Probe: Auto Body Fraud Rampant

Investigators for the state of California say a probe of the auto body industry is finding widespread billing fraud and repair defects, confirming their worst expectations of collision repair shops across the state.

An inspection program initiated last summer by the Bureau of Automotive Repair has found that billing for 43% of cars inspected so far after being repaired had evidence of fraud, with an average of $586 in overcharges for parts not used or labor not performed.

The preliminary results of the 18-month investigation will be disclosed today in a state Senate Insurance Committee hearing chaired by Sen. Jackie Speier (D-Hillsborough).

“They are uncovering big problems,” Speier said in a recent interview. “There is a systemic virus that is plaguing the repair of vehicles in California. It is alarming, since it is fairly well-known in the industry that this inspection program is happening.”

If the inspection program represents a valid random sampling of the industry’s performance, it would mean that both consumers and automobile insurers are paying enormous sums of money to an apparently widespread criminal enterprise.

The insurance industry pays out about $3.2 billion for body repairs in California at the estimated rate of $2,843 a claim, according to industry figures.

If BAR’s survey figures are correct, the $586 average overcharge amounts to a 20% fraud premium on every repair bill.

Speier said she intends to sponsor legislation this year to improve consumer protection involving auto body repairs and the largely unregulated trade in repaired wrecks.

The inspection program was launched amid mounting evidence of auto body repair fraud against both consumers and insurance companies over the last several years.

BAR first asserted that auto body fraud was a serious problem in a 1994 report that documented a long list of unsafe repairs, fraudulent billings and inadequate training in the auto body industry.

The 1994 report cited insurance industry surveys that found 95% of the shops in some areas were not competent, lacked necessary equipment and employed poorly trained technicians. In a Senate Insurance Committee hearing in 2000, BAR reiterated its position that 40% of repairs involved fraud.

One basis for BAR’s concern is the fairly large number of cases its investigators file--about 400 allegations of consumer fraud and other violations every year against the state’s repair shops, including mechanical garages. In most cases, the agency revokes the shop’s licenses. In 180 cases in 2000, it sought criminal charges.

But the auto body industry has sharply disputed assertions that its members are systemically defrauding the public. The California Auto Body Assn., which represents just 800 of the state’s 5,500 body shops, said BAR’s allegations are unfair and that the agency doesn’t have any hard evidence to prove them.

The current inspection program, mandated by legislation sponsored by Speier last year, is an effort to get a better assessment. Since July, BAR has been conducting free inspections of repaired cars at the owners’ request.

“BAR is the only agency that makes house calls,” Speier said. (Consumers can request free inspections by calling 866-881-1332.

So far, the agency has inspected 507 vehicles that qualify under the rules of the program and found 217 with evidence of fraud, typically billing by the repair shop for parts that were not used or labor that was not supplied.

Moreover, about 13% of the repaired vehicles had structural issues that would indicate inadequate or defective repairs to car frames, said Dan Povey, manager of BAR’s auto body program. Those inadequacies included improper welds and failure to rust-proof key parts.

Povey said the inspection program did not include putting the vehicles on frame racks to see whether frames were out of alignment, but suggested that there are problems there as well.

“You can bet that there is a high percentage of misalignment,” based on visual abnormalities, Povey said.

Speier said the insurance industry has ratcheted down what it is willing to pay for repairs by “steering” consumers to specific shops in so-called directed repair programs that are sponsored by each company.

That repair shops then “start cutting corners, billing for parts that aren’t on the vehicle, shouldn’t be any surprise,” she said.

Speier said her legislative agenda would be shaped by today’s hearing, which is scheduled to include testimony from BAR, the Department of Motor Vehicles and the California Highway Patrol. Among related issues to be examined is the widespread problem of vehicles that have been declared total wrecks being recycled into the used-car market without bearing salvage titles as required by state law.

As a result, car buyers often have no warning that they are buying a former wrecked vehicle. And under present state law, repaired wrecks face only a cursory brake and lamp inspection.

DMV estimates that 7% of all vehicles on the road in California have been previously “totaled” by insurers.

Speier said she wants to examine a more stringent inspection program that would include making sure cars’ frames are structurally sound and properly aligned. She also said she would like to examine whether public access to salvage auctions, where such totaled vehicles are sold, should be limited. Another issue is whether the so-called salvage title branding law, which is weaker than in many other states, should be toughened.

“The state in protecting public health and safety has to do a better job,” she said. “We are cracking down on fraud that is going on.”

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Ralph Vartabedian cannot answer mail personally but responds in this column to automotive questions of general interest. Please do not telephone. Write to Your Wheels, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. Send e-mail tol: ralphvartabedian@latimes .com