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Chapter 5.4

Allow TxDOT to Issue “e-liens” Instead of Paper Titles


Summary

When a vehicle is purchased through a loan, the Texas Department of Transportation (TxDOT) issues and mails the original paper title to the lender or lien holder and a duplicate, non-negotiable paper title to the vehicle owner as required by state law. Technology can now be used to issue the title to the lien holder electronically, called e-lien, and is used by several other states. Texas could save state revenue and reduce the cost to lien holders if TxDOT could issue e-liens.


Background

When an individual purchases a vehicle with borrowed funds, state law requires TxDOT to mail an original, negotiable title to the lien holder and a duplicate original, non-negotiable title to the owner.[1] Typically, the lien holder is a financial institution.

When a vehicle is purchased using a loan, the lien holder submits an application of title form with other supporting documentation and a $13 fee to the county assessor-collector. The county assessor-collector enters the information into the automated Registration and Titling System (RTS) and issues a receipt to the owner. The county assessor-collector submits the paperwork to TxDOT along with $8 of the fee, retaining the remaining $5. TxDOT verifies that the fee was received, processes the paperwork, deposits $5 into the General Revenue Fund and $3 into the State Highway Fund, and releases the title for printing. RTS automatically prints an original title that is sent to the lien holder and a duplicate original, non-negotiable title that is sent to the owner. TxDOT uses a vendor to mail the titles to the appropriate institutions and individuals. TxDOT issues about 2.6 million titles each year to lien holders.[2] The cost to print and mail each title is about $0.36, about $936,000 annually.[3]

Once the owner pays off the loan, the lien holder signs the original title, indicating the loan has been paid, and gives the owner the title. Depending upon the lien holder, the owner may pick up the title in person or may receive it in the mail. The owner now has a negotiable title that can be used as proof of ownership or to transfer the vehicle to a new owner when it is sold. However, since neither the county assessor-collector nor TxDOT was included in this transaction, the RTS record still shows a lien on the vehicle. To receive a clean, lien-free title, the owner must request a new title through the county assessor-collector. The owner presents an application of title form and the signed title to the county assessor-collector and pays a $13 fee. The process that was used to issue the title to the lien holder is repeated, but this time the title is issued directly to the owner. TxDOT estimates that only about two percent of vehicle owners complete this process; the remaining 98 percent keep the signed title and use it when they sell the vehicle.[4]

If the original title is lost, the lien holder or the owner must obtain a duplicate negotiable title called a certified copy of original (CCO), by submitting an application form and a fee to TxDOT. The CCO will continue to show the lien on the vehicle. The lien holder can sign the CCO, as it would an original title, or use a release of lien form. If the lien holder loses the title and applies for the CCO, this process is fairly simple. If the owner loses the signed, original title; however, the process can be more difficult because the owner must contact the lien holder. Mergers and spin-offs of financial institutions can make it difficult for the owner to find the original lender.[5]


Moving to an electronic transaction

Current technology would allow TxDOT to process these title transactions electronically by issuing electronic titles, or e-liens, to lien holders. The county assessor-collector would receive the paperwork and fees, and would enter the transaction into RTS. Instead of issuing a paper title to the lien holder, however, TxDOT would notify financial institutions electronically that the title transaction has been processed and that the institution has been identified in RTS as the lien holder of record. Once the owner pays off his or her loan, the institution would notify TxDOT electronically to release the lien. TxDOT would update the RTS records to remove the lien and issue a clear title to the owner.


E-Lien Programs Outside Texas

At least seven states have implemented, or are in the process of implementing, e-lien programs: California, Florida, Idaho, Massachusetts, Pennsylvania, Virginia and Washington.[6] In addition, the American Association of Motor Vehicle Administrators (AAMVA) offers a program to help states set up e-lien programs.[7] The review team contacted California, Florida, Idaho and Pennsylvania, states with a range of experience with e-liens.

Of the states contacted, none had tracked the specific costs of implementing their e-lien programs, nor had they tracked savings associated with the programs. “Improving customer service” was the most frequently cited reason for creating e-lien programs. In addition, benefits cited also included time savings, simpler processing, and reduced errors.

The California Department of Motor Vehicles Department (DMV) began its program in 1989 and currently issues about 3.1 million titles with liens electronically, about 30 percent of the total. Under the program, any authorized lending institution can receive an e-lien. Once the e-lien loan is paid, the lien holder electronically submits the information to transfer the ownership of the vehicle. Within eight days, DMV will mail an original title to the owner. Vehicles that are not financed through the e-lien program must go to the DMV to clear the title and pay a $15 fee. The California DMV estimates that approximately 66 percent of the e-lien holders either transfer title to another financial institution or trade the vehicle before paying off the loan.[8]

Florida’s Department of Highway Safety is pilot testing its e-lien system. It issues about 5.2 million titles and 110,000 duplicate titles each year. The department expects the e-lien system to:

  • create a public and private technological partnership;
  • lower costs for both the public and private sectors;
  • enhance customer service;
  • reduce duplicate titles issued; and,
  • improve accuracy of information.[9]

The Idaho Transportation Department started their e-lien program in 1996. On average, the Idaho Transportation Department issues 3,000 e-lien titles per month, about eight percent of lien titles issued. The number of e-liens issued increased 33 percent from calendar 1998 to 1999. The department indicated that savings come more from faster processing and fewer errors than from lower cost. The department has realized labor and other cost savings associated with issuing fewer duplicate titles, condensing filing space, increasing information accuracy and reducing the number of employees needed by the lien holders.[10]

The Pennsylvania Bureau of Motor Vehicles implemented e-liens in 1998. As of September 2000, the bureau had issued 98,000 e-lien titles, or about 2 percent of the total. The bureau considers the e-lien process to be a major step in providing better customer service, with benefits very similar to those mentioned by Idaho.[11] The bureau charges the same fees to issue a title with a lien on paper or electronically.


