Petition for Approval of Alternate Odometer Disclosure Requirements

Petition for Approval of Alternate Odometer Disclosure Requirements

Petition for Approval of Alternate Odometer Disclosure Requirements

O. Kevin Vincent
National Highway Traffic Safety Administration
August 20, 2012

[Federal Register Volume 77, Number 161 (Monday, August 20, 2012)]
[Proposed Rules]
[Pages 50071-50077]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20381]

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 580

[Docket NHTSA-2012-0122; Notice 1]

Petition for Approval of Alternate Odometer Disclosure
Requirements

AGENCY: National Highway Traffic Safety Administration (NHTSA), DOT.

ACTION: Notice of initial determination.

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SUMMARY: The State of Arizona has petitioned for approval of alternate
requirements to certain requirements under Federal odometer law. NHTSA
initially denies Arizona's petition. This notice is not a final agency
action.

DATES: Comments are due no later than September 19, 2012.

ADDRESSES: You may submit comments [identified by DOT Docket ID Number
NHTSA-2012-0122] by any of the following methods:
Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting
comments.
Mail: Docket Management Facility: U.S. Department of
Transportation, 1200 New Jersey Avenue SE., West Building Ground Floor,
Room W12-140, Washington, DC 20590-0001.
Hand Delivery or Courier: West Building Ground Floor, Room
W12-140, 1200 New Jersey Avenue SE., between 9 a.m. and 5 p.m. ET,
Monday through Friday, except Federal holidays.
Fax: 202-493-2251.
Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Public
Participation heading of the Supplementary Information section of this
document. Note that all comments received will be posted without change
to http://www.regulations.gov, including any personal information
provided. Please see the Privacy Act heading below.
Privacy Act: Anyone is able to search the electronic form of all
comments received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review DOT's
complete Privacy Act Statement in the Federal Register published on
April 11, 2000 (65 FR 19477-78) or you may visit http://DocketInfo.dot.gov.
Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov or the street
address listed above. Follow the online instructions for accessing the
dockets.

FOR FURTHER INFORMATION CONTACT: Kerry Kolodziej, Office of the Chief
Counsel, National Highway Traffic Safety Administration, 1200 New
Jersey Avenue SE., Washington, DC 20590 (Telephone: 202-366-5263) (Fax:
202-366-3820).

SUPPLEMENTARY INFORMATION:

I. Introduction

Federal odometer law, which is largely based on the Motor Vehicle
Information and Cost Savings Act (Cost Savings Act),\1\ as amended by
the Truth in Mileage Act of 1986 (TIMA),\2\ contains a number of
provisions to limit odometer fraud and ensure that the buyer of a motor
vehicle knows the true mileage of the vehicle. The Cost Savings Act
requires the Secretary of Transportation to promulgate regulations
requiring the transferor (seller) of a motor vehicle to provide a
written statement of the vehicle's mileage registered on the odometer
to the transferee (buyer) in connection with the transfer of ownership.
This written statement is generally referred to as the odometer
disclosure statement. Further, under TIMA, vehicle titles themselves
must have a space for the odometer disclosure statement and States are
prohibited from licensing vehicles unless a valid odometer disclosure
statement on the title is signed and dated by the transferor. Federal
law also contains document retention requirements for odometer
disclosure statements.
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\1\ Sec. 401-13, Public Law 92-513, 86 Stat. 961-63.
\2\ Sec. 1-3, Public Law 99-579, 100 Stat. 3309.
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TIMA's motor vehicle mileage disclosure requirements apply in a
State unless the State has alternate

[[Page 50072]]

requirements approved by the Secretary. The Secretary has delegated
administration of the odometer program to NHTSA. Therefore, a State may
petition NHTSA for approval of such alternate odometer disclosure
requirements. 49 CFR 580.11 governs petitions for approval of alternate
disclosure requirements.
Seeking to implement an electronic odometer disclosure submittal
process for licensed dealers, the State of Arizona petitions for
approval of alternate odometer disclosure requirements.
As discussed below, NHTSA's initial assessment is that Arizona's
petition does not satisfy the requirements for a petition for approval
of alternate disclosure requirements as set forth at 49 CFR 580.11(b),
and that Arizona's proposed alternate odometer disclosure requirements
are not consistent with the purpose of the disclosure required by
Federal odometer law. For these reasons, as explained below, NHTSA
preliminarily denies Arizona's petition.

