BILL ANALYSIS �
AB 1884
Page 1
Date of Hearing: April 8, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1884 (Lowenthal) - As Introduced: February 19, 2014
SUBJECT : Vehicle Liens
KEY ISSUE : should a vehicle lienholder be required to obtain a
prescribed vehicle history report before conducting a vehicle
Lien Sale, if the Value of the vehicle exceeds $4,000 or if the
vehicle was last titled in another state?
SYNOPSIS
Existing law sets forth different procedural and notification
requirements for conducting a vehicle lien sale, depending upon
the value of the vehicle. If the vehicle's value is $4,000 or
less, the lienholder, once in possession of the vehicle, may
initiate a lien sale by obtaining certain vehicle information
from the Department of Motor Vehicles (DMV) and notifying the
registered owner. However, if the vehicle's value exceeds
$4,000 the lienholder must apply to, and receive authorization
from, the DMV to conduct the sale, and the DMV notifies the
registered owner. This bill would require a lienholder to also
obtain a vehicle history report from the National Motor Vehicle
Title Information System (NMVTIS) if the vehicle's value exceeds
$4,000, or if the vehicle was last titled in another state,
regardless of the value of the vehicle. According to the
author, this bill is needed to address a growing problem of
vehicle fraud, most notably efforts to reintroduce stolen or
damaged vehicles into the stream of commerce with "clean"
titles. NMVTIS, which was created by federal law in 1992,
maintains a comprehensive and up-to-date database that includes
information on a vehicle's title history, including historical
theft data, the most recent odometer reading, and whether any
"brands" have been reported against the title showing that the
vehicle had been previously damaged or salvaged. The
lienholder, of course, must disclose this information to any
consumer who purchases the vehicle at a lien sale. This bill
recently passed out of the Assembly Transportation Committee on
a 14-0 vote. CARFAX, a private company that provides commercial
vehicle history reports, opposes this bill unless it is amended
to permit the lienholder to meet the report requirement in this
bill by obtaining either a NMVTIS report or a commercial report,
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like those sold by CARFAX. The author has indicated to the
Committee that she does not wish to take that amendment, and
this analysis suggests the author's approach is well-founded.
SUMMARY : Requires a vehicle lienholder to obtain a federal
vehicle history report prior to applying to the Department of
Motor Vehicles (DMV) for authorization to conduct a lien sale,
and makes other modifications to the lien sale process.
Specifically, this bill :
1)Requires a vehicle lienholder to obtain a federal National
Motor Vehicle Title Information System (NMVTIS) vehicle
history report prior to applying to the DMV for authorization
to conduct a lien sale.
2)Requires the NMVTIS report to be included in the application
for authorization to conduct a lien sale if either of the
following is true: (a) the vehicle was last titled in another
state OR (b) the value of the vehicle exceeds $4,000.
EXISTING LAW:
1)Provides that a person who makes repairs or performs labor
upon a vehicle, or who furnishes supplies or materials for a
vehicle, or who recovers, tows, or stores a vehicle, has a
lien upon the vehicle for the amount of the services rendered.
(Civil Code Section 3068.)
2)Establishes procedures by which a lienholder may conduct a
lien sale of a vehicle, once the vehicle is in the
lienholder's possession. (Civil Code Section 3068.1 et seq.)
3)Requires, for vehicles valued at over $4,000, 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. (Civil Code Section
3071.)
4)Requires, for vehicles valued at $4,000 or less, a lienholder
to get specific vehicle information from the DMV for
notification purposes, and to provide notification to the
interested parties, including the registered owner; however,
does not require DMV authorization to initiate a lien sale.
(Civil Code Section 3072.)
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5)Prohibits a car dealer from displaying or offering for sale a
used vehicle unless the dealer first obtains a vehicle history
report from the National Motor Vehicle Title Information
System (NMVTIS). If the NMVTIS report indicates that the
vehicle is or has been a junk or salvage automobile or the
title contains a brand, then the dealer must post a specified
disclosure and provide the retail purchaser with a copy of the
report upon request prior to sale. (Vehicle Code Section
11713.26.)
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
COMMENTS : Under existing California law, if a person has
repaired, furnished supplies, towed, or stored a vehicle and has
not been paid for those services, that person has a lien against
the vehicle. The vehicle lien may be satisfied by selling the
vehicle through a prescribed lien sale process. To conduct a
lien sale, the lienholder must first have possession of the
vehicle and, if the vehicle is valued at more than $4,000, must
obtain a lien sale authorization from the DMV. The DMV then
provides notice of the lien sale to interested parties,
including the registered and legal owners of record. If the
vehicle's value is $4,000 or less, DMV authorization is not
required, and the party conducting the lien sale, rather than
DMV, notifies all interested parties. This bill would modify
this process by (1) requiring the lienholder to apply to DMV for
authorization to conduct a lien sale for a vehicle valued at
over $4,000 or if the vehicle was last titled out-of-state,
regardless of its value; and (2) requiring the lienholder to
obtain a vehicle history report from a National Motor Vehicle
Title Information System (NMVTIS) data provider at the time of
application to the DMV for authorization to conduct a lien sale.
