‘Flood Cars’ Sneaking Onto the Market After Hurricanes

Andrew Shawcroft was pleased with the new car he bought from an Oregon dealership in 2015: a 2004 Nissan Murano that he paid for with $12,000 in cash. What the 27-year-old high school teacher didn’t realize was that it had all the signs of a “flood car” – a vehicle transported from the East Coast soon after Hurricane Sandy whose electrical system was so badly damaged a mechanic would later find it was in danger of exploding.


“The car only had about 65,000 miles on it so it seemed like a good deal,” Shawcroft recalls. “During the test drive, it was fine. But during a five-hour trip soon afterward, the cruise control didn’t work and the key fob didn’t either. And two weeks later, it broke down completely.”


Shawcroft, who won an arbitration hearing against the dealership, was one of hundreds of thousands of Americans hoodwinked into buying a flood car after hurricanes Katrina, Sandy, Rita, Andrew, and Hugo. Now, in the aftermath of the massive flooding that accompanied Harvey and Irma, federal officials are warning that a new wave of flood cars are likely coming, and that car buyers had best beware.


“Flood cars are a huge problem,” says Rosemary Shahan of Consumers for Auto Responsibility and Safety (CARS). “There’s no way to make them safe. They’re basically rotting from the inside out and are loaded with bacteria and other contaminants that can cause serious health issues. But they will soon be popping up all over the country, including dealerships that will sell some of them as ‘new’ cars.”


Last week, the Department of Justice issued an advisory warning about auto fraud after hurricanes Harvey and Irma. In a September 14 memo, the agency said that it is anticipating “a high volume of flood-damaged automobiles” to be sold by unscrupulous dealers.


“After past hurricane events, authorities reported truckloads of flooded vehicles being taken out of the impact zone where they were dried out, cleaned and readied for sale to unsuspecting consumers in states that do not brand flood vehicles,” the DOJ reported. “Due to Hurricane Harvey and Hurricane Irma, as many as 1 million flood-damaged automobiles could potentially be passed on to unsuspecting buyers in the coming weeks and months.”


Flood damage from the hurricanes damaged thousands of vehicles, ruining their electrical systems and making airbag sensors prone to failure, the agency warned.


Consumers may buy flood cars labeled as “new” or “certified” — sometimes with factory warranties or extended service contracts — and think they are protected, Shahan said.


“They are in for a rude awakening,” she said. “When problems arise, the manufacturers and extended service companies won’t honor the warranties or service contracts, because the flood damage makes them void.”


In many cases, Shahan says insurers, who should be scrapping the cars, instead arrange for them to be towed away and auctioned off to the highest bidder. That amounts to fraud, she said. “It’s quite clear they will be resold fraudulently.”
How to avoid buying a flood carThe Department of Justice advises consumers to find out about a vehicles’ history before making any purchase decisions.


First, check for visible signs of a flood car – Consumer Reports advises looking for the smell of must or mildew (or a heavy detergent smell from someone trying to disguise it), a visible water line on headlights or tail lights, debris or caked-on mud in the engine or rusty unpainted screws under the dashboard.


Next, look up the car’s Vehicle Identification Number, or VIN – its unique identifier – on the National Motor Vehicle Title Information System (NMVTIS). Run by the Bureau of Justice Assistance, the system is designed to prevent concealment of flood damage and other damage in the vehicles’ history. Car insurance companies are required to report to NMVTIS about vehicles they have written off as total losses.


For a few dollars or less, consumers can use an approved provider such as VinSmart or VinAudit.com to check the DOJ’s system to look up crucial information on the vehicle they’re planning to buy, including its title, recent odometer reading and the history of its “brand” – a label used by states to identify a vehicle’s current or past condition. Consumers can protect themselves by avoiding cars labeled “junk,” “salvage,” or “flood.”


“If the car shows up [as a total loss] on the NMVTIS, you don’t need to look further,” says Shahan.


