MTV-25-13-00005-RP Proof of Satisfaction of Lien by Dealers

11/20/13 N.Y. St. Reg. MTV-25-13-00005-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 47

November 20, 2013

RULE MAKING ACTIVITIES

DEPARTMENT OF MOTOR VEHICLES

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. MTV-25-13-00005-RP

Proof of Satisfaction of Lien by Dealers

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following revised rule:

Proposed Action:

Amendment of section 20.17 of Title 15 NYCRR.

Statutory authority:

Vehicle and Traffic Law, sections 215(a), 2121(a) and (b)

Subject:

Proof of satisfaction of lien by dealers.

Purpose:

To establish procedures for dealers to demonstrate that they have satisfied a lien in order to obtain a clear title.

Text of revised rule:

Section 20.17 is amended to read as follows:

(a) Whenever a lien is satisfied, the lienholder shall immediately submit the notice of recorded lien [properly completed] showing satisfaction thereof to the title holder or his designee. The title holder or his designee may then submit such notice of recorded lien together with his certificate of title to the Title Bureau, Department of Motor Vehicles, [South Mall] 6 Empire State Plaza, Albany, New York 12228. A new certificate of title with the satisfied lien eliminated will then be issued to the owner or to any person authorized or designated by the owner, [with the satisfied lien eliminated]and the satisfaction of lien will be noted in the records of the department.

(b) Whenever a dealer registered under Section 415 of the Vehicle and Traffic Law receives a motor vehicle for the purpose of resale and arranges for the satisfaction of any lien on such vehicle, but the lienholder fails to immediately upon receipt of good funds submit the notice of recorded lien indicating satisfaction of such lien to the vehicle owner named on the title, or to any person authorized or designated by the owner, the dealer may request that the Commissioner issue either a duplicate title certificate without such lien included thereon or a title certificate without such lien included thereon. Such requests shall be mailed to the Commissioner at NYS Department of Motor Vehicles, Title Bureau, P.O. Box 2222, Albany, NY, 12220, or if sending via express mail service, to Title Bureau, Department of Motor Vehicles, 6 Empire State Plaza, Albany, NY 12228, Attention: Box 2222, and shall include the following:

(1) An application for a duplicate title certificate or for a title certificate properly completed by the owner of the motor vehicle, accompanied by the appropriate fee.

(2) If the dealer and owner desire the certificate to be mailed to the dealer, a written consent signed by the owner permitting the Commissioner to mail the duplicate title certificate or title certificate to the dealer at an address designated in such written consent.

(3) A copy of the dealer’s written notice submitted to the lienholder that the dealer shall seek to arrange for the satisfaction and release of the lienholder’s lien pursuant to Section 2121(b) of the Vehicle and Traffic Law, together with evidence, such as an overnight delivery confirmation or a certified mail return receipt, that such notice was received by the lienholder not less than two weeks prior to the dealer’s application for a duplicate title certificate or title certificate. The dealer’s notice shall be sent to the lienholder address currently on the title record maintained by the Department and shall be in 14-point type or larger and shall read as follows:

NOTICE OF DEALER’S REQUEST FOR RELEASE OF MOTOR VEHICLE LIEN

Motor Vehicle Information

Vehicle Identification Number (VIN):

Name of Last Owner (if known):

You are hereby notified that [Name of Dealer] (the “Dealer”) has arranged for the full payment of a loan, retail installment contract, or other relevant instrument held by you on the above-referenced motor vehicle. To date, the Dealer has not received the required lien release paperwork or been advised that the owner or the owner’s appointed designee has received it.

Please be advised that if you do not promptly issue such paperwork to the owner of the motor vehicle, the Dealer shall, two weeks from the date of your receipt of this notice, request that DMV issue a duplicate or new certificate of title for the above-referenced vehicle without your lien included thereon pursuant to Section 2121(b) of the New York Vehicle and Traffic Law. Such action by DMV will eliminate your perfected security interest in the vehicle.

If you have any questions about this notice, you should immediately contact the Dealer at [Mailing Address], [Telephone Number], [E-mail Address (optional)]. Any questions about the lien release process may be directed to Title Bureau, NYS Department of Motor Vehicles, 6 Empire State Plaza, Albany, New York 12228, by telephone at [phone] or by email at [e-mail].

