New national VIN reporting regulations anticipated

The United States Department of Justice (DOJ) has released its preliminary rules for the National Motor Vehicle Titles Information System (NMVTIS), which are expected to be implemented in 2009.

The rules are expected to include provisions for the monthly reporting of VIN (vehicle identification) numbers, which are key components of the Anti-Car Theft Act.

The preliminary rules have been published in the Federal Register. The rules will undergo a two or three month public comment period via an interactive website in which stakeholders will be able to post their comments and read those of others. To post comments, visit the following: http://federalregister.gov/OFRUpload/OFRData/2008-22070_PI.pdf. Following the public forum, technocrats from the DOJ will determine the final wording of the regulations.

The process began 16 years ago (1992) with the passage of the Anti-Car Theft Act, which placed the responsibility for the regulations with the Department of Transportation. The Act establishes the NMVTIS and includes a provision to require recycling or salvage facilities to file regular reports that must contain an inventory of all vehicles obtained.

The reporting would include the:

• VIN of each vehicle obtained.
• Date on which the vehicle was obtained.
• Name of the individual or entity from whom the vehicle was obtained.
• Statement of when the vehicle was crushed or disposed or sold.
• If sold, to whom the vehicle was sold.

The Act was updated in 1996 and it mandated the DOJ to provide the regulations by 1997, but this mandate was not met and the rules were finally submitted to the DOJ last spring/early summer through the Office of Management and Budget.

The regulations will affect the auto recycling, insurance and salvage pool industries, law enforcement, and by extension, individual and business consumers.

“There are some significant competing interests that are likely to come out during the public review process,” said Howard Nusbaum, administrator of the National Salvage Vehicle Reporting Program (NSVRP). “Consumer groups are looking for retention and ready access to this information so that when a consumer buys a vehicle, that person is aware of the prior history of the vehicle. Law enforcement groups also support NMVTIS, and know that they will find the ready access to the vehicle history quite useful.”

Other groups may oppose some of the reporting requirements either on technical grounds or on the basis of perceived costs or other reasons.

“One of the big things is the Katrina cars – there are hundreds of thousands of totaled cars that were taken back by insurance companies,” he adds, “and there is more than anecdotal evidence that in a surprising number of cases, vehicles were transferred and re-titled between States and were later converted to clean titles in such a way that presumably, if consumers bought those cars later, there wouldn’t have been any accident damage and visually the cars looked fine and they would not have been aware of the history of the car.”

There have been attempts to create databases to notify the public about these cars, most notably a database was made available by the National Insurance Crime Bureau (NICB) that posted information provided to them by their insurance company members on the identity of Katrina flood cars. This database was created by NICB after seeing the need, but it was not available until well after the problem had reached major proportions.

Disclosure regulations would apply to more than Katrina cars, and while Federal regulations are not in place, commercial organizations such as Experian and Carfax are able to provide histories on some — but far from all — vehicles.

“Presently, it’s very far from fool-proof and there are whole segments of vehicles that it would never apply to,” said Nusbaum, noting that this does not apply to self-insured entities such as rental car companies, who do not have to report when a car is damaged nor to individuals that do not have collision insurance and have their cars repaired following an accident. “Today, even if there is a branded title, when vehicles get transferred state-to-state, that history presently could be erased. This can best be understood because the title on the vehicle is only a snapshot of the current condition of the vehicle.

“Once a vehicle is no longer registered in a State, the first State purges the information from their records since the vehicle is no longer on their books,” he adds. “Unless the vehicle is identified as a stolen vehicle and is in the NICB database, there is presently no central resource database to check for previous history. For example, that is why Experian just reported that there were 185,000 vehicles this year that had branded titled cars and got transferred and re-titled in another state with a clean title.”

The law enforcement community wants a history of vehicles to deal with auto theft, especially the cloning of vehicles – where a VIN from a legitimate vehicle is duplicated and copied to another vehicle to mask the identity of that second vehicle. This problem has translated into cars with the same VIN being exported from multiple ports - all of them claiming to be the same vehicle.

If a check is done on the VIN, a cloned vehicle will not show up on a National Crime Information Center theft report since the first vehicle was never stolen.