Background: Title Fraud : While it is difficult to estimate the
incidence of vehicle fraud accurately - successful incidents by
definition escape notice - the author cites evidence provided by
the California Highway Patrol (CHP) suggesting that the problem
is "widespread, rampant, and growing." According to the author,
in one case investigated by CHP, thirty-eight fraudulently
titled vehicles resulted in a $2.5 million loss for financial
institutions. DMV investigators apparently identified a single
case that involved lien sales, covering four different counties
and involving twenty-eight vehicles, and costing consumers and
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financial institutions an estimated loss of $280,000. One of
the more popular schemes involves "title-washing" to remove
"brands" on vehicle titles. According to the National Motor
Vehicle Title Information System website, a "brand" is a label
that several state DMVs assign to a vehicle to identify its
current or prior condition, such as "junk," "salvage," "flood,"
or other designation. Other information that states may "brand"
on the title is the most recent odometer reading, or whether the
odometer has been reset. However, not all states brand titles
or do not recognize all brands. For example, if a vehicle is
branded with "flood damage" in a state that recognizes that
category, then unscrupulous individuals can convey title to the
vehicle in another state which does not recognize that "brand."
The damage history is effectively "washed" from that title and
can be resold with a "clean" title. (See NMVTIS website at
http://vehiclehistory.gov/nmvtis_consumers.html.)
The NMVTIS database helps to deter "title washing" (and other
forms of fraud) by capturing all vehicle history into one
uniform system that collects data from multiple sources. The
existing federal law that established NMVTIS in 1992 requires
state motor vehicle titling agencies, automobile recyclers, junk
and salvage yards, and insurance carriers to report information
to NMVTIS. NMVTIS, in turn, offers states and consumers
protection from title fraud by detecting stolen or previously
damaged vehicles from preventing them from being retitled and
re-entered into the used car market. (Id.)
This bill understandably seeks to take advantage of the
comprehensive NMVTIS database by requiring a lienholder to
obtain an NMVTIS report and submit it to the DMV as part of the
required application for authorization to conduct a lien sale.
In addition, while existing law only requires DMV authorization
for a vehicle valued at more than $4,000, this bill would
require DMV authorization, and hence an NMVTIS report, if the
car was last titled in another state, regardless of its value.
Requiring the report for out-of-state vehicles seems a sensible
means of dealing with the problem of title washing.
Logical Extension of AB 1215 : The value of the NMVTIS database
in protecting consumers from stolen or damaged vehicles was
expressly recognized by the Legislature in the intent language
of AB 1215 (Chapter 329, Stats. of 2011). That legislation,
among other things, required car dealers to obtain an NMVTIS
report before selling a used car on their lots. If the NMVTIS
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report contained any information suggesting that the vehicle had
been previously branded or otherwise damaged, then the dealer
was required to disclose this information to the consumer and,
upon request, to provide the consumer with a copy of the report.
As part of its findings and declarations, AB 1215 stated that
it was the "intent of the Legislature . . . that every vehicle
dealer licensed in this state obtain a NMVTIS vehicle history
report for every used vehicle that will be offered for retail
sale and that any used vehicle that has been titled or reported
as salvage or junk as indicated by the NMVTIS vehicle history
report be identified as such. By becoming the first and largest
state in the country to require the use of NMVTIS vehicle
history reports by dealers in retail used vehicle transactions,
this act will not only benefit the California consumer, it will
also strengthen and financially support NMVTIS." This bill
appears to be a logical extension of AB 1215. If the state has
an interest in preventing stolen or damaged vehicles from
re-entering the stream of commerce via sale by a used car
dealer, it would seem to have an equally strong interest in
ensuring that such vehicles do no enter the stream of commerce
when sold in a vehicle lien sale.
Proposed CARFAX Amendment Unnecessary and Possibly
Counterproductive : As noted below, CARFAX seeks an amendment
that would allow lienholders to obtain the required vehicle
history report from commercial providers like CARFAX, instead of
being restricted to the NMVTIS report. The value of the NMVTIS
report, most stakeholders agree, is that it provides a single,
uniform, and up-to-date source of information. According to the
American Association of Motor Vehicle Administrators (AAMVA) -
which jointly operates NMVTIS with the U.S. Department of
Justice - the state agencies and other persons and entities that
are required by law to submit information to NMVTIS do so on at
least a daily basis and, increasingly, in real time. Allowing
multiple commercial providers to sell their own product would
arguably be counterproductive to the goal of have a single,
uniform source of information.