II. Statutory Background and Purposes

A. Statutory Background

NHTSA reviewed the statutory background of Federal odometer law in
its consideration of petitions for approval of alternate odometer
disclosure requirements by Virginia, Texas, Wisconsin, Florida, and New
York. See 74 FR 643, Jan. 7, 2009 (granting Virginia's petition); 75 FR
20925, Apr. 22, 2010 (granting Texas' petition); 76 FR 1367, Jan. 10,
2011 (granting Wisconsin's petition in part); 77 FR 36935, June 20,
2012 (granting Florida's petition in part, and denying Florida's
petition in part); see also 76 FR 65485, Oct. 21, 2011 (initial
determination denying New York's petition). The statutory background of
the Cost Savings Act and TIMA, as related to odometer disclosure
requirements, other than in the transfer of leased vehicles and
vehicles subject to liens where a power of attorney is used, is
discussed at length in NHTSA's final determination granting Virginia's
petition. 74 FR 643; see also 77 FR 36935; 76 FR 48101, Aug. 8, 2011
(addressing leased vehicles and powers of attorney).\3\ A brief summary
of the statutory background of Federal odometer law follows.
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\3\ Arizona's petition does not address leased vehicles or
powers of attorney.
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In 1972, Congress enacted the Cost Savings Act to establish
safeguards for consumers which prohibited odometer tampering. Among
other things, the Cost Savings Act made it unlawful to alter an
odometer's mileage, and required written disclosure of odometer mileage
in connection with any transfer of ownership of a motor vehicle.\4\
However, the Cost Savings Act had a number of shortcomings, which are
discussed below.
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\4\ In 1976, Congress amended the odometer disclosure provisions
in the Cost Savings Act to provide further protections to purchasers
from unscrupulous car dealers. See Public Law 94-364, 90 Stat. 981
(1976).
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In 1986, Congress enacted TIMA to address the Cost Savings Act's
shortcomings. Congress was specifically concerned with addressing
odometer fraud in the commercial market, and noted that used car
auctions, distributors, wholesalers, dealers, and used car lots of new
car dealers often may be directly involved in fraud.\5\ TIMA also added
a provision to the Cost Savings Act, allowing States to obtain approval
for alternate odometer disclosure requirements. Pursuant to Section
408(f) of the Cost Savings Act, as amended by TIMA: The Secretary shall
approve alternate motor vehicle mileage disclosure requirements
submitted by a State unless the Secretary determines that such
requirements are not consistent with the purpose of the disclosure
required by subsection (d) or (e), as the case may be.
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\5\ S. Rep. 99-47, at 2 (1985), reprinted in 1986 U.S.C.C.A.N.
5620, 5621.
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In 1994, in the course of the recodification of various laws
pertaining to the Department of Transportation, the Cost Savings Act,
as amended, was repealed, reenacted, and recodified without substantive
change. See Public Law 103-272, 108 Stat. 745, 1048-1056, 1379, 1387
(1994). The odometer statute is now codified at 49 U.S.C. 32701 et seq.
Section 408(a) of the Cost Savings Act was recodified at 49 U.S.C.
32705(a). Sections 408(d) and (e), which were added by TIMA, with
subsequent amendments, were recodified at 49 U.S.C. 32705(b) and (c).
The provisions pertaining to approval of State alternate motor vehicle
mileage disclosure requirements were recodified at 49 U.S.C. 32705(d).

B. Statutory Purposes

In our final determinations, after notice and comment, granting the
petitions for approval of alternate odometer disclosure requirements of
Virginia, Texas, and, in part, Wisconsin and Florida, we identified the
statutory purposes of TIMA.\6\ 74 FR 643; 75 FR 20925; 76 FR 1367; 77
FR 36935. These purposes are summarized below.
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\6\ Any statements which refer to the ``purposes of TIMA'' or a
``purpose of TIMA'' should be interpreted to refer to the purpose of
the disclosure required by subsection (d) or (e), as the case may
be, as stated in Section 408 of the Cost Savings Act, as amended by
TIMA.
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One purpose of TIMA was to ensure that the form of the odometer
disclosure precluded odometer fraud. The Cost Savings Act did not
require odometer disclosures to be made on a vehicle's title. This
created a potential for odometer fraud, because a transferor could
easily alter the odometer disclosure or provide a new statement with
different mileage.\7\ TIMA addressed this shortcoming of the Cost
Savings Act by requiring mileage disclosures to be on a vehicle's title
instead of a separate document. Titles also had to contain space for
the seller's attested mileage disclosure.
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\7\ See S. Rep. 99-47, at 2-3 (1985), reprinted in 1986
U.S.C.C.A.N. 5620, 5621-22; H. Rep. 99-833, at 33 (1986).
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A second purpose of TIMA was to prevent odometer fraud by processes
and mechanisms making the disclosure of an odometer's mileage on the
title a condition of the application for a title, and a requirement for
the title issued by the State.\8\ This was intended to eliminate or
significantly reduce abuses associated with lack of control of the
titling process.\9\ Prior to TIMA, odometer fraud was facilitated by
the ability of transferees to apply for titles without presenting the
transferor's title with the disclosure.
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\8\ See S. Rep. 99-47, at 2-3 (1985), reprinted in 1986
U.S.C.C.A.N. 5620, 5621-22; H. Rep. 99-833, at 18, 32 (1986).
\9\ Sec. 2, Public Law 99-579, 100 Stat. 3309.
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Third, TIMA sought to prevent alterations of disclosures on titles
and to preclude counterfeit titles through secure processes. Prior to
TIMA, titles could be printed through non-secure processes, and could
be easily altered or laundered.\10\ To address this shortcoming of the
Cost Savings Act, TIMA required titles to be printed by means of a
secure printing process or protected by other secure processes.\11\
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\10\ See S. Rep. 99-47, at 3 (1985), reprinted in 1986
U.S.C.C.A.N. 5620, 5622.
\11\ See H. Rep. 99-833, at 18, 33 (1986).
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A fourth purpose of TIMA was to create a record of the mileage on
vehicles and a paper trail.\12\ This would allow consumers to be better
informed and provide a mechanism for tracing odometer tampering and
prosecuting violators. Under the Cost Savings Act, prior to TIMA,
odometer disclosures could be made on pieces of paper and did not have
to be submitted with new title applications. TIMA required new
applications for title to include the transferor's mileage disclosure
statement on the title, creating a permanent record that could easily
be