(4) A copy of a written payoff statement: (i) from the lienholder to the dealer, on the lienholder’s letterhead, or (ii) from a third-party provider otherwise authorized by the lienholder to issue payoff statements. The payoff statement shall contain, at a minimum, the name of the lienholder, the VIN of the vehicle associated with the lien to be satisfied, the amount required to satisfy such lien, and the date through which such amount will be effective. The payoff statement may also contain a per diem amount for the period after such effective date.

(5) Sufficient evidence that the dealer has tendered payment to the lienholder in the amount necessary to satisfy the lien as represented by the lienholder. Such evidence shall be in one of the following forms: (i) a transmission receipt for an interbank or electronic funds transfer that evidences the amount transferred and the VIN of the vehicle associated with the lien being satisfied; (ii) a copy of a bank or cashier’s check delivered to the lienholder that evidences the amount transferred and the VIN of the vehicle associated with the lien being satisfied, together with evidence that the check has been delivered, such as an overnight delivery confirmation or a certified mail return receipt; or (iii) a written statement from the lienholder, on its letterhead, that evidences the VIN of the vehicle associated with the lien being satisfied and includes an acknowledgement that such lien has been satisfied in full.

(6) A signed statement from the dealer that it has not received any notice from the lienholder disputing the amount tendered pursuant to paragraph (5) of this subdivision as insufficient to satisfy the lien and that such dealer has fully complied with the provisions of this section.

The Commissioner shall promptly review the information submitted by the dealer, and, provided that the Commissioner finds that sufficient payment has been made to fully satisfy the lien, the Commissioner shall issue a duplicate title certificate without such lien included thereon or a title certificate without such lien included thereon within fifteen business days after receipt of all required information and fees.

(c) Pursuant to Section 2127 of the Vehicle and Traffic Law, any party subject to the provisions of subdivision (b) of this section may request a hearing before the Department of Motor Vehicles, if such party is aggrieved by an act or omission of the Commissioner.

Revised rule compared with proposed rule:

Substantial revisions were made in sections 20.17(a), (b) and (c).

Text of revised proposed rule and any required statements and analyses may be obtained from

Heidi Bazicki, Department of Motor Vehicles, 6 Empire State Plaza, Rm. 522A, Albany, NY 12228, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Ida L. Traschen, Department of Motor Vehicles, 6 Empire State Plaza, Rm. 522A, Albany, NY 12228, [phone], email: [e-mail]

Public comment will be received until:

30 days after publication of this notice.

Revised Regulatory Impact Statement

1. Statutory authority: Vehicle and Traffic Law (VTL) section 215(a) provides that the Commissioner of Motor Vehicles may enact rules and regulations that regulate and control the exercise of the powers of the Department. VTL section 2121(a) requires the Commissioner of the Department of Motor Vehicles to provide a procedure for the release of a security interest in a motor vehicle. VTL section 2121(b) permits registered dealers to provide the Commissioner with proof that a lien on a vehicle has been satisfied, and authorizes the Commissioner to promulgate regulations setting forth the types of acceptable proof in order to issue a title that discloses no lien. VTL section 415(9)(d) authorizes the Commissioner to suspend or revoke a dealer’s registration for failure to comply with the Commissioner’s regulations or with any provision of the VTL that is applicable thereto. Thus, the Commissioner is authorized to take action against a dealer who makes a false or misleading statement when submitting proof of satisfaction of a lien, pursuant to 15 NYCRR 20.17.

2. Legislative objectives: VTL section 2121(b), as added by Chapter 493 of the Laws of 2012, authorizes registered automobile dealers to arrange for the satisfaction of a security interest in a vehicle the dealer receives for the purpose of resale, and provides that the Department shall issue a duplicate or original title without a lien thereon for such vehicles upon the receipt of certain evidence of lien satisfaction, along with a proper application and fee. This proposed rule is in accordance with the legislative objective by establishing those proofs of satisfaction of a lien that are acceptable to the Commissioner.