The NMVTIS database won’t reveal all problems, however. It doesn’t include vehicles with major damage below the threshold of “total loss.” Lesser levels of damage, which can also affect safety, may be revealed on other databases like Carfax Inc., an online commercial service that supplies vehicles’ service and repair history. Then again, Carfax may not reveal whether the car is damaged or even a total loss, unless an insurer has voluntarily reported it.


“Reporting to Carfax is voluntary, so insurance companies don’t have to report the car’s history to it,” says Shahan. “All databases have gaps, so it’s important to get an inspection from a good mechanic, too.”


The Nissan that died in two weeksShawcroft is a case in point. Before he bought his Nissan Murano, he looked up the car’s history on Carfax and had seen nothing to worry about. Then two weeks later, it died on Highway I-5 as he was driving it to Portland for a wedding. Stressed and overwhelmed, he ended up missing the rehearsal dinner.


A mechanic he’d known for a long time inspected the car and told him it had so many problems, he couldn’t even give him an estimate for repairs.


Shawcroft contacted the dealership that sold him the car and the dealer offered to take the car back for $2,000 – a $10,000 loss to Shawcroft. Further investigation showed the car had been bought at auction, had its engine replaced and was full of exposed wires and broken tubing, giving it the potential to explode and catch on fire while in use.


Shawcroft’s case went to arbitration, and he and his attorney, John Gear, prevailed in a hearing.
The dealership had to pay for the car, court fees and attorney’s fees for a total of about $30,000.

Shawcroft feels like he had a narrow escape. Not everyone in his situation is so lucky, he says.
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Diana Hembree is senior editorial director of MoneyGeek.com, specializing in insurance issues and a regular contributor to Forbes.com. Co-writer Steve Evans is a regular contributor to MoneyGeek whose work has appeared in Benzinga, Yahoo Finance, MSN Money, and other outlets.

Key Steps to Minimize Risk After Equifax Data Breach

by National Consumer Law Center
September 18, 2017


Determining Whether the Client Has Been Affected

It is very likely that any client with a credit history is one of the 143 million adult Americans whose personal information was exposed in a data breach at Equifax, one of the three major nationwide credit reporting agencies. Equifax has stated that from mid-May through July hackers accessed people’s names, Social Security numbers, birth dates, addresses, and in some instances, driver’s license numbers.

While it is safest to assume that a client has been affected, one way to try to verify this is to go to the Equifax site, www.equifaxsecurity2017.com to see what Equifax says. The site is far from a model of clarity and there are media reports indicating the site is not working properly and questioning its reliability. To use the Equifax site, click on “Potential Impact” at the top of the page and enter the last six numbers of a Social Security number and last name. For most people, the site will respond: “Based on the information provided, we believe that your personal information may have been impacted by this incident.”
The site also mentions enrolling in “TrustedID Premier”—the client need not enroll. TrustedID Premier is a credit monitoring service that is only initially free and that does NOT fully protect a consumer. The site also initially had an arbitration clause, which has since been removed, but there has been significant confusion over the issue. The client can just exit the site.
Risks Implicit in the Data Breach

The hacker’s access to this personal information raises various risks for clients. Perhaps the greatest risk is that an identity thief will take the consumer’s Social Security number, name, address, and birth date, and use this data to open credit accounts in the consumer’s name, sometimes called “new account” identity theft. While a consumer ultimately is not liable for the charges on such unauthorized accounts, resolution of the matter will not be pleasant.
The unpaid credit charges can damage the consumer’s credit report and it may take significant effort to clean that up. The consumer could be subject to debt collection calls and even debt collection lawsuits. If the consumer defaults on such a lawsuit, wages and bank accounts can be garnished. The best measure to prevent new account identity theft is a credit freeze, discussed below.
Another risk is that unauthorized persons might gain access to certain of a consumer’s existing accounts using the hacked information, and direct the business to take certain actions. As a result, consumers should pay careful attention to their existing accounts—reviewing statements, noticing if monthly statements do not arrive, and accessing their accounts online to watch for fraudulent transactions.
Another risk is an identity thief with the consumer’s Social Security information may file a tax return in the name of the consumer, seeking a large refund, and directing that refund to a prepaid card held by the thief. The client filing the legitimate tax return as soon as possible may preempt a scam filing that is submitted later to the IRS. Clients in Florida, Georgia, and the District of Columbia, or who have been previously approved by the IRS, can obtained an Identity Protection PIN from the IRS.
A Credit Freeze Is Recommended to Prevent Identity Theft