[[Page 50073]]

checked by subsequent owners or law enforcement officials. This record
would provide critical snapshots of the vehicle's mileage at every
transfer, which are fundamental links in the paper trail.
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\12\ See H. Rep. 99-833, at 18, 33 (1986).
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Finally, the general purpose of TIMA was to protect consumers by
ensuring that they received valid representations of the vehicle's
actual mileage at the time of transfer based on odometer
disclosures.\13\ The TIMA amendments were directed at resolving
shortcomings in the Cost Savings Act.
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\13\ See Sec. 1-3, Public Law 99-579, 100 Stat. 3309.
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III. The Arizona Petition

Arizona seeks to implement an electronic odometer disclosure
submittal process for licensed motor vehicle dealers, and petitions
NHTSA for approval of alternate odometer disclosure requirements. The
petition requests NHTSA to allow use of alternate odometer disclosure
procedures in two situations.
As background, according to information posted on the Arizona
Department of Transportation (ADOT) Web site, there are over 700 new
motor vehicle dealers licensed in Arizona and over 1,400 used motor
vehicle dealers licensed in Arizona.\14\ The Arizona Automobile Dealers
Association, which represents new car and truck franchised dealers, has
over 250 members.\15\ The Arizona Independent Automobile Dealers
Association, which calls itself the voice of the used motor vehicle
industry and represents non-franchised motor vehicle dealers in
Arizona, has 215 registered dealers.\16\
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\14\ http://www.azdot.gov/mvd/MotorVehicleDealers/LicensedDealers.asp (Arizona Licensed Motor Vehicle Dealer Listing,
June 2012).
\15\ http://www.aada.com/.
\16\ See http://www.aiada.net/.
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A. Arizona Law Regarding Dealers

Since Arizona's petition addresses the transfer of used motor
vehicles to and from licensed Arizona dealers, we briefly describe
certain aspects of Arizona law relevant to such transfers. Currently,
pursuant to the Arizona Revised Statutes, a dealer shall not offer for
sale or sell a used motor vehicle until the dealer has obtained a
certificate of title to the motor vehicle.\17\ The Arizona
Administrative Code further requires that the dealer's name shall be
recorded on a title certificate as transferee or purchaser.\18\ A
certificate of title in Arizona includes space for ownership change
information, including an odometer mileage disclosure statement, and
dealer reassignment information.\19\
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\17\ Ariz. Rev. Stat. 28-4409(A)(2).
\18\ Ariz. Admin. Code R17-5-404
\19\ Ariz. Admin. Code R17-4-202(B).
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Arizona's petition does not identify any proposed changes to
applicable State law.