3. Needs and benefits: The Department of Motor Vehicles is required by law to issue a clear title when it is presented with a proper application, the requisite statutory fee and acceptable proof of lien satisfaction from the lender acknowledging that its security interest has been released. Occasionally, a lender may take several weeks to provide a written lien release to a vehicle owner after satisfaction of the lien. Chapter 493 of the Laws of 2012 was enacted to expedite the issuance of a no-lien title, in order to facilitate the resale of a motor vehicle that was traded to a dealer with a lien at the time of the trade. The new VTL section 2121(b) will expedite this process by offering dealers who arrange for the satisfaction of a lien a procedure to demonstrate to the Department that a clean title should be issued and, consequently, such clear title shall be issued more quickly. The amendments to Section 20.17 are necessary to apprise both lenders and dealers about those proofs of lien satisfaction that the Commissioner deems acceptable. The amendments to Section 78.32 makes clear that if a dealer abuses the process by submitting false or misleading information to the Commissioner regarding the satisfaction of a lien, the dealer could face the suspension or revocation of the dealer’s license.

The Department received comments on the proposed rule from two major automobile dealer associations and two associations representing lienholders. In response to the public comments, and as described more fully in the Assessment of Public Comment, the Department has made eleven revisions to Section 20.17.

First, Section 20.17(a) is revised to provide that a new certificate of title with the satisfied lien eliminated shall be issued to the owner or “to any person authorized or designated by the owner.” Second, the opening paragraph of Section 20.17(b) is revised to provide that a dealer may request a lien-free title certificate from the Commissioner if the lienholder fails to timely submit the notice of lien satisfaction to the owner of the vehicle “or to any person authorized or designated by the owner.” Third, the opening paragraph of Section 20.17(b) is revised to provide a street address for the Department in case a dealer chooses to send a request for a lien-free title certificate via express mail. Fourth, Section 20.17(b)(3) is revised to provide that the dealer’s notice to the lienholder seeking satisfaction and release of a lien shall be sent to the lienholder at “the lienholder address currently on the title record maintained by the Department.”

Fifth, the form of the dealer’s notice in Section 20.17(b)(3) is revised to expand the definition of loan to include a “retail installment contract, or other relevant instrument.” Sixth, the form of the dealer’s notice is also revised to clarify that the dealer is entitled to request lien-free title certificate because the Dealer has not received the required lien release paperwork “or been advised that the owner or the owner’s appointed designee has received it.” Seventh, the form of the dealer’s notice is revised to provide a specific email address for the Department—in addition to a mailing address and telephone number—should a lienholder have any questions about the lien release process.

Eighth, Section 20.17(b)(4) is revised to provide that a written payoff statement may be accepted from “a third-party provider otherwise authorized by the lienholder to issue payoff statements” and is further revised to require that the payoff statement contain the name of the lienholder. Ninth, Section 20.17(b)(5) is revised to track the statutory language in VTL section 2121(b)(ii) and to provide that proof of delivery of the bank or cashier’s check shall include overnight delivery confirmation or a certified mail return receipt. Tenth, Section 20.17(b)(6) is revised to provide that the signed dealer’s statement confirming that it has not received notice from the lienholder disputing the lien must also state that such dealer has fully complied with the provisions of Section 20.17. Eleventh, a new subdivision (c) is added to Section 20.17 to provide that, pursuant to VTL section 2127, any party subject to the provisions of Section 20.17(b) may request a hearing before the Department if such party is aggrieved by an act or omission of the Commissioner.

4. Costs: There are no costs to the regulated parties other than the fee that registered dealers must pay for a duplicate title certificate. There are no costs to State agencies or local governments.

5. Local government mandates: None.

6. Paperwork: The process established by Section 20.17(b) will require dealers to provide written notice to a lienholder and to submit sufficient evidence that the dealer has tendered payment to the lienholder in an amount necessary to satisfy the lien on a vehicle.

7. Duplication: This proposal does not duplicate any law, regulation or procedure.

8. Alternatives: The Department consulted with two major automobile dealer associations and representatives of the automobile lending industry about the proposed rule. In addition, the Department received written comments from the American Financial Services Association (AFSA), the New York Bankers Association, which together represent many automobile lenders in New York State, and a joint letter from the Greater New York Automobile Dealers Association and the New York State Automobile Dealers Association. While the Department has incorporated many of the comments into the proposed rule as set forth in more detail in the Assessment of Public Comment, not all were deemed feasible.

