[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

                        energycommerce.house.gov



                  U.S. GOVERNMENT PRINTING OFFICE
67-097                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


                    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

                              ----------                              
                                                                   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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.008
    
    [GRAPHIC] [TIFF OMITTED] T7097A.009
    
    [GRAPHIC] [TIFF OMITTED] T7097A.010
    
    [GRAPHIC] [TIFF OMITTED] T7097A.011
    
    [GRAPHIC] [TIFF OMITTED] T7097A.012
    
    [GRAPHIC] [TIFF OMITTED] T7097A.013
    
    [GRAPHIC] [TIFF OMITTED] T7097A.014
    
    [GRAPHIC] [TIFF OMITTED] T7097A.015
    
    [GRAPHIC] [TIFF OMITTED] T7097A.016
    
    [GRAPHIC] [TIFF OMITTED] T7097A.017
    
    [GRAPHIC] [TIFF OMITTED] T7097A.018
    
    [GRAPHIC] [TIFF OMITTED] T7097A.019
    
    [GRAPHIC] [TIFF OMITTED] T7097A.020
    
    [GRAPHIC] [TIFF OMITTED] T7097A.021
    
    [GRAPHIC] [TIFF OMITTED] T7097A.022
    
    [GRAPHIC] [TIFF OMITTED] T7097A.023
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.024
    
    [GRAPHIC] [TIFF OMITTED] T7097A.025
    
    [GRAPHIC] [TIFF OMITTED] T7097A.026
    
    [GRAPHIC] [TIFF OMITTED] T7097A.027
    
    [GRAPHIC] [TIFF OMITTED] T7097A.028
    
    [GRAPHIC] [TIFF OMITTED] T7097A.029
    
    [GRAPHIC] [TIFF OMITTED] T7097A.030
    
    [GRAPHIC] [TIFF OMITTED] T7097A.031
    
    [GRAPHIC] [TIFF OMITTED] T7097A.032
    
    [GRAPHIC] [TIFF OMITTED] T7097A.033
    
    [GRAPHIC] [TIFF OMITTED] T7097A.034
    
    [GRAPHIC] [TIFF OMITTED] T7097A.035
    
    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:]
    [GRAPHIC] [TIFF OMITTED] T7097A.036
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.037
    
    [GRAPHIC] [TIFF OMITTED] T7097A.038
    
    [GRAPHIC] [TIFF OMITTED] T7097A.039
    
    [GRAPHIC] [TIFF OMITTED] T7097A.040
    
    [GRAPHIC] [TIFF OMITTED] T7097A.041
    
    [GRAPHIC] [TIFF OMITTED] T7097A.042
    
    [GRAPHIC] [TIFF OMITTED] T7097A.043
    
    [GRAPHIC] [TIFF OMITTED] T7097A.044
    
    [GRAPHIC] [TIFF OMITTED] T7097A.045
    
    [GRAPHIC] [TIFF OMITTED] T7097A.046
    
    [GRAPHIC] [TIFF OMITTED] T7097A.047
    
    [GRAPHIC] [TIFF OMITTED] T7097A.048
    
    [GRAPHIC] [TIFF OMITTED] T7097A.049
    
    [GRAPHIC] [TIFF OMITTED] T7097A.050
    
    [GRAPHIC] [TIFF OMITTED] T7097A.051
    
    [GRAPHIC] [TIFF OMITTED] T7097A.052
    
    [GRAPHIC] [TIFF OMITTED] T7097A.053
    
    [GRAPHIC] [TIFF OMITTED] T7097A.054
    
    [GRAPHIC] [TIFF OMITTED] T7097A.055
    
    [GRAPHIC] [TIFF OMITTED] T7097A.056
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.095
    
