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Automobile Fraud: 2.6.4.2 Salvage Auctions

Salvage auctions are different than dealer-only automobile auctions. The salvage auction sells wrecked and flood-damaged cars before they are repaired. These auctions may clean up the cars and remove loose parts, but few perform any significant repairs. The auction will generally have the word “salvage” in its name, such as Insurance Salvage Pool. Salvage auctions are often owned by insurance companies.

Automobile Fraud: 2.6.4.3 Public Auctions

Unlike dealer-only auctions, public auctions are open to the public. These auctions lack even the minimal self-regulation that the arbitration system provides for dealer-only auctions, by which dealers are able to object to defective vehicles for a few days after the auction. As a result, public auctions tend to attract vehicles with defects that would make them unattractive to dealers.

Automobile Fraud: 2.6.4.4 Auction Culpability for Car Fraud

This section examines what evidence should be investigated to determine if an auction has special culpability for conspiring to fraudulently pass on a car with a problem history. Section 10.4.5, infra, examines whether an automobile auction is liable for problems with a car if it acts on behalf of an undisclosed principal.

Automobile Fraud: 2.6.5 Insurance Companies

Insurance companies obtain ownership of salvage vehicles and pass them on to junk yards, parts dealers, and automobile rebuilders. The insurance company usually receives more for a salvage vehicle if it can keep a salvage brand and its own name off the title.281 These are the two areas of insurance company culpability that should pose special concern, and they are very easy to uncover.

Automobile Fraud: 2.6.8 Creditor Financing the Sale to the Consumer

The creditor that finances the sale to the consumer may also be liable. Such a creditor is liable if it facilitates a dealer’s fraud by making financing available when it knows or has reason to know of the fraud.296 Ratifying another’s fraud, or knowingly accepting the benefits of it, will also make a secured creditor liable even if it was unaware of the fraud at the time it occurred.297

Automobile Fraud: 2.6.9 Prior Private Owners

Sometimes a prior consumer owner of a vehicle trades it in to a dealer or sells it privately without disclosing known damage or other problems with it. Some of the laws discussed in this treatise do not apply to individual consumers. For example, some state deceptive practices statutes impose obligations only on companies and individuals that regularly engage in consumer transactions. Many state motor vehicle laws apply only to dealers, manufacturers, or auctions.

Automobile Fraud: 2.1.11.1 Introduction

Much of the discussion in this chapter assumes that a vehicle’s identification number (VIN) and title belong to that vehicle, and the focus is on using that information to uncover the vehicle’s true history. But in an increasing number of cases the VIN itself is phony and, at some point in the car’s history, a counterfeit or otherwise bogus title was inserted into the chain of title. The vehicle loses its past identity and assumes a new identity.

Automobile Fraud: 2.1.11.2 Falsifying the VIN

The VIN can appear in numerous places on a vehicle, with those locations varying with the make and model. Depending on the sophistication of the fraud operator some, but not all, of those VINs will be replaced with the false VIN. In general, if a vehicle has a particularly high value, one can expect an astonishingly expert job of falsifying most of these VINs. In other cases, the fraud will be obvious to anyone looking for it.

Automobile Fraud: 2.1.11.3 Falsifying the Title

Typically a falsified VIN will be accompanied by a falsified title. A thief will not be in possession of the vehicle’s title, and the old title will have the true VIN anyway. There are any number of complicated schemes to create a bogus title. One increasingly common approach is to steal blank titles from the state department of motor vehicles (DMV) and then fill them in with fake information. For example, one report found that 1700 blank titles were stolen from the Arizona department of motor vehicles.

Automobile Fraud: 2.1.11.4.1 Examining the VIN on the vehicle

The difficulty of proving and spotting VIN fraud will depend on the sophistication of the fraud operator. Look at the VIN plate that has been replaced. Scratches, warping, and loose rivets are a dead giveaway. Manufacturers also use special rivets, and these should be compared with the rivets used to attach the VIN plate. For example, General Motors cars have a rosette pattern on the VIN plate rivets.

Automobile Fraud: 2.1.12 Used Cars Sold Without Airbags

A growing problem is the sale of used vehicles without disclosing that their air bags are missing. One study estimates that four percent of deployed air bags are not replaced, meaning that about 40,000 cars are returned to the road each year without air bags. This problem has been exacerbated by a past shortage of airbags due to the large number of recalled Takata airbags that had to be replaced in 2018.84

Automobile Fraud: 5.1.1 Scope of This Chapter

This chapter examines federal and, to a lesser extent, state requirements relating to odometers and mileage representations. The federal requirements are found in the Motor Vehicle Information and Cost Savings Act, also referred to as the Truth in Mileage Act or Federal Odometer Act, and referred to herein as the “Federal Act” or “Act.” State odometer statutes also create certain additional requirements not found in the Federal Act.

Automobile Fraud: 5.1.2 Overview of the Federal Act

The Motor Vehicle Information and Cost Savings Act,1 also referred to as the Truth in Mileage Act or Odometer Act or Federal Odometer Act, was passed by Congress in 1972, was amended in 1976, 1986, 1988, 1990, and was recodified in 1994.

Automobile Fraud: 5.1.4 NHTSA Interpretations of the Act

The Federal Act requires the National Highway Traffic Safety Administration (NHTSA) to issue regulations specifying in more detail the Act’s disclosure requirements, and NHTSA has enacted such regulations.20 NHTSA elaborates on its regulations in Supplementary Information that accompanies Federal Register publication of regulatory changes.

Automobile Fraud: 5.2.1 Persons Who Must Comply with the Federal Act

The Federal Act’s provisions apply to all “persons.” The term person includes “corporations, companies, associations, firms, partnerships, societies, joint stock companies and individuals.”24 Consequently, those that must comply with the Act are not limited to dealers or auction companies, or even transferors.25 The term also includes employees or agents of car dealers,26 and even those uninvolved with the sale of vehicles.

Automobile Fraud: 5.2.2 Covered Motor Vehicles

The Federal Act applies to “motor vehicles,” which is generally defined as a vehicle driven by mechanical power and manufactured for use on public streets.29 The National Highway Traffic Safety Administration (NHTSA) exempts certain vehicles from the Act’s disclosure requirements,30 but even a vehicle exempted from the disclosure requirements is still covered by the Act’s other provisions.

Automobile Fraud: 5.2.3 What Is an Odometer?

In general, the Act pertains to vehicles with odometers. The Act defines an odometer as “an instrument for measuring and recording the distance a motor vehicle is driven, but does not include an auxiliary instrument designed to be reset by the operator of the motor vehicle to record mileage of a trip.”34 The Act’s definition of an odometer was amended in 2012 to include not only an “instrument” but also a “system of components.”35

Automobile Fraud: 5.3.1 Disconnecting, Resetting, or Altering Odometers

The Act provides that a person may not “disconnect, reset, or alter or have disconnected, reset, or altered, an odometer of a motor vehicle intending to change the mileage registered by the odometer.”38 Although actual alteration of the odometer must be shown,39 the plaintiff need present only circumstantial and not direct evidence that the defendant did the altering.40 In most cases, courts will infer odometer tampering when:

Automobile Fraud: 5.3.3 Selling of Unlawful Odometer Devices

The Act provides that a person may not “advertise for sale, sell, use, or have installed a device that makes an odometer of a motor vehicle register a mileage different from the mileage the vehicle was driven, as registered by the odometer within the designed tolerance of the manufacturer of the odometer.”58 Common tools used to roll back an odometer, particularly older mechanical odometers, have other legitimate uses, so their sale is unlikely to be found to violate the Act.