The lenders expressed concern that notices sent by dealers may not be addressed to the appropriate department of a lending institution, which would potentially give a lender a short time frame in which to review records necessary to verify the status of a security interest. AFSA originally suggested that the Department create a database that the lenders could populate with the proper addresses to which dealers should send notices under the rule, but the Department lacks the resources to create such a database and believes that lenders are able to provide the proper notice address with the payoff statement. AFSA subsequently made an alternative suggestion that the dealers be required to send the notice to the lienholder’s address on the title record maintained by the Department. The rule has been revised to incorporate this suggestion.

The dealer associations objected to recording the Vehicle Identification Number (VIN) on receipts for interbank or electronic funds transfers as part of the proof of payment. The Department strongly believes that including the VIN on the receipt is necessary so that the Department may ensure that the payment is associated with the specific motor vehicle for which the lien is to be satisfied. The Department agrees, however, that the VIN may be handwritten on the receipt.

A no action alternative was not considered.

9. Federal standards: This rule does not exceed any minimum standards of the federal government.

10. Compliance schedule: Upon adoption of the regulation.

Revised Regulatory Flexibility Analysis

1. Effect of rule: This proposed regulation would affect only motor vehicle dealers who seek to arrange for the release of liens on motor vehicles they obtain in a trade, by demonstrating to the Commissioner that such dealer has satisfied the lien. There are approximately 10,000 car dealers in New York State. The proposed rule has no impact on local governments.

2. Compliance requirements: Those motor vehicle dealers who wish to arrange for the release of a motor vehicle lien would be required to provide the Commissioner with certain documents within a certain time period in accordance with the Commissioner’s procedures. The documents would demonstrate that the dealer has satisfied the lien.

3. Professional services: This regulation would not require new professional services.

4. Compliance costs: The regulation would not impose any extra costs on the dealers who choose to participate in the process.

5. Economic and technological feasibility: This proposal adds no new economic or technological requirements on motor vehicle dealers.

6. Minimizing adverse impact: This proposal has no adverse impact on motor vehicle dealers. In fact, it will help such dealers to more expeditiously obtain clear titles to vehicles they take in trade. In addition, as detailed in the Regulatory Impact Statement, the Department consulted with two major dealer associations to obtain their input on the proposed rule and has revised the rule to address their concerns.

7. Small business and local government participation: As noted in the Regulatory Impact Statement, the Department consulted with representatives of the automobile lending industry and two major dealer associations about the proposed rule and incorporated their comments into the rule where feasible.

Revised Rural Area Flexibility Analysis

A Rural Area Flexibility Analysis is not attached because this rule does not necessitate revision to the previously published Rural Area Flexibility Analysis.

Revised Job Impact Statement

A Job Impact Statement is not attached because this rule does not necessitate revision to the previously published Job Impact Statement.

Assessment of Public Comment

The full Assessment of Public Comment is posted on the DMV’s website at www.dmv.ny.gov.

The American Financial Services Association (AFSA) and the New York Bankers Association (NYBA) submitted extensive comments about the proposed rule.

Comment: AFSA suggests that the rule should require a standard form in prominent type alerting the lienholder that its security interest will be released unless the lienholder objects. The required notice in Section 20.17(b)(3) of the proposed rule should be incorporated in the standard form.

Response: The Department believes that a standardized form is unnecessary because Section 20.17(b)(3) of the proposed rule explicitly sets forth the language that must be used in the dealer’s notice to the lienholder about the pending release of its lien. In addition, the rule provides that the notice shall be in 14-point type or larger, which should be sufficiently prominent to distinguish the notice from other correspondence.

Comment: AFSA suggests that the rule should require dealers to prove to the Department that (a) the proper form was used and (b) the address provided by the lienholder to the Commissioner was used (by return certified mail).

Response: Section 20.17(b)(3) provides that the dealer must submit a copy its notice to the lienholder that such dealer is seeking release of a lien and a clean title from the Department. In addition, the dealer must submit proof to the Department that the notice was received by the lienholder. The Department believes that these provisions will ensure that the lienholder will receive timely notice of the dealer’s request to arrange for release of the lien.