B. Arizona's Proposed Projects

Arizona proposes that licensed dealers meeting specified technical
requirements would electronically scan and upload documents to ADOT,
including documents used to make odometer disclosures, rather than
mailing or hand-carrying the documents to ADOT. Based on this
description, it is our understanding that Arizona's proposals would
only apply to vehicles acquired by licensed Arizona dealers and sold to
in-state buyers.
According to the petition, dealers would scan documents using a
specified format and resolution, and would encrypt the scanned images.
Dealers would transmit the images to ADOT through a secure system using
account codes, user/group profiles, and passwords.\20\ ADOT would have
the ability to sanction participating dealers, including revoking their
ability to electronically submit documents to ADOT. ADOT would retain
electronic files in a document management system, and dealers would be
required to retain hard copies of the documents submitted in accordance
with retention periods specified by Federal and Arizona law.
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\20\ The petition does not describe whether employees of a
dealer would share information to access the ADOT system or whether
each employee of a dealer would have unique access information, so
that a submission could be traced to a specific individual.
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Both of Arizona's proposed projects would utilize odometer
disclosures made on a form described in the petition as a Secure
Odometer Disclosure.\21\ An example of a completed Secure Odometer
Disclosure form is attached to Arizona's petition. The example form
includes ADOT identifying information in the upper left-hand corner and
indicates that it is void if altered or erased. Arizona's petition
describes the form as using a watermark displaying the word VOID when
scanned. This feature is visible on the example provided; the word VOID
appears repeatedly across the entire form. The form does not have any
unique identifier, such as a serial number.
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\21\ We note that, based on the example form, a Secure Odometer
Disclosure would be used solely for the purpose of making an
odometer disclosure. It would not transfer ownership of a vehicle.
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The top section of the proposed Secure Odometer Disclosure form
includes spaces for Vehicle Identification Number (VIN), Year, Make,
Body Style, Buyer Name, and Title Number. The form also appears to
include a space for Sale Date; however, the example attached to
Arizona's petition is completed with the sale state (AZ) in that space.
The next section of the Secure Odometer Disclosure form includes
the following statement: ``Federal and State law require that the
seller states the mileage in connection with the transfer of ownership.
Failure to complete the odometer statement, or providing a false
statement, may result in fines and/or imprisonment.'' Below that
statement is a space for Odometer Reading and boxes to check to
indicate whether the odometer reading is in miles or kilometers. There
is also a box to check to indicate ``Mileage in excess of odometer
mechanical limits,'' and a box to check to indicate ``NOT Actual
Mileage, WARNING--ODOMETER DISCREPANCY.'' Below, the form states: ``I
certify to the best of my knowledge that the odometer reading is the
actual mileage unless one of the boxes above is checked.''
The following section of the Secure Odometer Disclosure form
includes spaces for Seller/Dealership name (printed), Dealer Number,
Street Address, City, State, Zip, Agent Name, and Seller/Agent
Signature.
At the bottom of the Secure Odometer Disclosure form is the
following statement: ``I am aware of the above odometer certification
made by the seller.'' This statement is followed by spaces for Buyer
Name (printed) and Buyer Signature.
The Secure Odometer Disclosure form would be completed and signed
by hand. A licensed automobile dealer would scan and electronically
submit the completed Secure Odometer Disclosure form, along with other
documents as described below, to ADOT.
1. Project One
For purposes of the first project addressed by the petition
(Project One), Arizona seeks to institute alternate odometer disclosure
requirements for a trade in or sale of a used vehicle to a licensed
dealer when there is no paper title \22\ and the vehicle is subject to
electronic lien(s).
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\22\ It appears that there is an electronic title. The petition
describes Arizona as having state laws designed to facilitate a
nearly paperless vehicle title system, but does not provide copies
of, cite to, or otherwise describe those laws.
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According to the petition, the transferor would make an odometer
disclosure to the dealer on a Secure Odometer Disclosure form, signed
by both parties. The dealer would then

[[Page 50074]]

apply for a title in its own name by scanning and electronically
submitting a title application, Secure Odometer Disclosure form, and
other supporting documents to ADOT.
The petition specifies that the dealer would make an odometer
disclosure on the title at the time it resells the vehicle. Petition at
p. 2. While this indicates that ADOT would send the dealer a new paper
title after the transfer of the vehicle to the dealer is complete,
another portion of the petition describing the process states that the
selling dealer would make an odometer disclosure on a Secure Odometer
Disclosure form. Petition at p. 3. According to this portion of the
petition, the dealer would then scan and electronically submit the
completed Secure Odometer Disclosure form and other supporting
documents to ADOT.\23\ The petition appears to propose that the dealer
would scan and electronically submit a Secure Odometer Disclosure, but
not the title, to ADOT following the dealer's sale of the vehicle.\24\
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\23\ The purpose of this submission is not clear from the
petition. Unlike the submission following the initial transaction in
Project One (the transfer of a vehicle to the dealer), the petition
does not specify that the dealer would submit a title application
along with the Secure Odometer Disclosure form.
\24\ This is unlike the petition's description of the dealer's
electronic submission to ADOT for purposes of Project Two, discussed
below.
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The dealer would retain the original Secure Odometer Disclosure
forms for the retention periods specified by Federal and Arizona law.
2. Project Two
Arizona's petition also describes a second project (Project Two),
for which it seeks alternate odometer disclosure requirements. Project
Two would apply to a licensed dealer's sale of a used motor vehicle
that had a paper title at the time it was transferred (traded in or
sold) to a licensed dealer.
The petition states that the vehicle would be resold by a dealer
using the paper title from the transferor. It appears, based on this
description and the requirements of Arizona law that a dealer's name
shall be recorded on a title certificate as transferee or purchaser and
that a title include space for dealer reassignment information, that
the dealer would make an odometer disclosure on the paper title at the
time it resells the vehicle.\25\ However, the petition also specifies
that if the dealer applies for a new title in the name of the vehicle
purchaser, the dealer and purchaser would complete a Secure Odometer
Disclosure form. The dealer would then scan and electronically submit a
title application, the paper title,\26\ the Secure Odometer Disclosure
form, and supporting documents to ADOT. The dealer would retain the
original documents (including the original paper title) for the
retention periods specified by Federal and Arizona law. According to
the petition, a new title would be sent to the buyer if there is no
lien on the vehicle. If there is a lien, both the lien and the title
would be maintained as electronic records by ADOT.
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\25\ Arizona's petition is not detailed and at points is not
clear. To the extent our reading of the petition is inconsistent
with Arizona's intent, we invite Arizona to clarify its proposals in
comments.
\26\ It appears that the dealer would be required to submit
scans of both the front and back of the paper title.
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C. Arizona's Position on Meeting the Statutory Purposes