The strongest measure a client can take to prevent an identity thief from opening a credit account in the client’s name is to request a credit freeze A freeze prevents creditors from accessing the client’s reporting file or credit score. Creditors that rely on a credit report or score in granting credit are likely to refuse to offer credit if they cannot obtain a report or score. However, a credit freeze does not prevent a thief from making charges on existing accounts. As discussed above, the client should pay close attention to those.
Because a creditor could seek a report from any of the three major national reporting agencies—Equifax, Trans Union, and Experian—the consumer must place a credit freeze with each of the three reporting agencies. Click on the below links to file online or call the below numbers to place the freeze:

• • Equifax—1-800-349-9960 or 1-800-685-1111.
• • Experian—1-888-397-3742
• • TransUnion—1-888-909-8872 or 1-800-680-7289

Fees vary from $5 to $10 for each reporting agency, based on the client’s state, but Equifax states it will waive such fees for now.
There have been reports of consumers having difficulty obtaining freezes due to technical issues with the credit reporting agency websites. Unfortunately, the only advice is for clients to keep trying.
Very Important:

The reporting agency will send a confirmation letter with a unique PIN or password. The client will need to retain the PIN or password in a safe place, because the client will need the PIN to lift the freeze temporarily or permanently.
A freeze does not affect a client’s credit record or credit score, prevent the client from obtaining a free annual or other credit report, or prevent existing creditors or debt collectors from seeing the client’s file. The freeze though will require the client to take an extra step before the client applies for new credit, a new job, an apartment rental, or new insurance.
This extra step is called “thawing” the freeze, either for a specific time or for a specific creditor or other business. Thawing or lifting the freeze usually costs $5 or $10 for each agency. The client will have to thaw the freeze for all three agencies unless the client knows which agency the creditor, employer, landlord or insurer will contact.
If the client takes no steps, the freeze can last forever (seven years in a few states). This may be a good thing, because there is no time limit for when an identity thief will use the client’s Social Security number obtained from Equifax.
A Fraud Alert Is a Lesser Alternative

A fraud alert works somewhat like a freeze, but instead of freezing the account, the fraud alert requires a creditor obtaining the consumer’s credit report or score to take steps to verify the consumer’s identity, such as by calling the consumer. Fraud alerts rely on the creditor’s vigilance, whereas freezes automatically deny access to the creditor, which is why freezes are considered stronger. Fraud alerts also apply not just to applications for new credit, but to requests to issue an additional credit card or increase the credit limit on an existing account.
Three types of fraud alerts are available. The below links provide more information on fraud alerts for each, including links to online forms and phone numbers to apply for fraud alerts with each of the three nationwide reporting agencies:

• • Initial Fraud Alert that works only for 90 days and is renewable.
• • Extended Fraud Alert that works for seven years and requires the client to first file an identity theft report.
• • Active Duty Military Alert applies to those in the military and lasts for one year.

All three types of fraud alerts are free and the client only need contact one of the three nationwide credit reporting companies. That company is required to refer the fraud alert to the other two credit reporting companies.
Credit Monitoring Is Not the Best Option

Clients can purchase credit monitoring services, but these are costly (in response to the data breach, Equifax until November 21 is offering a monitoring service free for the first year). Moreover, credit monitoring alone is not as effective as a freeze. Credit monitoring is supposed to identify new accounts opened in the client’s name or attempts to open an account, but it only does so after the fact and it does not always work successfully. In addition, like freezes and fraud alerts, creditor monitoring does not help to spot fraudulent charges on existing accounts—the client should be advised to carefully review statements on these existing accounts.