Comment: AFSA suggests that the rule should require that payee information in electronic funds transfers and checks reflect the lienholder’s information. Checks should show endorsement by the lienholder. AFSA and NYBA suggest that dealers should be required to submit the front and the back of checks as evidence that the check was processed and the funds were good.

Response: The Department is constrained by the statute regarding the evidence that demonstrates that the security interest has been satisfied by the dealer.

The Department has revised Section 20.17(b)(5) to give examples of evidence demonstrating that the dealer delivered payment to the lienholder.

Comment: AFSA suggests that the rule should ensure that the payoff amount matches the payoff amount quoted by the lienholder and was paid within the required date through which the amount was effective.

Response: The Department believes that the proposed rule adequately ensures that the payment made by the dealer matches the payoff amount quoted by the lienholder.

Comment: AFSA suggests that the rule should provide a mechanism by which the Department advises the lienholders of pending releases and gives the lienholders adequate time to dispute the release (e.g., 30 days). If the Department cannot give notice to the lienholders, AFSA and NYBA suggest that the rule should provide a mechanism and adequate time for a lienholder to dispute a lien release where it believes the underlying debt was not paid in full or that the lien should not otherwise be released.

Response: Vehicle and Traffic Law § 2121(b) does not contemplate a formal dispute mechanism. In fact, the statute specifically provides that the Department must issue the clean title certificate within 15 days of receiving proof of payoff by the dealer, which effectively precludes a dispute process. However, the rule and current law do provide some safeguards for the lienholders. Section 20.17(b)(3) provides that if the lienholder has any concerns about the dealer’s intent to obtain a clean title certificate, the lienholder may contact the Department by mail, phone or by email. If evidence of non-compliance with the regulation is discovered, the Department has authority to take action against the dealer and, where appropriate, reinstate the lien. The Department can, upon receipt of credible evidence by the lienholder, put a stop on the title record so that a title certificate is not issued, or if the certificate has already been issued, that title is not transferred to another party. In addition, Vehicle and Traffic Law § 2127 authorizes a party aggrieved by an act or omission to act by the Commissioner to request a hearing before an Administrative Law Judge. Finally, Section 20.17(b)(6) has been revised to require the dealer to attest to the fact that such dealer has fully complied with the provisions of Section 20.17. If the dealer has not complied, the Department is authorized to take action against the dealer under Section 78.32(a), as amended, under the companion rulemaking proposal to this rulemaking.

Comment: AFSA and NYBA suggest that the Department should provide a required form for the dealers to complete to attest to the fact that they have not received any notice from the lienholder disputing the amount tendered to satisfy the lien in question.

Response: Section 20.17(b)(6) requires that the dealer submit a signed statement that it has not received any notice from the lienholder disputing the amount tendered. The rule has been revised to require the dealer to also attest to the fact that the dealer has fully complied with the provisions of Section 20.17.

Comment: AFSA suggests that the rule should provide a means by which the Department can notify lienholders of liens that have been released.

Response: The statute does not contemplate such a requirement. In addition, the Department does not have the resources to dedicate to this task.

Comment: AFSA and NYBA suggest that the Department should add language that explicitly provides that the Department will confirm the following prior to issuing a duplicate title eliminating the lienholders lien:

The address on the letter the dealer sent to the lienholder matches the address the lienholder provided on the payoff statement;

That there is evidence that the copy of the check provided was actually cashed (i.e., a copy of the back of the check should be provided);

That notice was received by the lienholder at least two weeks prior to submission to the Department by the dealer for release of lien.

Response: The rule, in large part, tracks the statutory language in Vehicle and Traffic Law § 2121(b) and addresses this comment. In addition, Section 20.17(b)(5) is revised to clarify that the dealer must submit evidence of delivery of a bank or cashier’s check, such as overnight delivery confirmation or certified mail return receipt. It should be noted that the Department had considered requiring evidence that a check has been cashed, but representatives of the Greater New York Automobile Dealers Association and the New York State Automobile Dealers Association correctly pointed out that the statute requires only evidence that a check has been delivered to the lienholder, not that it has been cashed. The dealers associations also noted that the processing of a payment is wholly within the lienholder’s control and not the dealer’s.

Comment: AFSA suggests that the rule should provide a means by which a lien may be reinstated if improperly released and a dealer fails to indemnify the lienholder (provided there is no subsequent purchaser).