Arizona's petition asserts that its proposals are consistent with
the purposes of Federal odometer law and regulations.\27\ Arizona
identifies the purposes of Chapter 327 of Title 49 as a whole.
Specifically, those purposes are to prohibit tampering with motor
vehicle odometers, and to provide safeguards to protect purchasers in
the sale of motor vehicles with altered or reset odometers. 49 U.S.C.
32701(b). Arizona also identifies the purposes of Federal regulations
pertaining to odometer disclosure requirements, as set forth at 49 CFR
580.2. Those purposes, other than for leased vehicles, are to provide
purchasers of motor vehicles with odometer information to assist them
in determining a vehicle's condition and value by making the disclosure
of a vehicle's mileage a condition of title, and to preserve records
that are needed for the proper investigation of possible violations of
the Cost Savings Act and any subsequent prosecutorial, adjudicative, or
other action.
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\27\ As discussed above, pursuant to Section 408 of the Cost
Savings Act, as amended by TIMA: The Secretary shall approve
alternate motor vehicle mileage disclosure requirements submitted by
a State unless the Secretary determines that such requirements are
not consistent with the purpose of the disclosure required by
subsection (d) or (e), as the case may be.
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Arizona asserts that its proposed projects support the enforcement
of Federal odometer law by ensuring that a Secure Odometer Disclosure
form is submitted and transmitted electronically by a dealer to a
certified ADOT processor. Arizona also states that a watermark
displaying the word VOID across the Secure Odometer Disclosure form
when scanned will serve as a secure measure to submission of a
fraudulent form. Arizona also asserts that the processes it proposes
will offer greater protections against potential odometer fraud than
does 49 CFR part 580.

IV. Analysis

A. Requirements for a Petition Under 49 CFR 580.11(b)

As a preliminary matter, NHTSA's initial determination is that
Arizona's petition does not satisfy the requirements for a petition for
approval of alternate disclosure requirements, set forth in 49 CFR
580.11(b).
First, the petition does not set forth the motor vehicle disclosure
requirements in effect in the State, including a copy of the applicable
State law or regulation, as required by 49 CFR 580.11(b)(3). We
reviewed Arizona law and discussed relevant provisions above.\28\ The
petition states that Arizona is requesting to change the manner in
which documents are submitted to and maintained by the State, and not
the manner in which odometer disclosures are made.\29\ However, we
found no reference to a Secure Odometer Disclosure in the Arizona
Revised Statutes or Arizona Administrative Code.
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\28\ To the extent Arizona believes additional provisions
(including any proposed new provisions) are relevant, we invite
Arizona to set forth and include a copy of such provisions in
comments.
\29\ The petition asserts that, under both of the proposed
projects, all required odometer disclosures will continue to be made
in the manner required by 49 CFR part 580. We note that this
assertion is illogical; if all required odometer disclosures will be
made in the manner required by 49 CFR PART 580 then Arizona has no
need to petition for approval of alternate disclosure requirements.
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Second, Arizona's petition does not adequately demonstrate that the
State motor vehicle requirements are consistent with the purposes of
the Motor Vehicle Information and Cost Savings Act. See 49 CFR
580.11(b)(4). As noted above, Section 408(f) of the Cost Savings Act,
as added by TIMA, states in pertinent part that the Secretary shall
approve alternate motor vehicle mileage disclosure requirements
submitted by a State unless the Secretary determines that such
requirements are not consistent with the purpose of the disclosure
required by subsection (d) or (e), as the case may be.\30\ The petition
includes a very

[[Page 50075]]

limited discussion of how, according to Arizona, its proposals are
consistent with the statutory purposes of Section 408(d).\31\ The
petition specifically describes the proposed method of electronically
submitting a Secure Odometer Disclosure form to ADOT and the use of a
watermark as supporting the purposes of the law. However, Arizona's
petition does not specifically address the purposes of Section 408(d)
of the Cost Savings Act, even though NHTSA had specifically addressed
this in prior Federal Register notices. Arizona also does not explain
how use of a Secure Odometer Disclosure form to make an odometer
disclosure is consistent with the relevant purposes.
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\30\ We note that the statute predicates approval of alternate
motor vehicle mileage disclosure requirements submitted by a State
on their consistency with the purpose of the statutory disclosure
requirements. Most States that have petitioned for approval of
alternate odometer disclosure requirement have specifically
addressed the purposes of TIMA related to the disclosure
requirements, as set forth above. See 76 FR 1367; 76 FR 65485; 77 FR
36935. Instead of addressing the purpose of the statutory disclosure
requirements, Arizona instead addressed the broader, overall
purposes of Federal odometer law (which originate from Section 401
of the 1972 law) and the purposes of Federal odometer regulations.
\31\ We do not address Section 408(e), which concerned leased
motor vehicles, because Arizona's petition does not address leased
motor vehicles.
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B. Arizona's Proposal in Light of TIMA's Purposes

