ROBERT SIEGEL, host:
Over the past year, the federal government has renewed its interest in a program designed to keep flood-damaged cars off used car lots. The system was created by federal law 15 years ago but it was never fully implemented. After Hurricane Katrina, the issue came to light again with damaged cars being passed off as mechanically sound.
NPR's Jeff Brady has this update.
JEFF BRADY: If that 1992 law had been enforced, it's possible Mark and Megan Johnson(ph) of Sycamore, Illinois, wouldn't be stuck with a gold Pontiac that doesn't run very well. The Johnsons bought it a year ago because Marc needed a reliable commuter car and at $13,000, the Pontiac seemed like a good deal.
Mr. MARK JOHNSON (Resident, Sycamore, Illinois): I mean, we took it for a drive, you know, put the spurs to her so to speak and you know, she drove.
BRADY: I don't suppose you ever imagined that being on the outskirts of Chicago, you are going to be a victim of Hurricane Katrina.
Ms. MEGAN JOHNSON (Resident, Sycamore, Illinois): No, no, definitely not. I mean, it's just - it's so far removed and even you know, Katrina happened probably, what? A year ago before we even purchase this car, right?
Mr. JOHNSONS: Pretty close, yeah.
(Soundbite of car engine)
BRADY: The car often won't start on the first try and sometimes it just stops in the middle of the road without warning. The mechanic noticed a faint musty smell. Marc Johnson says a look under the hood confirmed the mechanic suspicion this is a Katrina car.
Mr. JOHNSONS: You don't notice these things until a week, two weeks later and by that time, the paperwork's already signed. The dealership is telling you, to your face, that you can't return it under any circumstances.
BRADY: The Johnsons are suing the dealer - there's little else they can do. The car is worth a third of what they paid for it. They can't afford to buy a new one and Marc still needs to get to work so he's driving a car that may not be safe.
Mr. BILL HUDDLE(ph) (Lawyer): From a lawyer's point of view, you had a classic rip-off situation.
BRADY: Bill Huddle, represents the Johnsons. He says the car was shipped from Louisiana to a Michigan auction and finally ended up at a local dealer. Somewhere along the way, the note on the title that said the car was flooded, disappeared.
Mr. HUDDLE: What is really essentially wrong with the system is that there's no written national registration of titles. Each state has its own title registration system.
BRADY: A scam artist can register a car in a series of states with different rules until the flood warning is gone. This is also done with wrecked cars and even stolen ones. The practice is called title washing.
In 1992, Congress passed a law creating the National Motor Vehicle Title Information System or NMVITS. It would've linked all the state DMVS, essentially creating a national system. Title washing would've become very difficult because as soon as one state learned a car was stolen or flooded, all the states would know.
Deepak Gupta with the Consumer Group Public Citizens says Justice Department officials at that time were skeptical NMVITS would work. But a little research showed the system was a bargain.
Mr. DEEPAK GUPTA (Staff Attorney, Public Citizen Litigation Group): And the Justice Department's own cost benefit analysis said this isn't even a close question. That, you know, the maximum investment would be $22 million and that the benefits would be $11 billion.
BRADY: Consumer advocates suspect the insurance industry worked behind the scenes to cripple NMVITS in the 1990s, though they can't prove this. Insurers take ownership of flooded and towed cars, and if they can't resell them, they could lose millions.
Ryan Toole with the FBI says 10 years ago, there just wasn't a lot of energy behind getting NMVITS up and running, but that's changing.
Mr. RYAN TOOLE (FBI Agent): And we have a very, very dedicated group of law enforcement officers from around the country that are very, very much in favor of this because they see the benefits of it and they see that, you know, the federal government is very, very serious about making it happen this time.
JEFF BRADY: Toole says the FBI is finishing up rules to fully implement NMVITS and the Justice Department is making grants available to states so they can join the system. Consumer advocates say they're encouraged but a bit skeptical given the slow pace up to now.
Jeff Brady, NPR News.
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