Response: If the Department receives evidence of fraud or other improper practices on the part of a dealer in relation to the lien release process, the Department may put a stop on the title, which will prevent issuance of a title certificate or transfer of the title if issuance has occurred. If appropriate, after an investigation, the Department may reinstate the lien. In addition, if a hearing is held pursuant to Vehicle and Traffic Law § 2127, an Administrative Law Judge may order the reinstatement of a lien.

Comment: AFSA suggests that the rule should provide creditors with specific contact information at the Department for lienholder inquiries.

Response: If a lienholder wishes to dispute the lien release process, such lienholder should send its concerns to the contacts set forth in the form of dealer notice in Section 20.17(b)(3).

Comment: AFSA and NYBA suggest that the Department should develop a retraction process in the event that a dealer realizes it has made a mistake and wants to retract the request for lien release.

Response: If a dealer wishes to retract a lien release request, the dealer should send such request to the address in Section 20.17(b)(3) or contact the Title Bureau at the phone number listed in that paragraph.

Comment: NYBA recommends that the use of the term “loan” in Section 20.17(b)(3) be expanded to read “loan, retail installment contract, or other relevant instrument.” This would accommodate financial institutions that are third party assignees of retail installment contracts.

Response: The rule has been revised to make the recommended change.

Comment: AFSA notes that many of its members have many addresses where correspondence may be sent. In its first set of comments, AFSA recommended that the Department establish a database of lienholders that lienholders could populate with the proper mailing address for required notices to be sent by the dealer seeking to release a lien. In a subsequent set of comments, AFSA suggests that dealer notices be sent to the lienholder’s address on the title record maintained by the Department.

Response: AFSA’s first suggestion is not technically feasible because the Department lacks the necessary resources to develop such a database. Moreover, the Department felt that the proposed rule, which required that the dealer’s notice be sent to “an address provided by the lienholder,” would ensure that lienholders would receive the notice at an appropriate address. AFSA’s subsequent suggestion to require a dealer to use the lienholder’s address on the title record maintained by the Department has the benefit of eliminating any uncertainty as to what address a dealer must use. The lienholder address on the title record may be readily obtained by a dealer and may be updated by a lienholder. The rule has been revised to make the recommended change.

The Greater New York Automobile Dealers Association and the New York State Automobile Dealers Association submitted joint comments.

Comment: The dealers associations express concerns about Section 20.17(b)(4), which requires dealers to produce a copy of a written payoff statement from the lienholder to the dealer, on the lienholder’s letterhead. The dealers associations note that lienholders may advise dealers of the outstanding loan amount in several ways, including by email or phone or via third-party providers. The third-party providers access the loan records and then provide a statement to the dealer, upon which the dealer relies to make payment to the lienholder. Use of these various methods is standard operating procedure in the industry; a statement on a lender’s letterhead is not.

Response: In light of the concerns raised by the dealers associations, Section 20.17(b)(4) is revised to allow submission of a payoff statement from a third-party provider.

Comment: After learning that the Department is considering revising the rule to allow submission of payoff statements by third-party providers, ASFA recommends that Section 20.17(b)(4) be clarified by requiring that such third-party providers be “authorized by the lienholder.” If payoff statements from third-party providers may be accepted, AFSA recommends that the rule should also require that payoff statements contain the name of the lienholder.

Response: The rule has been revised to make AFSA’s requested changes. Because the form or method of authorization may vary among lienholders and third-party providers, the revised rule refers to payoff statements issued by “third-party providers otherwise authorized by the lienholder to issue payoff statements.” The word “otherwise” is intended to encompass all situations, including those where a lienholder makes loan information available to a third-party provider even though there may be no formal agreement between the lienholder and the third-party provider.

Comment: In a separate set of comments, the Greater New York Automobile Dealers Association recommends that (i) Section 20.17(a) be revised to provide that the new certificate of title with the satisfied lien eliminated could be issued to the motor vehicle owner or “to any person authorized or designated by the owner”, and (ii) similar references to the “person authorized or designated by the owner” be added to the opening paragraph of Section 20.17(b) and Section 20.17(b)(3).

Response: The rule has been revised to make the recommended changes.