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NATIONAL
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77
Summer Street, 10th Fl. |
Alvin
C. Harrell, Professor of Law
2501
vcannady@okcu.edu
Dear
Mr. Harrell,
The
National Consumer Law Center will be unable to attend the January 23 through
25, 2004 COTA meeting, but we have just received your January 12, 2004 draft,
and continue to have significant concerns about the fundamental approach being
taken in the COTA. Consequently, we ask
that you distribute this letter to the Committee in advance of the
meeting. If this is not possible, we
would appreciate your providing us with the contact information for Committee
members so that NCLC can send these comments out to individual members in
advance of the meeting.
General
We
have commented on prior drafts by letters of
We
believe that the Committee must fundamentally change the way it is approaching
this model act. The Committee should
further educate itself as to the law enforcement functions of a certificate of
title act, and should address the concerns of law enforcement and motor vehicle
purchasers, whether or not such parties attend your meetings.
This
is not a new concern of ours. Our March
31 and May 7 letters also complained that earlier drafts demonstrated an
imbalance favoring creditor concerns, while virtually ignoring the fundamental
purposes of a certificate of title act to address the needs of law enforcement
and vehicle purchasers. In fact, an
April 11 letter from the Committee’s Reporter gives the impression that the federal
Odometer Act is an obstacle that your Committee must find a way to
accomodate. We will not reiterate the
specific comments found in NCLC’s earlier letters, but only touch on two
examples of COTA failings.
Existing
Draft Continues to Ignore Law Enforcement Concerns
As
we have pointed out concerning prior drafts, the Janaury 12, 2004 draft is far
weaker on a law enforcement scale than any of the 50 existing
certificate of title laws. As found by
NHTSA, odometer fraud is in the billions of dollars a year. Salvage fraud is even more extensive. Other types of title fraud are too many to
list here. It is common knowledge among
those in law enforcement that used cars with troubled histories are laundered
through multiple transfers, involving auction sales and sales from one
wholesaler or dealer to another, across state lines, back again to the original
state, and the like. Central to law
enforcement is the ability to track transfers and representations concerning a
vehicle on the title itself, reviewing the original of title documents
for alterations and forgeries, and following the chain of title. Fraudulent dealers often attempt to avoid
this law enforcement scrutiny through the creative use of reassignment forms
and powers of attorney. Every state
certificate of title statute creates some kind of limits on the use of
reassignment forms or powers of attorney (as explained in our prior
comments). The one certificate of title
statute that provides no such protection for the integrity of the chain of title
is the NCCUSL draft.
Even
more damning, the NCCUSL draft creates no safeguards for electronic
titling. Obviously, an electronic
titling system will create new avenues of fraud, and complicate law enforcement
investigations. For starters, every
state uses a secure printing process for all paper title documents, but the
COTA requires no secure process for electronic titling. Nevertheless, many in law enforcement are
excited about electronic titling for one fundamental reason: it will mean that every reassignment of
title, with the information that must be disclosed on that reassignment, can be
reported immediately to the DMV, and easily captured on an electronic
database. The major flaw of any motor
vehicle database in use today is that it relies on initial information found on
title documents and not that found on subsequent reassignments of that
title. Electronic titling provides a way
to fix this problem.
But
surpisingly, the COTA has no requirement that electronic reassignments be
reported to the DMV. This is
particularly surprising since page 4 of the January 12 draft quotes at length
concerning the National Motor Vehicle Title Information System. But the biggest loophole in the NMVTIS system
will be the COTA’s failure to require the reporting of electronic reassignments
to a government agency and hence to that system. If the Committee’s view is that this
requirement should be left up to the individual states, this flies in the face
of the Committee’s desire to assist the NMVTIS, since data will thus be
inconsistently provided and incomplete.
Reporting
of electronic reassignments will be invaluable not just to the NMVTIS. A number of databases available only to law
enforcement or insurance companies are now in operation, as are a number of
databases that are used extensively by the public, such as Carfax. These databases are relied upon to indicate
odometer, salvage, and other types of title fraud. But an essential failing of every one of
these databases is their inability with a paper titling system to capture
information from reassignments.
The
COTA comments (at pages 4 and 5) appear to dismiss the notion that the COTA
should respond to consumer protection concerns.
But a fundamental function of a vehicle title system is to prevent fraud
related to vehicle titles. The best way
to ferret out that fraud is through the use of vehicle title databases and
investigation of the original title chain.
COTA has a responsibility to be responsive to those needs.
COTA
should not reject this requirement that electronic reassignments be reported,
by resorting to the fallacious argument that electronic titling should be
treated the same as paper titling. And
it surely makes no sense to insure equal treatment by totally ignoring law
enforcement concerns for both paper and electronic titles. The obvious solution is for COTA to provide
for law enforcement concerns as applicable to paper titles and provide for
other, but similar concerns whenever electronic titles are used.
Existing
Draft Changes Article 9 To Allow Creditors to Engage in Undue Coercion of
Debtors
The
Comments to Section 20 state the section is based on § 9-619 and “largely
follows the language of that section.”
No explanation is given why the COTA alters § 9-619 to allow transfer of
title before repossession, where § 9-619 clearly allows transfer only
after repossession. This is not a small
change, and is another indication of evident bias in favor of creditors.
The
COTA draft allows a transfer of title after “default,” as long as the creditor
intends to repossess the vehicle.
“Default” includes any violation of the terms of the credit agreement,
including one payment two weeks late.
The draft even allows transfer of title before the debt is accelerated. No provision is made for a right to cure
statute, so title transfer could occur before the right to cure period has
expired. Often consumers make late
payments just before repossession, staving off repossession. But, under the COTA draft, the creditor may
already have title even before the repossession, even though the consumer is
now current on payments.
Nor
is there any reason the creditor must rush to transfer title. After repossession, the creditor must provide
notice to the consumer and cannot sell the vehicle too soon. This provides ample time for the creditor to
seek a new title. In fact, in the
typical auction sale not involving a repossession title, the actual title
catches up to the buyer some time after the auction. There is no justification for a creditor to
obtain title while the consumer still possesses the vehicle, other than for a
creditor to use this title change as undue leverage on the consumer. And there is certainly no justification
provided in the draft to change the clear language of § 9-619.
Section
9-619 also applies to transfers of record other than certificates of motor
vehicle title. For these other transfers
of record, it may be justified to skip over the secured party and transfer
record directly from the debtor to the secured party’s transferee. But for motor vehicle titles, federal law
requires that the transfer from the secured creditor to a subsequent transferee
be provided for on a certificate of title.
That is, the secured creditor cannot be skipped over in the chain of
title. In addition, skipping the secured
creditor in the chain of title abets various forms of fraud on subsequent
purchasers. Despite our past comments on
this issue, Section 20 continues to enable vehicle title skipping, a practice
generally abhorred under existing law.
In
summary, we are gravely concerned that the COTA continues to ignore the needs
of law enforcement and vehicle purchasers, and focuses instead on the
self-interest of vehicle lenders. We
hope some way can be found for the COTA to include these other needs, or the
COTA drafting process should be abandoned.
Thank
you for the opportunity to present these views.
Jonathan
Sheldon
Staff
Attorney
77
Summer Street
617-542-8010
FAX
617-542-8028
jsheldon@nclc.org