Instead of paying for credit monitoring, clients can do this themselves simply by obtaining for free and then reviewing their credit reports. The client has a right at annualcreditreport.com to obtain a free annual report from each of the three national reporting agencies. Stagger the requests every four months from a different agency, and the client can have a continual snapshot of the client’s credit file. In some states and in some circumstances, additional free reports are available, allowing for even more frequent self-monitoring. Requesting a fraud alert also entitles the client to another free report.

Even if an attorney has the client’s authorization to pull a credit report for the client, the client should always be present when applying for the report. The website for security reasons will ask personal information that the attorney is unlikely to know.
Some credit monitoring or identity theft prevention products also allow a consumer to “lock” their credit report. While a “lock” may share some features with a freeze, state laws provide consumers with the right to freeze their credit files, and in some states a violation of that state law is privately enforceable. It is unclear the legal status of a “lock” or even how the “lock” works.

HUD has released the following statement:
 
“It has come to our attention that the Housing Discrimination Hotline has been getting calls from the public about a group using a scam that shows them calling from 1-800-669-9777 (the Discrimination Hotline). HUD has received over 30 calls from the public at this time. One scam tells the person to send $300 to them and that HUD will send them back $9000.  If you receive a phone call related to this from the public, or if you receive such a message on the answering machine, you have been contacted fraudulently

Please report this to the FCC
https://www.fcc.gov/consumers/guides/spoofing-and-caller-id

Thank you for your assistance with this.

HUD appreciates your help in protecting the public from fraud.

HUD hopes that you will want to continue receiving information from HUD.

HUD safeguards our lists and do not rent, sell, or permit the use of our lists by others, at any time, for any reason.”
 

September 6, 2017 In Blog
Congress Should Reject Rep. Loudermilk’s Bill to Gut Basic Privacy Rights

By Paul Bland, Public Justice Executive Director

Credit reporting agencies make a lot of mistakes.  More consumers complain to the Consumer Financial Protection Bureau about the Big Three credit reporting companies (Equifax, Experian and TransUnion) than almost all other financial companies in the U.S. (mostly about false information about consumer debts and financial information). And the problems are often particularly pronounced with agencies that do background checks on consumers for employers, or landlords, and that, in turn, decide whether many Americans can get a job or a place to live.


Sometimes these credit reporting companies have terrible systems, and falsely label hundreds or even thousands of consumers as criminals (or in one recent case, as terrorists or drug dealers). Currently, under the Fair Credit Reporting Act (FCRA), if an agency that gathers information about people has willfully put in place insufficient procedures for assuring accuracy, they have to pay either the damages that the consumer actually suffered or a set amount (up to $1,000) to any consumer about whom they have provided incorrect information. For the latter “statutory damages,” the consumer doesn’t have to prove that they lost money or suffered a physical injury because of the false statement; Congress rightly concluded that it would be better for consumers to get a fair sum as rough justice for the injury. In doing so, Congress was also trying to discourage corporations from willfully making these kinds of mistakes.


One upshot of this rule is that sometimes, when a group of consumers can prove that a corporation had a terrible system that led to widespread errors, and willfully continued to make those errors after the problem was evident, they can join together and bring a class action lawsuit. There have been some cases where this was a very important means of winning recoveries for injured consumers and changing abusive corporate practices.


But now, the FCRA is under attack. H.R. 2359, introduced by Rep. Loudermilk and euphemistically titled the “FCRA Liability Harmonization Act,” is a blatant effort to gut the existing protections that consumers have against false statements by credit reporting agencies. Among other things, H.R. 2359 would put an artificial cap of $500,000 on the amount consumers could recover in a class action, whether it be the damages they actually suffered or statutory damages. So, without knowing how many consumers have been injured by a credit reporting agency’s mistakes, and without knowing anything about the nature of the injury the consumers suffered or the strength of the evidence that the company acted willfully, H.R. 2359 nonetheless sharply limits what can be recovered.


H.R. 2359 also bars consumers from receiving punitive damages, even in cases where there are extreme facts showing that the credit reporting agency had extensive actual knowledge that its statements about a consumer were dramatically false (there have been cases where the agencies have gotten numerous notices and ignored them, among other situations), and even where the consumer’s life was dramatically damaged. The bill undermines the laws protecting consumers’ privacy on two dramatic levels, in ways that are extremely harmful.


