnel? What makes these
individuals particularly vulnerable to yoyo financing and other
practices?
Ms. Shahan. Yes. Thank you for asking. This is a problem
that is really near and dear to my heart. I was married to a
Navy JAG for 20 years and it is actually why I got involved in
working on auto issues instead of being a college English
teacher. I had a personal experience, and the reality is that
when you are in the military a lot of times you are young, you
are away from home for the first time. This is the first time
you get a major paycheck. You are on your own and you are also
vulnerable because a lot of times you have a security clearance
that dealers will threaten and they will say we, you know, put
you into this car, the financing didn't go through, we want you
to come back and sign another contract on worse terms,
sometimes a bigger down payment, higher interest rate or both,
and if you don't agree to this, then they will say to you, we
will report you to your command and we will make you lose your
security clearance, and this is a serious problem for our
troops. When there was a hearing in California before an
assembly committee, members of the armed forces came and
testified regarding financial readiness issues in our State
where more troops are deployed than from any other State. More
are stationed in our State and deploy from California than
anywhere else. And it is a disgrace that they are being treated
the way they are and that there aren't better protections there
for them. And they testified that yoyo financing is one of the
worst problems that our troops encounter, that auto sales are
the single worst financial readiness problem that they
encounter. The Navy Relief Society and others also back that up
with their testimony.
Ms. Sutton. Can you explain what financial readiness means?
Ms. Shahan. It means that the troops are expected to keep
their financial house in order in order to be ready to serve
our Nation, and we have an obligation to them obviously to
protect them while they are protecting us, and we have
situations like in Arizona at Fort Wachuca in Tucson where the
fort actually had to resort to determining some dealers were
off limits because they were preying on the troops. In every
military base in the United States, there are rings of payday
lenders and schlocky car dealers and, you know, it is a really
serious problem that affects morale and readiness and their
ability to accomplish their mission.
Ms. Sutton. I thank you for that answer, and if I could
just, Ms. Harrington, I sort of see you weighing in. Can you
tell me, I mean, I know that the FTC has a military sentinel
program that is supposed to help members of the armed forces
and their families who are facing financial problems even as
they serve our Nation. What actions is the FTC taking against
auto dealers for these kinds of scamming practices?
Ms. Harrington. Most recently we have gone after payday
lenders, which as Rosemary indicated also ring bases. We get
very few complaints about car dealers and car finance. We got
1.2 million consumer complaints last year, and 2,400 of them
were about car financing. I would venture to say probably none
of them or few of them came from military members. They don't
complain. We have been out trying to encourage the service
offices on bases to please get the complaints to us. We send
our regional staffs out to work on military installations, both
on education but also again to encourage complaints, but we
don't get them, and I think some of the reasons are ones that
Rosemary mentioned, that sometimes there is a culture of not
complaining and not coming forward, and, you know, I know you
know from your experience legislating in other issues that
getting people to come forward when they are victims, when
there is a culture that discourages that is really a challenge.
Ms. Sutton. Well, I appreciate that. The reality though is
of course I am coming forward on their behalf, and the fact
that the Judge Advocate General stated that auto purchasing is
the single worst financial readiness problem facing troops in
California and we know it is probably not isolated there, we
need to find a way to address this in a more effective manner.
Thank you.
Mr. Rush. The chair now recognizes the gentleman from
Florida for 5 minutes of additional questioning.
Mr. Stearns. Thank you, Mr. Chairman.
Just to start off, this question is for Misters Burch,
Whann and Waldron. It may be just a commentary on NMVTIS. As I
understand, NMVTIS, which was enacted or created in 1992 as an
Anti-Car Theft Act, right now it does not specifically track
damaged vehicles that have had airbags deployed, and as I
understand it, it does not cover individuals who are self-
insured owners that are required to provide information to
NMVTIS, and I guess the question is, in the overall scheme of
things, title washing and other acts of fraud, is there a
better way of doing it, perhaps through NHTSA, than NMVTIS?
This might just be a general question. Mr. Burch?
Mr. Burch. Thank you, Congressman. I think we are working
diligently to analyze now where the gaps are in the information
that we are preparing to collect but I think in looking at
where we are headed and looking at what the rule allows us to
do, we know that there are some gaps now but we expect that by
January 1, 2010, when we have all States on board, we have all
junk, salvage and insurance carriers reporting to the system
and we include certain self-insured entities will also be
required to report. You are correct in that we don't have----
Mr. Stearns. You don't have title washing now, right?
Mr. Burch. I am sorry, sir?
Mr. Stearns. You don't have title washing? You don't keep
track of title washing and other acts of fraud?
Mr. Burch. The system does address title washing, and Title
II of the Anti-Car Theft Act I think focused on preventing
fraud and in particular this issue of brand washing or title
washing and so that is something that the system is currently
protecting against, and as we get additional States on board
and additional providers sharing information, we will address
that issue even more comprehensively than we do today. You are
correct in that we don't collect damage estimates. We do
collect total-loss determinations, so if an insurance carrier
makes a total-loss determination or if a State titles a vehicle
as salvage, we will have that information in NMVTIS.
