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Automobile Fraud: 5.6.4.1 General

National Highway Traffic Safety Administration (NHTSA) regulations exempt certain transfers from its disclosure regulations (but not other Act requirements, such as the prohibition on odometer tampering125). The regulations are found at 49 C.F.R. § 580.17,126 but were first codified in section 580.6, and pre-1998 case law consequently cites them as section 580.6.

Automobile Fraud: 5.6.4.2 Relation of NHTSA Exemptions to State Law

States issue titles which conform with the Federal Act, that is, that contain on the title space allowing assignment of the title, with preprinted language, boxes, and blank spaces to facilitate compliance with the federal odometer disclosures. If state title law requires all vehicle transfers to fill out the title assignment information completely, then this requirement would apply to transfers that NHTSA otherwise exempts.

Automobile Fraud: 5.6.4.3 Can the Transferor Waive the Exemption?

Because transferors must complete the odometer disclosures for most transfers, and because the odometer disclosures are preprinted on the title’s assignment section, many transferors complete the odometer disclosures even when NHTSA exempts the transferor from having to make these disclosures.

Automobile Fraud: 5.6.4.4 Exemption for Older Vehicles

Effective January 1, 2021, NHTSA has narrowed the vehicle age exemption from the odometer disclosure requirements to apply only to transfers in which the vehicle being transferred is twenty years old or older.146 Before this amendment the exemption applied to vehicles ten years old or older.147 However, the amendment grandfathers 2010 and older model year vehicles as exempt.

Automobile Fraud: 2.5.2.2.5 Communications with finance entities, finance reserves, credit application, and business manager’s summary

Most communication with potential assignees is now done electronically. In the past a dealer would send a copy of the purchase order and credit application to the lender by facsimile or email and await a response. Today these communications largely take place through internet-based software. These may or may not be included in a printed form in the deal file, but may be stored at the dealer, at the finance company, or on the dealer management system platform in electronic form.

Automobile Fraud: 2.5.2.2.6 Log books, cash draw files, and business manager’s penetration and performance reports

There is generally at least one daily log or ledger maintained by dealerships. The daily ledger is usually maintained by the business manager, though the sales manager may maintain it, or keep a separate record. These logs generally record every transaction entered into during a day, in chronological order. The log will contain the consumer’s name, vehicle, salespeople’s names, and the financial aspects of the transaction.

Automobile Fraud: 2.5.2.2.8 Dealer contracts with third parties; association files

The dealership will have contractual relationships with a number of different entities related to sales and finance. The dealer will be an agent of the provider of the credit insurance and will have a contractual relationship with the provider or administrator of add-ons such as service contract policies, rust protection, window etching, and other third-party add-ons sold by the dealership. These contracts, particularly as they reflect the financial incentives to the dealer to move policies, may be of significant value.

Automobile Fraud: 2.5.2.2.9 Repair records

A vehicle’s repair records are important documents in a case involving vehicle history and indicate what the dealership knew about the car’s condition and mechanical performance. Repair records are sometimes filed chronologically, with a repair order number being assigned to each record in sequence. If on critical dates the dealership’s repair orders suddenly skip a number, this gap is an indication the dealership may have pulled the record. Be sure to ask to see the original repair record, including any notes, which may have enlightening comments from the dealership’s own mechanics.

Automobile Fraud: 2.5.2.3 The Dealer’s Communications with the Consumer

Sometimes how a dealer handles a customer’s complaints or requests after the sale may be important. Recording a conversation between the consumer and the dealer is a way to substantiate the consumer’s version of the events. In most states it is legal for one party to a phone conversation to tape the conversation secretly. Even in those states, however, an attorney should not secretly tape record a conversation, and in some states there are ethical issues about whether an attorney can advise a client to do so.

Automobile Fraud: 2.5.2.4 Who to Depose at the Dealership; Who Does What

Information may be gathered from dealer employees as part of the formal discovery process. While various individuals connected with the dealership might be deposed, a typical case will involve depositions of only a few of these individuals, and care must be utilized in deciding which individuals to depose.

Automobile Fraud: 2.5.2.5 Former Dealer Employees

For many car dealership positions turnover is high, particularly for sales positions.199 Former dealer employees can be a treasure trove of information. Sometimes they can reveal information about the particular transaction at issue. More often they may be able to shed light on a dealer’s typical way of doing business. Such pattern and practice evidence can be useful even in individual cases to show that the harm suffered by the consumer was not merely the result of a mistake but part of a larger problem at the dealership.