    [GRAPHIC] [TIFF OMITTED] T7097A.096
    
    [GRAPHIC] [TIFF OMITTED] T7097A.097
    
    [GRAPHIC] [TIFF OMITTED] T7097A.098
    
    [GRAPHIC] [TIFF OMITTED] T7097A.099
    
    [GRAPHIC] [TIFF OMITTED] T7097A.100
    
    [GRAPHIC] [TIFF OMITTED] T7097A.101
    
    [GRAPHIC] [TIFF OMITTED] T7097A.102
    
    [GRAPHIC] [TIFF OMITTED] T7097A.103
    
    [GRAPHIC] [TIFF OMITTED] T7097A.104
    
    [GRAPHIC] [TIFF OMITTED] T7097A.105
    
    [GRAPHIC] [TIFF OMITTED] T7097A.106
    
    [GRAPHIC] [TIFF OMITTED] T7097A.107
    
    [GRAPHIC] [TIFF OMITTED] T7097A.108
    
    [GRAPHIC] [TIFF OMITTED] T7097A.109
    
    [GRAPHIC] [TIFF OMITTED] T7097A.057
    
    [GRAPHIC] [TIFF OMITTED] T7097A.058
    
    [GRAPHIC] [TIFF OMITTED] T7097A.059
    
    [GRAPHIC] [TIFF OMITTED] T7097A.060
    
    [GRAPHIC] [TIFF OMITTED] T7097A.061
    
    [GRAPHIC] [TIFF OMITTED] T7097A.062
    
    [GRAPHIC] [TIFF OMITTED] T7097A.063
    
    [GRAPHIC] [TIFF OMITTED] T7097A.064
    
    [GRAPHIC] [TIFF OMITTED] T7097A.065
    
    [GRAPHIC] [TIFF OMITTED] T7097A.066
    
    [GRAPHIC] [TIFF OMITTED] T7097A.067
    
    [GRAPHIC] [TIFF OMITTED] T7097A.068
    
    [GRAPHIC] [TIFF OMITTED] T7097A.069
    
    [GRAPHIC] [TIFF OMITTED] T7097A.070
    
    [GRAPHIC] [TIFF OMITTED] T7097A.071
    
    [GRAPHIC] [TIFF OMITTED] T7097A.072
    
    [GRAPHIC] [TIFF OMITTED] T7097A.073
    
    [GRAPHIC] [TIFF OMITTED] T7097A.074
    
    [GRAPHIC] [TIFF OMITTED] T7097A.075
    
    [GRAPHIC] [TIFF OMITTED] T7097A.076
    
    [GRAPHIC] [TIFF OMITTED] T7097A.077
    
    [GRAPHIC] [TIFF OMITTED] T7097A.078
    
    [GRAPHIC] [TIFF OMITTED] T7097A.079
    
    [GRAPHIC] [TIFF OMITTED] T7097A.080
    
    [GRAPHIC] [TIFF OMITTED] T7097A.081
    
    [GRAPHIC] [TIFF OMITTED] T7097A.082
    
    [GRAPHIC] [TIFF OMITTED] T7097A.083
    
    [GRAPHIC] [TIFF OMITTED] T7097A.084
    
    [GRAPHIC] [TIFF OMITTED] T7097A.085
    
    [GRAPHIC] [TIFF OMITTED] T7097A.086
    
    [GRAPHIC] [TIFF OMITTED] T7097A.087
    
    [GRAPHIC] [TIFF OMITTED] T7097A.088
    
    [GRAPHIC] [TIFF OMITTED] T7097A.089
    
    [GRAPHIC] [TIFF OMITTED] T7097A.090
    
    [GRAPHIC] [TIFF OMITTED] T7097A.091
    
    [GRAPHIC] [TIFF OMITTED] T7097A.092
    
    [GRAPHIC] [TIFF OMITTED] T7097A.093
    
    [GRAPHIC] [TIFF OMITTED] T7097A.094
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.110
    