Advantages of E-Lien

The e-lien process has several advantages for lien holders and for TxDOT. The lien holders accepting e-liens would no longer have to process, file and store paper titles. Since the title would be electronic, the lien holder could not lose it and would never have to incur the cost of obtaining a CCO. TxDOT would reduce the number of printed titles and certified copies, avoiding the costs of paper, printing, and mailing.[12]


Recommendation

State law should be amended to allow TxDOT to issue electronic titles to lien holders.

The Transportation Code should be changed to remove the requirements for issuing and mailing paper titles. The Transportation Code should also be changed to authorize the issuance and release of liens electronically, and to authorize TxDOT to develop the rules necessary for lien holders to receive and release liens electronically.

TxDOT should make the necessary programming changes to RTS to accommodate e-liens. Financial institutions and other types of organizations that finance vehicle loans should be notified of the opportunity to participate in the new process. TxDOT should develop, publicize and distribute procedures for using the e-lien process to counties and lending institutions.


Fiscal Impact

TxDOT would incur about $58,000 in cost to modify RTS to implement an e-lien system.[13] The costs would be paid from the additional dollar fee, collected on vehicles registered in certain counties, dedicated to RTS enhancements. Since RTS is in the process of an upgrade, this enhancement is not expected to be included in the system until fiscal 2003. Assuming that 25 percent of titles would be issued electronically beginning in fiscal 2004, TxDOT would delay printing and mailing about 650,000 titles at a cost savings of $234,000. The number of e-liens issued and associated savings is estimated to increase five percent each year. This savings would continue through fiscal 2007. This estimated savings represents the amounts of State Highway Fund revenue that could be redirected to other TxDOT programs or budget items.[14]

Assuming that the initial e-liens were for four-year loans, TxDOT would print and issue titles to the owners beginning in fiscal 2008. TxDOT estimates that about half of the vehicle owners sell their vehicle before the loan is paid off; therefore, TxDOT would only issue 325,000 titles to owners at a cost of $117,000 each year. In addition, the two percent of the owners who previously requested a lien-free title will receive a lien-free title without paying the $13 fee, resulting in a revenue loss for the state and counties. The loss is estimated to total $32,500 to the General Revenue Fund, $32,500 to counties, and $19,500 to the State Highway Fund per year beginning in fiscal 2008.[15]

Fiscal Year
Savings /(Cost) to RTS RestrictedAmounts in the State Highway Fund
Net Savings to theState Highway FundAvailable to Redirect
2002
$0
$0
2003
($58,000)
$0
2004
$0
$234,000
2005
$0
$246,000
2006
$0
$258,000

Endnotes

[1] V.T.C.A., Transportation Code §501.027.

[2] Telephone interview with Becky Beck, chief, Titles, Vehicle Titles and Registration Division, Texas Department of Transportation, Austin, Texas, June 27, 2000, interview with Sue Mainzer, branch manager, Title Control Systems, Vehicle Titles and Registration Division, Texas Department of Transportation, Austin, Texas, June 15, 2000; and memorandum from Jerry Dike, director, Vehicle Titles and Registration Division, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study.

[3] E-mail from Duane Pufpaff, chief, Headquarters Operations, Vehicle Titles and Registration Division, Texas Department of Transportation, August 8, 2000.

[4] Telephone interview with Becky Beck, chief, Titles, Vehicle Titles and Registration Division, Texas Department of Transportation, Austin, Texas, June 27, 2000.

[5] Telephone interview with Becky Beck, chief, Titles, Vehicle Titles and Registration Division, Texas Department of Transportation, Austin, Texas, June 27, 2000, telephone interview with Harry Morgan, director, Field Operations, Vehicle Titles and Registration Division, Texas Department of Transportation, Austin, Texas, November 28, 2000.

[6] Texas Transportation Institute, Electronic Lien and Titling Research Report 3913-S (College Station, Texas, October 1997), pp. 27-28.

[7] Association of America Motor Vehicle Administrators “Electronic Liens” (www.aamva.org/aamvanet/Vehicle/elt.htm). (Internet document.)

[8] Telephone interview with Diane Mobley, E-lien administrator, California Department of Motor Vehicles, Sacramento, California, September 5, 2000.

[9] Telephone interview with Gary Elmore, E-lien administrator, Florida Department of Highway Safety, Tallahassee, Florida, June 27, 2000, telephone interview with Gary Elmore, E-lien administrator, Florida Department of Highway Safety, Tallahassee, Florida, November 28, 2000.

[10] Telephone interview with Ed Pemble, E-lien administrator, Idaho Department of Transportation, Boise, Idaho, July 11, 2000.

[11] Telephone interview with Ann Maria Kessler, E-lien administrator, Pennsylvania Bureau of Motor Vehicles, Harrisburg, Pennsylvania, July 11, 2000; telephone interview with Ann Maria Kessler, E-lien administrator, Pennsylvania Bureau of Motor Vehicles, Harrisburg, Pennsylvania, November 28, 2000.

[12] Texas Transportation Institute, Electronic Lien and Titling Research Report 3913-S (College Station, Texas, October 1997).

[13] Memorandum from Jerry Dike, director, Vehicle Titles and Registration Division, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 17, 2000.

[14] Memorandum from Jerry Dike, director, Vehicle Titles and Registration Division, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 17, 2000.

[15] Memorandum from Jerry Dike, director, Vehicle Titles and Registration Division, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 17, 2000.