In view of the initial, non-final, nature of our assessment of
whether Arizona's petition meets the requirements for a petition, we
now proceed to our initial assessment of whether Arizona's proposed
projects satisfy TIMA's purposes. We address Arizona's two proposed
projects in turn.
1. Project One
NHTSA has initially determined that Project One would not satisfy
the first purpose of TIMA, to ensure that the form of the odometer
disclosure precludes odometer fraud. TIMA addressed the potential for
fraud by requiring mileage disclosures to be on a vehicle's title
instead of a separate document. Project One is inconsistent with this
purpose because it proposes using a Secure Odometer Disclosure form,
separate \32\ from the vehicle's title, to make an odometer disclosure.
First, a transferor would use a Secure Odometer Disclosure form to make
an odometer disclosure upon trading in or selling the vehicle to a
dealer.\33\ Second, a dealer, who had obtained title in its own name
for the vehicle, would apparently make an odometer disclosure on a
Secure Odometer Disclosure at the time it resells the vehicle.\34\ An
unscrupulous person could discard a Secure Odometer Disclosure form
signed by both parties and create another Secure Odometer Disclosure
form bearing an inaccurate odometer disclosure prior to submitting it
to ADOT.
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\32\ NHTSA has approved petitions establishing a process for an
odometer disclosure to be directly linked to a vehicle's title using
a secure process involving both parties. See 74 FR 643; 75 FR 20925;
76 FR 1367; 77 FR 36935. In such cases, the odometer disclosure is
not separate from the title.
\33\ We note that Project One addresses vehicles subject to
liens. In amendments to TIMA pertaining to titles in the possession
of a lienholder when the transferor transfers ownership of the
vehicles, Congress maintained the requirement that the disclosure be
on the title itself. It did provide for the use of a secure power of
attorney under restrictive conditions, as an exception to the
prohibition that a person may not sign an odometer disclosure
statement as both the transferor and transferee.
\34\ The petition also specifies that the dealer would make an
odometer disclosure on the title. Arizona does not explain why the
dealer also apparently would make an odometer disclosure on a
separate Secure Odometer Disclosure form.
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NHTSA has also initially determined that Project One does not
satisfy the second purpose of TIMA, to prevent odometer fraud by
processes and mechanisms making the disclosure of an odometer's mileage
on the title a condition of the application for a title and a
requirement for the title issued by the State. There is no such
requirement in Project One. Instead, Project One would allow a dealer
to apply for and obtain a title in its own name by electronically
transmitting a Secure Odometer Disclosure form, separate from the
vehicle's title, to ADOT.\35\
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\35\ Project One also proposes that a dealer would
electronically submit a Secure Odometer Disclosure to ADOT following
its subsequent resale of the vehicle, but it is unclear from the
petition whether this submission is for the purpose of a title
application.
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NHTSA has also initially determined that Project One also does not
satisfy the third purpose of TIMA, which is to prevent alterations of
odometer disclosures on titles and to preclude counterfeit titles
through secure processes. Project One would make odometer disclosures
on Secure Odometer Disclosure forms, which are susceptible to
substitutions, alterations, and/or forgery. Arizona's petition states
that the use of a watermark on the Secure Odometer Disclosure form and
security features in dealers' electronic submissions to ADOT provide
sufficient levels of security. However, Arizona has not shown how the
watermark would prevent submission of a fraudulent form, as the
petition claims. According to the petition, the word VOID is displayed
after the form is scanned. Since, in proposed Project One, a dealer is
required to scan the form to submit it to ADOT, Secure Odometer
Disclosure forms received by ADOT would appear as VOID. Arizona has not
explained how ADOT would distinguish between an altered form that read
VOID prior to being scanned, and a legitimate form that read VOID after
being scanned.\36\ Moreover, dealers would have access to blank forms
bearing the watermark, which could be used by an unscrupulous person to
create a new, fraudulent form prior to submitting it to ADOT, as
discussed above.
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\36\ The placement of the word VOID repeatedly across the Secure
Odometer Disclosure form also obscures the writing on the form, and
may make the disclosure difficult to read once scanned.
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NHTSA has initially determined that Project One also does not
satisfy the fourth purpose of TIMA, to create a record of the mileage
on vehicles and a paper trail. Project One would not create a scheme of
records equivalent to the paper trail required by law. The mileage
recorded in an odometer disclosure establishes a critical benchmark for
evaluating the remaining mileage declarations that will follow. NHTSA
has initially determined that Project One's proposed use of a Secure
Odometer Disclosure form would not create records and a paper trail
consistent with this purpose of TIMA because the form is separate from
the vehicle's title and, as discussed above, a person could create and
submit a fraudulent form. ADOT has no means of ensuring that the form
submitted was actually signed by the seller and the buyer.\37\ Thus,
the benchmark for evaluating mileage declarations that follow would be
lacking, and there would not be a clear record and paper trail as
contemplated by TIMA.
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\37\ A further concern is that a scan could be digitally
altered. This issue is discussed in further detail below, with
respect to Project Two. Unlike other petitions approved by NHTSA,
under Arizona's proposal, only one party involved in the vehicle
transfer would transmit information regarding the odometer
disclosure to the State. See 74 FR 643; 75 FR 20925; 76 FR 1367; 77
FR 36935.
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The information disclosed in a proposed Secure Odometer Disclosure
form also creates an inadequate paper trail. Based on the example
provided by Arizona, as described in detail above, the Secure Odometer
Disclosure form does not require disclosure of the transferee's
address. Arizona offers no explanation for this omission, which could
make tracing and prosecuting fraud more difficult.\38\
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\38\ Contrary to Arizona's representation that its proposals are
in compliance with Federal odometer regulations, a Secure Odometer
Disclosure form would not require disclosure of a transferee's
current address, as required by 49 CFR 580.5(c)(4), and vehicle
model, as required by 49 CFR 580.5(c)(5). We also note that, based
on the completed example form provided by Arizona, the date of
transfer is not disclosed, as is required by 49 CFR 580.5(c)(2).
Although the form does appear to include a space for sale date, the
completed example indicates AZ (i.e. sale state) in that space. The
Secure Odometer Disclosure form also does not explicitly warn a
customer not to rely on the odometer reading if the odometer
disclosure is marked to indicate that it does not reflect the actual
mileage of the vehicle, as required by 49 CFR 580.5(e)(3). The form
does include a warning notice to alert the transferee that a
discrepancy exists between the odometer reading and the actual
mileage, as is also required by 49 CFR 580.5(e)(3).