    [GRAPHIC] [TIFF OMITTED] T7097A.111
    
    [GRAPHIC] [TIFF OMITTED] T7097A.112
    
    [GRAPHIC] [TIFF OMITTED] T7097A.113
    
    [GRAPHIC] [TIFF OMITTED] T7097A.114
    
    [GRAPHIC] [TIFF OMITTED] T7097A.115
    
    [GRAPHIC] [TIFF OMITTED] T7097A.116
    
    [GRAPHIC] [TIFF OMITTED] T7097A.117
    
    [GRAPHIC] [TIFF OMITTED] T7097A.118
    
    [GRAPHIC] [TIFF OMITTED] T7097A.119
    
    [GRAPHIC] [TIFF OMITTED] T7097A.120
    
    [GRAPHIC] [TIFF OMITTED] T7097A.121
    
    [GRAPHIC] [TIFF OMITTED] T7097A.122
    
    [GRAPHIC] [TIFF OMITTED] T7097A.123
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.124
    
    [GRAPHIC] [TIFF OMITTED] T7097A.125
    
    [GRAPHIC] [TIFF OMITTED] T7097A.126
    
    [GRAPHIC] [TIFF OMITTED] T7097A.127
    
    [GRAPHIC] [TIFF OMITTED] T7097A.128
    
    [GRAPHIC] [TIFF OMITTED] T7097A.129
    
    [GRAPHIC] [TIFF OMITTED] T7097A.130
    
    [GRAPHIC] [TIFF OMITTED] T7097A.131
    
    [GRAPHIC] [TIFF OMITTED] T7097A.132
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.133
    
    [GRAPHIC] [TIFF OMITTED] T7097A.134
    
    [GRAPHIC] [TIFF OMITTED] T7097A.135
    
    [GRAPHIC] [TIFF OMITTED] T7097A.136
    
    [GRAPHIC] [TIFF OMITTED] T7097A.137
    
    [GRAPHIC] [TIFF OMITTED] T7097A.138
    
    [GRAPHIC] [TIFF OMITTED] T7097A.139
    
    [GRAPHIC] [TIFF OMITTED] T7097A.140
    
    [GRAPHIC] [TIFF OMITTED] T7097A.141
    
    [GRAPHIC] [TIFF OMITTED] T7097A.142
    
    [GRAPHIC] [TIFF OMITTED] T7097A.143
    
    [GRAPHIC] [TIFF OMITTED] T7097A.144
    
    [GRAPHIC] [TIFF OMITTED] T7097A.145
    
    [GRAPHIC] [TIFF OMITTED] T7097A.146
    
    [GRAPHIC] [TIFF OMITTED] T7097A.147
    
    [GRAPHIC] [TIFF OMITTED] T7097A.148
    
    [GRAPHIC] [TIFF OMITTED] T7097A.149
    
    [GRAPHIC] [TIFF OMITTED] T7097A.150
    
    [GRAPHIC] [TIFF OMITTED] T7097A.151
    
    [GRAPHIC] [TIFF OMITTED] T7097A.152
    
    [GRAPHIC] [TIFF OMITTED] T7097A.153
    
    [GRAPHIC] [TIFF OMITTED] T7097A.154
    
    [GRAPHIC] [TIFF OMITTED] T7097A.155
    
    [GRAPHIC] [TIFF OMITTED] T7097A.156
    
    [GRAPHIC] [TIFF OMITTED] T7097A.157
    
    [GRAPHIC] [TIFF OMITTED] T7097A.158
    
    [GRAPHIC] [TIFF OMITTED] T7097A.159
    
    [GRAPHIC] [TIFF OMITTED] T7097A.160
    
    [GRAPHIC] [TIFF OMITTED] T7097A.161
    
    [GRAPHIC] [TIFF OMITTED] T7097A.162
    
    [GRAPHIC] [TIFF OMITTED] T7097A.163
    
    [GRAPHIC] [TIFF OMITTED] T7097A.164
    
    [GRAPHIC] [TIFF OMITTED] T7097A.165
    
    [GRAPHIC] [TIFF OMITTED] T7097A.166
    
    [GRAPHIC] [TIFF OMITTED] T7097A.167
    
    [GRAPHIC] [TIFF OMITTED] T7097A.168
    
    [GRAPHIC] [TIFF OMITTED] T7097A.169
    
    [GRAPHIC] [TIFF OMITTED] T7097A.170
    
    [GRAPHIC] [TIFF OMITTED] T7097A.171
    
    [GRAPHIC] [TIFF OMITTED] T7097A.172
    
    [GRAPHIC] [TIFF OMITTED] T7097A.173
    
    [GRAPHIC] [TIFF OMITTED] T7097A.174
    
    [GRAPHIC] [TIFF OMITTED] T7097A.175
    
    [GRAPHIC] [TIFF OMITTED] T7097A.176
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T7097A.180
    
