BILL ANALYSIS �
AB 1884
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Date of Hearing: March 24, 2014
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 1884 (Lowenthal) - As Introduced: February 19, 2014
SUBJECT : Vehicle Liens
SUMMARY : Modifies requirements related to vehicle lien sales.
Specifically, this bill :
1)Requires a lienholder to obtain a federal National Motor
Vehicle Title Information System (NMVTIS) vehicle history
report from a NMVTIS data provider prior to applying to the
Department of Motor Vehicles (DMV) for the authorization to
conduct a lien sale.
2)Requires a NMVTIS vehicle history report to be included in the
lienholder's application submitted to DMV to conduct a lien
sale.
3)Modifies DMV lien sale procedures for any vehicle that is
determined to be titled from another state, regardless of the
value of the vehicle, as specified.
4)Permits any fee charged to obtain an NMVTIS report by the
lienholder to be recovered from the proceeds of a lien sale.
5)Makes technical conforming changes.
EXISTING LAW :
1)Requires a lienholder to apply to DMV for authorization to
conduct a lien sale, as specified.
2)For vehicles valued over $4,000, requires a lienholder to
provide DMV with specific vehicle information and, upon
payment of a fee and submittal of an application, receive DMV
authorization to initiate a lien sale (otherwise known as a
"long lien" sale).
3)For vehicles valued under $4,000, requires a lienholder to get
from DMV specific vehicle information for notification
purposes; however does not require DMV authorization to
initiate a lien sale (otherwise known as a "short lien" sale).
AB 1884
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FISCAL EFFECT : Unknown
COMMENTS : Existing law authorizes a person to impose a lien
against a vehicle upon his or her possession, for payment of
services, storage, repair, towing, or safekeeping. The
lienholder, after a specified period and notification of all
known interested parties, may conduct a lien sale to recover
costs associated with possession of the vehicle. Depending on
the value of the vehicle, existing law establishes two separate
processes to conduct a lien sale. However, both long and short
lien sales do not require lienholders to provide documentation
of the vehicle's title history and in turn, limits DMV's ability
to determine if the vehicle has been previously registered in
another state or locate any out-of-state owner when the
lienholder fails to provide any vehicle identification. As a
result, a loophole now exists that increases the probability of
fraudulent practices by unscrupulous individuals - a process
known as "title washing."
When vehicles are crashed, stolen and stripped, or flooded
beyond reasonable repair, an insurance company pays the owner a
fair market value for the vehicle, takes possession of the
vehicle, and issues a branded title for the vehicle that
indicates the type of damage that the vehicle suffered. Most of
the time, the new title will indicate one of the following types
of damage: salvage, rebuilt wreck, or flood-damaged.
Once the new title is issued, the vehicle is typically hauled to
an insurance auction. Most of the buyers at an insurance
auction represent businesses such as body shops, car dealers,
and salvage yards, but also may include persons or businesses
engaging in fraudulent activity. These particular persons or
businesses will re-register a vehicle that has been declared
salvage or flood-damaged in a state that doesn't recognize such
title declarations from the originating state or cannot retrieve
out-of-state title information, thus "washing" the title and
clearing the damage from the paperwork. In many cases, in order
to make sure their tracks are covered, a person or business will
perform this act in several states. Ultimately, with the title
completely "washed", a person or business will then use the lien
sale process to sell the vehicle above market value with DMV
having no documentation on the vehicle's out-of-state history.
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While the specific number of incidents of lien sale fraud is
difficult to determine, the problem has been characterized by
state agencies as widespread, rampant, and growing. For
example, one case investigated by the California Highway Patrol
(CHP) in 2009 found that 38 vehicles were involved in a lien
sale/title washing scam resulting in a $2.5 million loss for
financial institutions. DMV investigators have an ongoing case
crossing four counties that involves a tow service. To date, 28
vehicles have been identified as "title washed" and went through
the lien sale process - impacting numerous consumers and
financial institutions with an estimated loss of $280,000. In
December 2010, A federal grand jury indicted 19 people in three
states (Texas, Arizona, and New Jersey), accusing them in a
scheme involving 800 fraudulent Texas vehicle titles that
cheated lenders out of at least $3 million.
This bill requires a lienholder to submit an NMVTIS report to
DMV on all lien sale applications regardless of the value of the
vehicle. NMVTIS was created under the Anti-Car Theft Act of
1992 as a national information system. It enables states and
others to access automobile titling information. Under federal
regulations effective in 2010, all states are required to report
vehicle titling information to NMVTIS.
Requiring all lien sale applications to include a NMVTIS report
will provide DMV the opportunity to determine whether the
vehicle has a title history in another state. Additionally,
this bill will require the more comprehensive lien sale
procedures, i.e. a "long lien" sale, to be used for all vehicles
that were last titled in another state regardless of the
vehicle's value - thus minimizing the potential for fraudulent
activity.
Double referral : This bill has also been referred to the
Assembly Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California New Car Dealers Association
Opposition
CARFAX (unless amended)
AB 1884
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Analysis Prepared by : Manny Leon / TRANS. / (916) 319-2093