The U.S. Senate Commerce Committee's Subcommittee on Consumer Affairs, Product Safety and Insurance held a hearing on "Protecting the Consumer from Flooded and Salvage Vehicle Fraud." The collision industry, state and federal policymakers and consumer organizations have been very concerned about flood-damaged vehicles.

The last time Congress attempted to address the salvage or titling reform issue was in the 1990s. Of specific concern was the variance in laws addressing salvage vehicles from state to state. Unsuspecting consumers found themselves victim to persons taking advantage of a titling system disconnected at the state border. Although titling legislation easily passed the U.S. House of Representatives, it stalled in the U.S. Senate based on the difference of opinion regarding the definition of salvage.

States still contend to struggle with an appropriate salvage definition and how to best protect their borders, thus protecting consumers. Recent hurricanes in Florida and the Gulf Coast states have exasperated what was already a difficult national issue. The estimate of flood-damaged vehicles resulting from hurricanes Katrina, Rita and Wilma has suggested 300,000 to 500,000 vehicles would qualify as flood-damaged. In response, the National Insurance Crime Bureau (NICB) established a public database of flood-damaged vehicles at www.nicb.org.

Seventeen states already have bills in play related to salvage vehicles.

The NICB in its testimony simplified the flood and salvage fraud issue by stating that it "can be condensed into one word - disclosure. Disclosing the condition of a vehicle as salvage or flood-damaged is all that is necessary to defeat this problem."

The NICB recommended three proposals to the Senate Commerce Subcommittee:

• If insurers or other owners terminated a vehicle's title, it should not be reissued.
• Where vehicles can be restored to safe operating condition, any brand indicating that a vehicle was a salvage or flood vehicle should carry forward to any new title record.
• All of the crucial vehicle titling information should be electronically available not only to law enforcement, but to every insurer and consumer.

Consumer organizations also presented flood-damaged vehicle testimony at the hearing. The Consumers for Auto Reliability and Safety (CARS) targeted auto dealers and insurers as part of the problem with flood and salvage vehicles. With regard to auto dealers, CARS said, "Some major auto dealers have sold cars missing air bags or with shop rags where the air bags belong." CARS continued, "Some insurers destroy vehicles that are nonrepairable and properly brand the titles of 'salvage autos,' but others engage in fraud. The fraudsters send nonrepairable vehicles and salvage or flood cars to auctions, often with clean titles. In return, insurers recoup more than the vehicles are actually worth, given their damaged condition."

The CARS organization was particularly tough on State Farm. Its testimony referenced a 1998 Indiana case where the attorney general of Indiana was quoted as saying, "State Farm sold, exchanged, or transferred salvage vehicles it had acquired without obtaining salvage titles ... People who purchased these vehicles did so without knowledge of the damage, safety, reliability and true value of these vehicles."

Specific problems related to flood damage were pointed out during the course of the hearing. The increase in highly technical, electronic components has heightened the potential damage caused by water - and salt water in particular. These components could impact major vehicle systems such as brakes, engine and air bags.

The consumer organization recommended:

• Designation of vehicles as non-repairable and retiring vehicle identification numbers
• National databases
• Increased disclosure with the Federal Trade Commission's Buyer's Guide
• Increased enforcement and remedies for victims.

Other options offered for solving the flood vehicle problem included more transparency with regard to vehicle history data, more timely vehicle data and accessible vehicle data.

The Iowa Attorney General Office also testified. It was active in the previous National Association of Attorneys General effort on titling reform. In its testimony, it revisited what was a very contentious part of the titling debate a decade ago. Specifically, it offered with regard to a salvage definition: "One way to deal with this would be for Congress to require that salvage titles be obtained when collision damage exceeds a certain minimum threshold, say 75 percent of retail value, but permit states to adopt a more expansive standard - for example, 50 percent of retail value."

The last time Congress debated titling reform, the variance for a salvage definition ranged from a 65 percent threshold to 80 percent. The Automotive Service Association (ASA) served on a presidential committee directed to make recommendations on titling reform. Consumer organizations also advocated in the Congress a post-repair inspection program. Repair shops would have been required to inspect and certify their work.

It is unlikely that titling reform will move in the second session of this Congress. ASA does anticipate there will be bills introduced on titling reform. To stay up-to-date on the most recent legislative activity related to flood vehicles, please go to ASA's legislative Web site, www.TakingTheHill.com.

Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry. For more information about the legislative activities of ASA, visit www.TakingTheHill.com.

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