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[[Page 50076]]

Arizona's proposed use of a Secure Odometer Disclosure form could
also result in an inadequate paper trail when used for the initial
transfer (the transfer of a vehicle to a dealer). One section of the
form includes spaces for Seller/Dealership Name (printed), Dealer
Number, Street Address, City, State, Zip, Agent Name, and Seller/Agent
Signature. When the seller is not a dealer, it is unclear which party
should complete this section. If the transferee dealer's agent fills in
this section of the form, there would be no spaces on the form for the
transferor to disclose his or her name and address. There also would be
no space for the transferor to sign, which is of crucial importance
since the transferor must certify the odometer disclosure. Even if the
dealer completed only the ``Buyer'' portions of the form, the form
appears inadequate. Since there are only spaces for Buyer Name and
Buyer Signature, the form may lack either the dealership name or name
of the dealer's agent who completed the form.
NHTSA has also initially determined that Project One does not
satisfy the general purpose of TIMA, of protecting consumers by
ensuring that they receive valid representations of the vehicle's
actual mileage at the time of transfer based on odometer disclosures.
First, Arizona's proposed Project One relies on odometer disclosures
made on Secure Odometer Disclosure forms, which is problematic, as is
described above, because a person can create and submit a fraudulent
form, and because ADOT has no means to verify whether a submitted form
is authentic. If a fraudulent Secure Odometer Disclosure form was
submitted to ADOT, it would lead to subsequent owners of a vehicle
receiving inaccurate representations of the vehicle's actual mileage.
Second, Arizona's proposal apparently would require a dealer make two
separate disclosures (one on the title, and another on a Secure
Odometer Disclosure form) at the time it resells the vehicle. This
creates the potential that a buyer would receive inconsistent odometer
disclosures.
2. Project Two
NHTSA has initially determined that Arizona's proposed Project Two
would not satisfy the first purpose of TIMA, to ensure that the form of
the odometer disclosure precludes odometer fraud. As discussed above,
TIMA addressed the potential for fraud by requiring mileage disclosures
to be on a vehicle's title instead of a separate document. Project Two
is inconsistent with this purpose because it proposes the use of a
Secure Odometer Disclosure form, separate from the vehicle's title, to
make an odometer disclosure. As discussed with Project One, an
unscrupulous person could create and submit a fraudulent form to ADOT.
NHTSA has also initially determined that Project Two does not
satisfy the second purpose of TIMA, to prevent odometer fraud by
processes and mechanisms making the disclosure of an odometer's mileage
on the title a condition of the application for a title and a
requirement for the title issued by the State. As described above, it
appears from Arizona's petition that a dealer would make an odometer
disclosure both on the vehicle's title and on a Secure Odometer
Disclosure form at the time it resells the vehicle.\39\ The dealer
would electronically submit both documents to ADOT for purposes of
obtaining a new title for the vehicle's purchaser. Since it is not
clear which odometer disclosure (if any) ADOT would consider valid in
the event the two disclosures were inconsistent, there is the potential
that an odometer disclosure on the title would not be considered the
required element for the title issued by the State.\40\
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\39\ Arizona does not explain why two separate odometer
disclosures would be made for the purpose of a single transaction.
\40\ The petition states that a Motor Vehicle Certified
Processor (which we understand to be a person, rather than an
automated program) makes a visual comparison between the record for
the vehicle, Secure Odometer Disclosure, and other documents
submitted. The petition does not specify the process if a
discrepancy in the documents is found.
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It is NHTSA's initial determination that Project Two also does not
satisfy the third purpose of TIMA, to prevent alterations of
disclosures on titles and to preclude counterfeit titles through secure
processes. Project Two proposes using Secure Odometer Disclosure forms
to make odometer disclosures, but such forms are susceptible to
substitutions, alterations, and/or forgery, as discussed above with
respect to Project One. In addition, Project Two specifies that a
dealer would submit scans of a paper title to ADOT in support of a new
buyer's application for a title. The original paper title would not be
sent to the State; the dealer would retain it. A sophisticated person
may be able to submit to ADOT a scanned image that does not state the
authentic disclosed mileage. The petition addresses some technical
requirements for scanning and transmitting documents, but does not
specifically address security measures that would prevent tampering or
allow detection of a scanned image that contains an alteration.
NHTSA has also initially determined that Project Two does not
satisfy the fourth purpose of TIMA, to create a record of the mileage
on vehicles and a paper trail. As discussed above with respect to
Project One, the use of a Secure Odometer Disclosure form to make an
odometer disclosure would not create records and a paper trail
consistent with this purpose of TIMA because it is separate from the
vehicle's title, there is the potential for a person to create and
submit a fraudulent form, and ADOT has no means of ensuring that a form
submitted is an authentic form signed by both parties. Additionally,
Project Two relies on dealers to submit scans of documents to ADOT. As
discussed above, such scans are susceptible to alterations. The
information disclosed in a Secure Odometer Disclosure form also creates
an inadequate paper trail, as addressed by our discussion of Project
One above. Specifically, the form does not include space for the
transferee's address, or adequate space for disclosure of the name of a
dealership and its agent's name in the case of a buyer that is a
dealer.
NHTSA has initially determined that Project Two also does not
satisfy the general purpose of TIMA, to protect consumers by ensuring
that they receive valid representations of the vehicle's actual mileage
at the time of transfer based on odometer disclosures. NHTSA's
rationale regarding this general purpose is the same as discussed above
with respect to Project One. Specifically, a fraudulent Secure Odometer
Disclosure form may be submitted to ADOT, which has no means to verify
the authenticity of the form. Additionally, Project Two involves scans
of titles, which are susceptible to alterations, as described above. If
a fraudulent disclosure was submitted to ADOT, subsequent owners would
receive inaccurate representations of the vehicle's actual mileage.
Like Project One, Project Two also creates the potential for
inconsistent odometer disclosures because of the apparent requirement
that a dealer make an odometer disclosure both on a paper title and a
Secure Odometer Disclosure at the time it resells the vehicle.