Here’s an example of a successful class action that H.R. 2359 would have gutted and made impossible, harming thousands of consumers and letting a corporation lie about consumers’ supposed criminal records: Intellicorp Records, Inc. is a consumer reporting agency that sold an “instant” employment background report called the “Criminal SuperSearch,” over the internet. Companies considering whether to hire a new employee would pay Intellicorp, and get a report saying whether the prospective hire had a criminal record or not. But the problem was, the Criminal SuperSearch results were riddled with inaccuracies. Thousands of people were falsely labelled sex offenders or drug criminals when they were not. Under the FCRA, Intellicorp should have told job applicants about the reports sent to the employer and the employer should have told the applicants they were not being hired based on the reports, but these legal requirements were widely ignored by Intellicorp and employers.


Given Intellicorp and the vast majority of employers ignoring the notice requirements to consumers, consumers generally had no way of knowing that Intellicorp was saying such false things about them. All most consumers ever learned was that she or he applied for a job and was turned down. Employers were telling people “hey, we paid this company $30 and they say you’re a criminal.” They would just say “we aren’t hiring you.”


But a couple of consumers did get wind of the problem, through luck and circumstance. And a class action was filed, Roe v. Intellicorp. After fierce litigation in which a lot of damning documents came to light, the case was settled for more than $18 million, with checks going to thousands of consumers who’d been falsely labeled criminals. In addition, Intellicorp also made a variety of changes to make its product far more accurate. The settlement was approved by a federal judge in Cleveland. This is a perfect example of how a class action can help consumers: a whole bunch of injured people got a substantial recovery, and a corporate bad actor cleaned up its act.


But Rep. Loudermilk, strongly supported by the credit reporting industry, would make a case like Roe v. Intellicorp impossible. Instead of recovering $18 million for thousands of cheated consumers, H.R. 2359 would have limited the class’s recovery to $500,000. With that kind of limited liability, it’s likely that it would have been impossible for the consumers to bring a case (where they would have to prove that the defendant knew what the law is and broke it anyway, and where they would need complicated expert testimony to set out why Intellicorp’s system was poor, and in order to go through its complex computer system to identify the injured consumers).


In what world does it make sense to say that consumers would be better off letting a corporation like Intellicorp say false things about them, and make it impossible for people to get jobs because the agency was telling employers that they were criminals when they were not? The answer is simple: it makes no sense for those who were wronged. It only makes sense for the credit reporting agency, which would rather not have consumers hold it accountable when it breaks the law.


In the end, the only “harmonization” this wrong-headed bill would bring about is between lobbyists for the credit reporting industry and the lawmakers, like Rep. Loudermilk, who pocketed their campaign contributions while ignoring the impact their proposals will have on workers and consumers. Indeed, it would virtually wipe away the “Fair” part of the “Fair Credit Reporting Act,” and Congress should never let it see the light of day.

When Gary Childress of Raleigh, North Carolina learned in July 2008 that he was being deployed to Iraq as part of his Army National Guard service, one of the things he did before reporting for duty was to contact Bank of America, where he and his wife Anne had a credit card account. He wanted to let the bank know that he was on active-duty status because under the Servicemembers Civil Relief Act or SCRA, a law passed by Congress in 2003 to reduce burdens on military families, all interest rates on debts that servicemembers owed before going on active status must be reduced to 6%. This interest rate protection was significant to the Childresses, who owed over $5000 on their Bank of America credit card with an interest rate of around 27% when Gary left for Iraq.

Bank of America began sending Anne Childress monthly statements suggesting that the interest rate on the account had been reduced to 6% as the SCRA requires. But according to a lawsuit the bank just settled in federal court in North Carolina, these statements were deceptive. In fact, the bank was actually continuing to charge a much higher interest rate. And the Childresses were not alone; the bank’s own internal audits, as well as an investigation conducted by the Office Of the Comptroller of the Currency, revealed that nearly 130,000 servicemembers and their families were affected by Bank of America’s illegal and deceptive practices, which went on for over a decade.

