Auto salvage fraud is a little-known problem that can have devastating effects.
Vehicles that have sustained heavy damage from accidents or natural disasters are often unsafe and should not be allowed back on the road. However, in recent years unscrupulous dealers have begun to exploit loopholes in laws to buy and sell these vehicles to often unsuspecting persons, said Alan Smith, Ohio director for the Center on Finance, Insurance and Real Estate at The Heartland Institute.
Smith said legislators need to address the auto salvage problems, which affect hundreds of consumers each year.
“The Internet Crime Complaint Center receives 25,000 complaints on average every month covering all kinds of transactions. Specific to the business of buying and selling salvage vehicles, there is an increasing risk of consumers coming into possession of vehicles with undisclosed flood damage or through unregulated Internet sales fraud,” said Smith. “Identity cloning, title swapping, and unlicensed dealers posing as private sellers all justify states taking a closer look at safeguards to protect the public in these expensive transactions.”
Legislators in several states have considered bills to strengthen regulations for salvaged automobiles and provide additional information on a vehicle’s salvage history to consumers before a purchase. In March, bills to ensure unsafe vehicles stay off the roads passed through the Utah and Florida legislatures. The bills also make salvage dealers responsible for determining when a vehicle is damaged beyond repair, not another outside entity.
Closed Loopholes
The Utah bill, S.B. 260, closes several loopholes in the state’s auto salvage system by restricting auto salvage auctions to firms with valid Utah business and sales tax licenses. S.B. 260 also requires salvage transactions to be reported to the state motor vehicle enforcement division and the National Motor Vehicle Title Information System. The bill also creates a category for “total loss vehicles” that cannot be repaired.
The Utah Automotive Recyclers Association (UARA) supports the bill and praised legislators for taking up the issue and working for driver safety.
“By limiting access to qualified buyers — i.e. licensed recyclers and dismantlers — lawmakers are able to preserve jobs in their home states and to ensure these vehicles are handled in a way that protects the environment,” said Utah recycler and UARA member Chris Mantas.
“The issues involving auto recycling are often complicated, so it’s wonderful to see lawmakers all across the country considering the issues carefully and making responsible decisions that promote safety and best serve their constituents’ needs,” said Mantas.
Passed Unanimously
The Florida bill, H.B. 885, passed both the Florida House and Senate March 9 by unanimous 114–0 and 40–0 votes. H.B. 885 was also designed to combat metal thieves by tracking sales and making selling scrap more difficult. The bill makes several changes to how total loss is determined.
The bill originally contained language that would have eliminated the current standard for total loss, where a vehicle sustaining more then 80 percent damage would receive a certificate of destruction and be kept off the roads. This language was opposed by the Automotive Service Association, which argued that without the 80 percent threshold, dangerous vehicles could be returned to the roads. The ASA also argued insurers should not be responsible for determining when a vehicle is a total loss and receives a certificate of destruction. The final version of the bill included an amendment that preserves the existing requirements for in-state total loss vehicles.
The Florida Automotive Dismantlers and Recyclers Association also supported the 8o percent standard.
“FADRA congratulates the Florida House and the Florida Senate for taking an important step to protect the motoring public,” said FADRA President Rachel Rigsby. “Lives are literally on the line whenever structurally compromised vehicles are cosmetically repaired and then allowed to return to the streets. Florida lawmakers recognized the grave risks of altering the current laws, they decided to keep important regulations in place, and they should be commended for doing the right thing and putting consumer safety first.”
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