Mr. Stearns. OK, but you don't have it now.
Mr. Whann?
Mr. Whann. Unfortunately, we face many of the same issues
today that we faced back when the Anti-Car Theft Act was
enacted. I think back to when Dick Morris convened the advisory
group after the passage of that, and when myself and Gary
Dickinson did an educational session for them on titling and
title washing and we had the same problem then that we have
today.
Mr. Stearns. And here we are 17 years later and we are
still talking about it.
Mr. Whann. Exactly. We still have--I think it is probably
safe to assume we are not going to have a national title so if
we are not going to have a national title because we have 50
different ways of doing this, what we have to make sure we do
is that we capture title brands and that we carry them forward
State to State, because if we don't do that, the system is only
as good as the information in there. Self-insured information
needs to be tracked, and of course, any safety item is
critical. We can debate what is frame damage on a unibody car
but we know when an airbag has been deployed. If that could be
tracked and passed on, we can make sure it has been repaired
properly.
Mr. Stearns. Mr. Waldron.
Mr. Waldron. We actually do have that title and
registration information across all of the 50 States and have
had it for a number of years, and within that data we do track
for title washing, and one of the things that we do is that we
have all 50 States and we have a giant grid of every brand in
every State, understand how those work, you know, and which one
is what and those brands once they are put on the vehicle will
always carry with the vehicle in our Auto Check Vehicle History
Report, so they carry across today. So we do do that. We do not
have all of the total-loss information as we spoke of earlier
so that obviously would be a big help if that comes in the
commercial realm and we also have many, many accidents. I do
not claim that we have 100 percent of the accidents in the
United States. No one has that. But we have a significant
number of the important or major accidents in the United States
across all of the different States that we pick up from many
sources, government and non-government, and we report those and
those always stay with the history of the vehicle. So that is
why we think it is so important to look at something in a
comprehensive basis. We do have that today but we do not have
in the NMVTIS is real time going back and forth. Sometimes that
data is today, sometimes it is a day ago or up to like a week
ago but we do have data from every single State.
Mr. Stearns. Mr. Chairman, is this the second round of
questions?
Mr. Rush. This is the second round.
Mr. Stearns. Is it possible I could have additional time
since I only asked one? Could you give me an additional 3
minutes?
Mr. Rush. No, I won't give you 3 minutes. The Chair will
give you an additional minute for another question and I will
offer that to any other member who wishes to take advantage of
it. The witnesses have been here for a while now.
Mr. Stearns. This is for Mr. Waldron. There is a lot of
talk about the importance of total-loss disclosure for buyers.
What happens to a shopper when he is just coming across a car?
Should this information be available to the shopper before even
getting to the buying process?
Mr. Waldron. We think that is very important. There was a
lot of conversation today about when somebody is actually
buying the vehicle and you are fairly far down the path when
you are looking at that. What we talk about with Auto Check is
that you can use this thing in the shopping mode. You can buy
an unlimited number of reports for $25 and use it for 60 days
to look at as many vehicles as you want to look at and
therefore you can sort out vehicles that have title problems or
other issues that you find unacceptable while you are in the
shopping process. We think that is absolutely critical.
Mr. Stearns. Yes, because lots of people would be in the
buying stage if they saw this information when they were
shopping.
Mr. Waldron. Correct, and that is why we offer it in the
way that we do and we also, we want to shift the cost burden as
much as we can to the retail channel to the dealers as part of
what they do and it makes sense, and dealers buy from us
oftentimes all the reports on all their vehicles, expose them
all the time, both online and in the dealership, and one of the
things we say to consumers is, if the dealer won't give you one
of our vehicle history reports, walk or run away.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Rush. Thank you. The chair now recognizes Ms. Sutton
for an additional minute of questioning.
Ms. Sutton. Thank you, Mr. Chairman.
I would just like to give Mr. Van Alst a chance. In your
statement you touched briefly on the cumbersome rulemaking
process at the FTC. Do you want to just take a moment and
elaborate on that?
Mr. Van Alst. Yes, there is and certainly as we have heard
today, the current process which the FTC has to use to do a
rulemaking is difficult and cumbersome and time consuming, and
we would certainly not oppose, you know, a regular APA
rulemaking for the FTC. However, I think if that were to be the
case, there would certainly come with that ability to have such
a rulemaking the responsibility to use that rulemaking
effectively and to try to go ahead and move on these issues
that we recognize have been with us for years and years and we
haven't really effectively ended yet. So while we certainly
think that that rulemaking would be helpful, we would like to
make sure that that rulemaking is used effectively and really
combats some of these practices we have discussed today.
Ms. Sutton. Thank you.
Mr. Rush. The chair really thanks the witnesses for your
invaluable testimony here. You have been a superb group of
witnesses and again, we are sorely indebted to you for your
time and participation. And we want to just note that the
members will be given additional time to submit written
questions, and please be prepared to answer these questions
should you receive them.
So we again want to thank you so much for your time, and
this committee now stands adjourned.
[Whereupon, at 1:00 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]

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