V. NHTSA's Initial Determination

For the foregoing reasons, NHTSA preliminarily denies Arizona's
petition regarding proposed alternate disclosure requirements.

[[Page 50077]]

This is not a final agency action. NHTSA invites comments within
the scope of this notice from the public, including Arizona.

Request for Comments

How do I prepare and submit comments?

Your comments must be written and in English. To ensure that your
comments are filed correctly in the Docket, please include the docket
number of this document in your comments.
Your comments must not be more than 15 pages long (see 49 CFR
553.21). We established this limit to encourage you to write your
primary comments in a concise fashion. However, you may attach
necessary additional documents to your comments. There is no limit on
the length of the attachments.
Please submit two copies of your comments, including the
attachments, to Docket Management at the address given under ADDRESSES.
You may also submit your comments to the docket electronically by
logging onto the Dockets Management System Web site at http://dms.dot.gov. Click on ``Help & Information,'' or ``Help/Info'' to
obtain instructions for filing the document electronically.

How can I be sure that my comments were received?

If you wish Docket Management to notify you upon its receipt of
your comments, enclose a self-addressed, stamped postcard in the
envelope containing your comments. Upon receiving your comments, Docket
Management will return the postcard by mail.

How do I submit confidential business information?

If you wish to submit any information under a claim of
confidentiality, you should submit three copies of your complete
submission, including the information you claim to be confidential
business information, to the Chief Counsel, NHTSA, at the address given
above under FOR FURTHER INFORMATION CONTACT. In addition, you should
submit two copies, from which you have deleted the claimed confidential
business information, to Docket Management at the address given above
under ADDRESSES. When you send a comment containing information claimed
to be confidential business information, you should include a cover
letter setting forth the information specified in our confidential
business information regulation (49 CFR part 512).

Will the Agency consider late comments?

We will consider all comments that Docket Management receives
before the close of business on the comment closing date indicated
above under DATES. To the extent possible, we also will consider
comments that Docket Management receives after that date. If Docket
Management receives a comment too late for us to consider it in
developing the final rule, we will consider that comment as an informal
suggestion for future rulemaking action.

How can I read the comments submitted by other people?

You may read the comments received by Docket Management at the
address given under ADDRESSES. The hours of the Docket are indicated
above in the same location.
You also may see the comments on the Internet. To read the comments
on the Internet, go to http://www.regulations.gov, and follow the
instructions for accessing the Docket.
Please note that even after the comment closing date, we will
continue to file relevant information in the Docket as it becomes
available. Further, some people may submit late comments. Accordingly,
we recommend that you periodically check the Docket for new material.

Issued on: August 14, 2012.
O. Kevin Vincent,
Chief Counsel.
[FR Doc. 2012-20381 Filed 8-17-12; 8:45 am]
BILLING CODE 4910-59-P