Automobile Fraud: 2.5.2.7 Contacting the Selling Dealer and Prior Servicing Dealers Concerning Mechanical Problems

When a vehicle’s problems are largely mechanical, which may indicate lemon laundering or some other nondisclosure of a car’s adverse mechanical history, one approach is to send the client to the selling dealer to state the client’s dissatisfaction with the car. The client should ask the dealer what it is willing to do to fix the problem and ask for all information of any kind that the dealer will provide concerning the vehicle, including purchase and sale documents and repair records.

Automobile Fraud: 2.5.2.8 When a New Car Is Damaged Before Delivery

If a new car is damaged in transit to the dealer, there will be a transit damage repair order in the dealer’s file. The dealer will also have submitted a transit damage repair claim or invoice to the manufacturer for any damage that occurred in shipment. The manufacturer would then submit a claim to the transport (trucking or railroad) company. Transit damage should also be reported on the driver’s delivery receipt.

Automobile Fraud: 2.5.3 Wholesalers and the Vehicle’s Other Dealer Transferors

Key sources of information in many car fraud cases are wholesalers and dealers in the vehicle’s chain of title before it was transferred to the dealer who sold the car to the client. These prior transferors are potential defendants and can speak to the knowledge of the car’s defects that was passed on to each subsequent transferee. The identities of these parties will appear either on the assignment sections of the vehicle’s prior titles or on separate reassignment documents that should also be filed with the state department of motor vehicles.

Automobile Fraud: 2.5.4 Auctions

Millions of cars are sold at auction every year.203 Auction companies generally are not transferors or transferees and so neither appear in the chain of title nor make or receive odometer disclosures in their own name.204 Sometimes a search though Carfax, or a similar service (AutoCheck in particular), will show that the car has been sold through an auction, as some auctions have agreed to report information to these services.

Automobile Fraud: 2.5.5 Secured Creditors

Secured creditors repossessing and selling cars will appear in the chain of title as the lienholder. A secured creditor will be easy to identify because of its name (although the name of a financial institution as owner may also indicate a leased car). In some states the secured creditor will obtain a repossession title in its own name after repossession. In other states the title chain will have a gap, a consumer having title, but the next sale going from the lienholder to the next buyer, with no evidence of a transfer from the consumer to the secured creditor.

Automobile Fraud: 2.5.6 Floor Plan Financers

Floor plan financers help dealers finance the cars they display for sale.212 If a dealer or wholesaler in the chain of title had a floor plan financer, find out the mechanics of the floor plan financing arrangement. As floor plan financers usually have significant assets, it is always worthwhile to investigate whether a floor plan financer participated in the fraud. Even if the floor plan financer is not itself culpable, it may be holding assets of the dealer against which a judgment can be collected.

Automobile Fraud: 2.5.7 Lessors and Lessees

If either a summary title history or a complete title search (including registration documents) uncovers a lease history, then record retention requirements will be somewhat unique. Federal law requires that lessors obtain certain information about the vehicle from the lessee.

Automobile Fraud: 2.5.9 Insurance Companies and Body Shops

Insurance companies and body shops who take possession of wrecked, flood-damaged, or stolen vehicles must retain records of that vehicle because such entities will fall within the federal definition of distributor—a person that sold at least five motor vehicles during the prior twelve months for resale.221 Federal law requires that distributors retain for five years at their primary place of business a photostatic, carbon, other facsimile, or electronic copy of each odometer statement and power of attorney they receive or issue, in an order t

Automobile Fraud: 2.5.10 Manufacturers

Manufacturers keep excellent records of all their cars in order to keep track of the warranty period and any warranty work performed, as well as to issue recall notices and track recall repairs performed. The odometer reading at various service intervals may be recorded. These repair records will also show repairs done on “demonstrator” cars before they are sold at retail, and mileage at each warranty service. The nature of the repair work will also be relevant in cases involving an undisclosed history of mechanical problems.

Automobile Fraud: 2.5.11 Service Contract Companies

It may be productive to contact any company that has ever written a service contract on the vehicle. If the consumer purchased a service contract, ask that company whether the contract is in force, and if it was voided, what the reason was for voiding it. It may be that the service contract was voided because that company discovered information about an odometer discrepancy.

Automobile Fraud: 2.5.12 Information About Whether the Dealer Obtained a Vehicle History Report

Whether or not a dealer obtained a vehicle history report before selling a car can be a decisive fact in an automobile fraud case. Proving that the dealer had obtained a report showing the vehicle’s problems satisfies the scienter requirement of a fraud claim. Conversely, if the dealer consistently obtained reports on vehicles it purchased, but did not do so for the vehicle in question, there may be an inference that the dealer already knew of the vehicle’s problems and wanted to maintain the ability to deny knowledge of the problems.