Industry May Be Liable For 'Title Washing'

Washington--The insurance industry came under fire Thursday as a congressional subcommittee debated whether it needs to pass legislation to stop so-called "title washing" of cars damaged by Hurricane Katrina.

In fact, one witness suggested creation of a new database to ensure that the information necessary to end the practice is promptly available, and suggested that the "private sector"--probably the insurance industry--be made to pay for it.

The issue came up at a hearing before the Subcommittee on Commerce, Trade and Consumer Protection of the House Energy and Commerce Committee.

The subcommittee is considering how to deal with up to 600,000 cars damaged "beyond usefulness" in the hurricane. Owners of the cars were paid off by their insurance companies and the vehicles supposedly were scrapped.

Fraud occurs when titles of flood-damaged cars are altered or duplicated to give a car a clean title history.

"Among these things lost to the storm were hundreds of thousands of automobiles and trucks, possibly as many as 600,000," Rep. Joe Barton, R-Texas, said. He is chairman of the full committee.

The problem stems from the fact that Congress established the National Motor Vehicle Title Information System (NMVTIS) in 1992, but it has not been fully implemented. Several of the witnesses argued the program needs additional funding in order to create a nationwide database.

But Rachel Weintraub, director of product safety and senior counsel for the Consumer Federation of America, told the subcommittee that much of the necessary information already exists but is not available.

"The insurance industry has not provided information to NMVTIS and the Department of Justice hasn't written the rules yet about how to act to obtain that information," Ms. Weintraub said.

"Disclosure is the factor that I think we can all agree on," said David Regan, vice president of legislative affairs for the National Automobile Dealers Association.

Mr. Regan expressed concern that NMVTIS can't provide information to the general public in an adequate way. He called for a new database, suggesting that the private sector could bear the cost.

"We want to totally reconfigure this model so that the purchasers have available information before they make a purchase," Mr. Regan said. "Our concern is how soon can consumers get the info and how soon can NMVTIS get the information."

Another witness, Glenn Turner, chief of staff for the Florida Division of Motor Vehicles, said progress has been made on the NMVTIS database, with 28 jurisdictions now involved. But to increase that number would "take some funding," he said.

Mr. Turner noted that 52 percent of automobiles in the country are currently covered in the database and the program is close to achieving 81 percent coverage. He added that a fully functional NMVTIS database would provide real-time data from insurance companies as well as other states.

"What I'd like to know is why practices like 'title washing' are still a major problem in a world that is so networked with real-time information," said Rep. Cliff Stearns, R-Fla., chairman of the subcommittee.

"It seems to me that the problem of title fraud is one that can be solved, or at least greatly reduced, by allowing greater and more immediate access to information about a car's history, including when that car is damaged by flood or other means, as well as creating more uniform standards nationwide for title branding designations, like 'salvaged' or 'flood damaged.'"

"Most of those vehicles were damaged beyond usefulness," Mr. Barton said. "But it seems inevitable that a few bad actors will seek to spread the misery of the hurricane by shining these vehicles up and selling them to gullible buyers in states far from the Gulf of Mexico."

"This is a financial issue for consumers and the industry, but it is also a very serious public safety issue," said U.S. Rep. Jan Schakowsky, D-Ill., ranking minority member of the subcommittee. "Currently, there is no way to tell if a car that is on the used car lot should be on the scrap heap instead."