    [GRAPHIC] [TIFF OMITTED] T7097A.181
    
    [GRAPHIC] [TIFF OMITTED] T7097A.182
    
    [GRAPHIC] [TIFF OMITTED] T7097A.183
    
    [GRAPHIC] [TIFF OMITTED] T7097A.184
    
    [GRAPHIC] [TIFF OMITTED] T7097A.185
    
    [GRAPHIC] [TIFF OMITTED] T7097A.186
    
    [GRAPHIC] [TIFF OMITTED] T7097A.187
    
    [GRAPHIC] [TIFF OMITTED] T7097A.188
    
    [GRAPHIC] [TIFF OMITTED] T7097A.189
    
    [GRAPHIC] [TIFF OMITTED] T7097A.190
    
    [GRAPHIC] [TIFF OMITTED] T7097A.191
    
    [GRAPHIC] [TIFF OMITTED] T7097A.192
    
    [GRAPHIC] [TIFF OMITTED] T7097A.193
    
    [GRAPHIC] [TIFF OMITTED] T7097A.194
    
    [GRAPHIC] [TIFF OMITTED] T7097A.195
    
    [GRAPHIC] [TIFF OMITTED] T7097A.196
    
    [GRAPHIC] [TIFF OMITTED] T7097A.197
    
    [GRAPHIC] [TIFF OMITTED] T7097A.198
    
    [GRAPHIC] [TIFF OMITTED] T7097A.199
    
    [GRAPHIC] [TIFF OMITTED] T7097A.200
    
    [GRAPHIC] [TIFF OMITTED] T7097A.201
    
    [GRAPHIC] [TIFF OMITTED] T7097A.202
    
    [GRAPHIC] [TIFF OMITTED] T7097A.203
    
    [GRAPHIC] [TIFF OMITTED] T7097A.204
    
    [GRAPHIC] [TIFF OMITTED] T7097A.205
    
    [GRAPHIC] [TIFF OMITTED] T7097A.206
    
    [GRAPHIC] [TIFF OMITTED] T7097A.207
    
    [GRAPHIC] [TIFF OMITTED] T7097A.208
    
    [GRAPHIC] [TIFF OMITTED] T7097A.209
    
    [GRAPHIC] [TIFF OMITTED] T7097A.210
    
    [GRAPHIC] [TIFF OMITTED] T7097A.211
    
    [GRAPHIC] [TIFF OMITTED] T7097A.212
    
    [GRAPHIC] [TIFF OMITTED] T7097A.213
    
    [GRAPHIC] [TIFF OMITTED] T7097A.214
    
    [GRAPHIC] [TIFF OMITTED] T7097A.215
    
    [GRAPHIC] [TIFF OMITTED] T7097A.216
    
    [GRAPHIC] [TIFF OMITTED] T7097A.217
    
    [GRAPHIC] [TIFF OMITTED] T7097A.218
    
    [GRAPHIC] [TIFF OMITTED] T7097A.219
    
    [GRAPHIC] [TIFF OMITTED] T7097A.220
    
    [GRAPHIC] [TIFF OMITTED] T7097A.221
    
    [GRAPHIC] [TIFF OMITTED] T7097A.222
    
    [GRAPHIC] [TIFF OMITTED] T7097A.223
    
    [GRAPHIC] [TIFF OMITTED] T7097A.224
    
    [GRAPHIC] [TIFF OMITTED] T7097A.225
    