One of the other families affected was Jackie and Raymond Love of Garrett, Indiana, who had a mortgage with Bank of America with an interest rate of 7% when Raymond was deployed to Iraq in 2004. Like the Childresses, the Loves asked Bank of America to reduce their monthly payments to 6% in accordance with the SCRA, and Bank of America began issuing monthly statements suggesting that it had complied, but later investigations showed that the Loves’ mortgage rate was not in fact reduced. What’s worse, the formula Bank of America used to make it appear that the Loves’ rate had been reduced to 6%, known as interest subsidization, caused the Loves’ mortgage payments to be recorded as late even when they paid on time, which in turn damaged their credit score. The Loves filed for bankruptcy in 2011, and their house was sold at auction.

​In 2015, the Childresses and others fiiled a class action lawsuit. And in July of 2017, they reached a settlement with Bank of America that will award nearly $30 million, after fees and expenses, to the approximately 130,000 military families who were overcharged and deceived by the bank. The cheated servicemembers will not need to file claims in order to receive compensation under the settlement; the amount owed to each class member will be calculated based on Bank of America’s records, and checks will be sent out automatically. If any class members can’t be found or their checks go uncashed, the remaining funds will be donated to nonprofits that provide assistance to servicemebers and veterans.

This class action lawsuit was possible because Bank of America does not force its credit card customers to enter into arbitration provisions that ban class actions. But most banks do. In fact, in a comprehensive report to Congress in 2015, the Consumer Financial Protection Bureau (CFPB) found that over half of credit card contracts include provisions requiring customers to settle disputes in private arbitration rather than in court, and nearly all of those provisions ban class actions. Moreover, the CFPB’s study found that large banks were far more likely than small banks and credit unions to include forced arbitration provisions and class action bans in their account agreements.The CFPB study found that where bank arbitration clauses ban class actions, only an infinitesimal number of consumers ever go to arbitration; more than 99.9% of cases just disappear and no consumers receive anything.

So if another large bank systematically overcharged servicemembers interest in violation of the SCRA and lied about it like Bank of America did, those affected would not have been able to join together in a class action lawsuit like the Childresses and Loves. Instead, they would each be forced to go up against the bank by themselves in a secretive arbitration proceeding, where confidentiality rules would prevent each servicemember from sharing information with others. Given the many demands on military families’ time, most people affected by such a scheme would never even find out that their rights had been violated, let alone pursue in arbitration the money they were owed. And instead of paying nearly $30 million to around 130,000 military families as Bank of America did, a bank with an arbitration provision banning class actions would have paid nothing, or at most might only have to pay out a few thousand dollars to a handful of servicemembers if any went forward with arbitration.

Now, the Senate will soon be asked to decide whether it is better if Americans can enforce consumer protection laws, as the servicemembers in these cases did, or if it’s better to let banks pocket millions of dollars in illegal profits at the expense of those who defend our nation. 

That’s because, on July 19, 2017, the Consumer Financial Protection Bureau issued its long-awaited rule that prohibits banks and payday lenders from using forced arbitration clauses to strip consumers of their ability to bring class actions against them. If that rule is permitted to go into effect, all military families, and all American consumers, will be able to join together in a class action lawsuit like the Childresses and others did if they were harmed by widespread illegal conduct in the financial sector, no matter who their lender happens to be. Unfortunately, on July 25, the U.S. House of Representatives voted to repeal the CFPB’s rule under the Congressional Review Act, a law that allows Congress to throw out any federal regulation issued within the last sixty days. Big banks want the Senate to follow suit, and pundits suggest that the vote will be close. 

So it’s time for Senators to decide whose side they’re on: big Wall street banks who don’t want consumers to be able to hold them accountable in court for their actions, or military families and other everyday Americans who want to be able to join forces and fight back when banks rip them off. America is watching.

Paul Bland, Contributor Executive Director, Public Justice

This post was co-authored by Karla Gilbride, Cartwright-Baron Staff Attorney at Public Justice