Nusbaum notes that thieves have even taken VIN numbers from vehicles in parking lots and then forged the paperwork for other cars that they steal of the same year and model color.

“The original owner would not be aware of the situation and it is also a concern to the insurance industry in theory because if a new car has been stolen, somebody is going to be paying,” he said.

To illustrate this point, he noted that a car theft ring tied to motorcycle gangs that was broken up last year in Quebec, had been responsible for stealing 1,500 vehicles per year for five years. The vehicles were purchased at salvage pools in the United States to secure legitimate papers. Cars were then stolen and given new VIN numbers matching the salvage pool VINs and then both registered in Canada as well as being exported to other countries.

Jim Watson, Jr., former president of the Automotive Recycler’s Association, notes that the impact on both American auto recyclers and vehicle repairers who compete for these units at the pools is that these cloning target vehicles can no longer be purchased by legitimate buyers.

This is because the paperwork on these vehicles has more value to car theft rings than do the salvage vehicles themselves in terms of parts, scrap or for repairing of the salvage vehicle for resale.

“It reduces the amount of raw material that a recycler has,” said Watson, who said that in addition to the insurance companies replacing the stolen vehicles, consumers with leased vehicles who did not have gap insurance, still had negative equity in the vehicle in terms of the eventual settlement claim. It also reduces the opportunity for car rebuilders to find vehicles worthy of being repaired and restored to roadworthiness. The loss of vehicles affects auto repair shops and recyclers who sell parts such as Auto Zone and Pep Boys.

According to Rosemary Shahan, president of Consumers for Auto Reliability and Safety, there are some sectors that benefit from this situation – some legitimate businesses and some not so legitimate.

“Obviously, the car thieves benefit from this process,” she said. “Also, unfortunately, so do international crime and terrorism groups who participate in the process as buyers or who share in the profits of the enterprise. Ironically, so do some businesses that are regarded as legitimate.

“Insurers benefit from the artificially inflated prices salvage vehicles command when they are sold for fraudulent purposes,” she adds. “Salvage pools also make more money because they typically are compensated based on the sale price of the vehicle. For example, a vehicle that is worth only $2,000 for legitimate purposes may sell for $7,000 or $8,000 to an unscrupulous rebuilder who will cut corners, making it cosmetically attractive while leaving major structural damage unrepaired. Then it goes back on the road - even though it is grossly unsafe.”

Different states have different types of branded titles, with some states not having flood titles. This has resulted in cases where Katrina cars have ended up in Arizona and have lost their ‘flood’ designation since that is not a valid title brand in Arizona. The vehicles were then at salvage auctions without a flood title designation.

Some states, such as Minnesota, have created hazardous material titles to deal with vehicles that are used as mobile crystal meth production labs. However, other states still do not have such classifications.

The auto recycling industry supports state and federal goals to have vehicles recycled properly and environmentally, which allows for fluids and mercury switches to be removed, good parts to be put back into the economy, for some vehicles to be properly repaired and put back on the road, and for titling documents and vehicle histories to be maintained.

“Everybody wins,” said Watson, “but we have examples of cars with clean titles going at auction, that are burnt to the ground and there are plenty of pictures of those things. They are bought, in some cases, for thousands of dollars. This was made easier for thieves because the cars are listed with clean titles.”

Another problem is that when a vehicle is purchased from a salvage pool by a foreign buyer, there is no guarantee that it will be exported. Some of the largest salvage pool chains report foreign buyers represent close to 40 percent.

Opening salvage pool auctions to the public also presents problems. The general public may be unaware of handling regulations. Watson said that consumer groups, auto recyclers and law enforcement representatives share many common concerns.

“The preliminary regulations would be great if it could help contain the branding of titles – if a vehicle is fixed, it would have to go through a good legitimate inspection for road worthiness and safety,” he said. “If that were to happen, it would increase the market of quality repaired cars and with more of such cars, the more value there is for selling parts to fix those cars. It’s the residual value of parts that is the prime way that recyclers make money – buying wrecks and selling parts.”

“Everyone tends to have a bias,” he said, “but if there is going to be a bias here, I’m more than hopeful, based on all the interactions that we’ve seen over the years, that there is a fair level of confidence at the good intent on the part of these policymakers.”