In addition, the NMVTIS report is apparently much less expensive
than commercial reports. According to the NMVTIS website,
reports sold by its authorized providers cost between $2.95 and
$12.95 per report. Auto Data Direct, for example, sells its
report for $4.95. By contrast, according to the CARFAX website
consulted by the Committee consultant on April 4, 2014, the
CARFAX vehicle history report is listed at $39.95. Although
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CARFAX is an authorized provider of NMVTIS reports, it only
provides NMVTIS reports to dealerships, not to consumers or
other potential lienholders. Consumers and lienholders (other
than dealers) would presumably need to buy the CARFAX report.
(Compare e.g. the NMVTIS website at
www.vehiclehistory.gov/nmvtis_vehiclehistory.html with the
CARFAX website at
http://reports.carfax.com/1/vin-carfax-42/?mboxSession=1396651010
291-823411.)
ARGUMENTS IN SUPPORT : The California New Car Dealers
Association (CNCDA) supports this bill because it believes that
requiring a lienholder to include a federal NMVTIS report with
its lien application to DMV is the best means of ensuring title
accuracy and thereby defending against "title washing" and other
forms of vehicle fraud. CNCDA points out that, when a
dealership, or any other facility, repairs a vehicle, the Civil
Code authorizes it to obtain a lien on the vehicle. If it comes
to the point that the repair facility must sell the vehicle
through the lien sale authorization process with DMV, "the
lienholder may be unaware that the vehicle titled out-of-state
is a junk, salvage, or title-branded vehicle." CNCDA "strongly
supports" requiring NMVTIS reports as part of the lien sale
authorization process, because by "preventing title washing of
out-of-state vehicles, customers at lien sales are properly
protected when acquiring these vehicles."
Auto Data Direct (ADD), one of about ten companies authorized by
the American Association of Motor Vehicle Administrators
(AAMVA), supports this bill because it believes that "NMVTIS is
the best tool to allow for proper notification of current owners
and lienholders of vehicles being authorized for lien sale by
the DMV." NMVTIS, according to ADD, "is the most current
titling database available, and is utilized by state
jurisdictions to verify the validity of ownership documents
before issuing new titles. It is also the only government owned
and operated system that keeps a history of title brands applied
by states. Unlike information available from private vehicle
history databases, NMVTIS data is based on consistent federal
requirements." The database is more up-to-date than commercial
data providers, according to ADD, because states report data to
NMVTIS in real-time or daily. Commercial providers, on the
other hand, ADD claims, purchase this data on a weekly basis.
"This is an important distinction," ADD notes, "because no
commercial database matches the timeliness of NMVTIS data."
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Because of this important difference, ADD opposes the amendment
proposed by CARFAX (see below) that would allow a lienholder to
satisfy the report requirement by obtaining a commercial vehicle
history report in lieu of the NMVTIS report.
ARGUMENTS IN OPPOSITION (UNLESS AMENDED) : CARFAX, Inc. opposes
this measure unless it is amended because, as currently drafted,
it mandates the use of a single product, the NMVTIS vehicle
history report. CARFAX seeks an amendment that would allow
lienholders to fulfill the requirements of the bill by obtaining
a vehicle history report from either a NMVTIS or a commercial
report provider, such as CARFAX. CARFAX claims that by forcing
lienholders to use the NMVTIS reports, and thereby effectively
prohibiting the use of reports from commercial providers such as
CARFAX, this measure will "not only deny consumers valuable
title check tools that retain broader information from all 51
U.S. jurisdictions and 13 Canadian provinces, but also their
right of choice."
Possible Amendment to Consider If Bill Moves Forward : Although
it arrived too late to be fully considered and included in the
analysis, the Committee received a letter from the Independent
Automobile Dealers Association of American (IADAC) suggesting an
amendment that would take into account the different positions
of different types of lienholders, and in particular the unique
position of a tow company as lienholder. Because of the
lateness of this communication, the merits of this argument are
not yet fully understood. However, the Committee has been
informed that the author and IADAC have committed to continue
working on this issue - which would appear to require only a
relatively minor amendment - should the bill move forward.
Recent Related Legislation : AB 1215 (Chapter 329, Stats. of
2011) required new car dealers to participate in a program to
electronically title and register vehicles that they sell. Most
relevant to the bill under consideration today, AB 1215 required
dealers to obtain a NMVTIS report before selling a used vehicle
and to post on the vehicle any adverse information contained in
the report.
REGISTERED SUPPORT / OPPOSITION :
Support
Auto Data Direct, Inc.
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California New Car Dealers Association
Opposition
CARFAX (unless amended)
Independent Automobile Dealers Association of California (unless
amended)
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334