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Chapter 5.6

Eliminate the Issuance of Non-Negotiable Titles


Summary

When a vehicle is purchased through a loan, the Texas Department of Transportation (TxDOT) issues the original title to the lender or lien holder and a duplicate, non-negotiable title to the vehicle owner. Texas also issues Registration Purpose Only titles, another type of non-negotiable title, for vehicles registered in Texas but titled in another state. Other states do not issue non-negotiable titles to owners, instead allowing them to use their registration card or other paperwork as proof of ownership. Doing so in Texas would save a considerable amount of state revenue.


Background

As required by state law, all Texas vehicles have titles issued by the Texas Department of Transportation (TxDOT). The original title is a negotiable document that proves ownership of the vehicle. When borrowed funds are used to buy a vehicle, the original title goes to the lien holder (typically a financial institution) and a duplicate, non-negotiable title goes to the purchaser. In some cases, vehicles may be titled in another state, but must be registered in Texas. TxDOT issues a non-negotiable, Registration Purpose Only (RPO) title for these vehicles. Without an RPO title, the owner could not register the vehicle without first titling it in Texas. All titles must be mailed first class mail.[1] Each year, TxDOT issues about 5 million original titles, 2.6 million duplicate original titles, and 105,000 RPO titles.[2]

When a vehicle is sold, the title is transferred to the new owner, who must present an application of title form and other supporting documentation to the county assessor-collector. The county assessor-collector collects a $13 title fee, enters the information into the automated Registration and Titling System (RTS), and issues a receipt to the new owner. The county assessor-collector mails the paperwork to TxDOT, sending $8 of the fee to the state. TxDOT verifies that the payment was sent, processes the application and releases the title for printing. RTS automatically prints original titles and, when the record shows a lien on the vehicle, duplicate original titles. TxDOT uses an outside contractor to put the titles in envelopes and mail them to the lien holders and owners.[3]

To obtain an RPO title, the owner presents the application for title and a form stating that the vehicle was last registered or titled out-of-state. The county assessor-collector collects a $13 title fee, enters the information into RTS, and issues the owner a receipt. The process remains the same, except RTS only prints one non-negotiable title that states it is for registration purposes only.[4]

If an owner loses a non-negotiable duplicate or RPO title and needs to prove ownership of the vehicle, TxDOT issues a certified copy of duplicate original (CCDO). To receive a CCDO by return mail, the owner mails an application to TxDOT’s Austin headquarters with a $2 fee. To receive a CCDO immediately, the owner can turn in the application and pay a $5.45 fee at one of the 17 Vehicle Titles and Registration regional offices.[5] TxDOT issues about 5,500 CCDOs each year.[6]

Although non-negotiable titles are used to show proof of ownership, they are rarely needed. The receipt issued by the county assessor-collector is, in fact, sufficient to prove ownership. The owner can get a duplicate receipt from the county or TxDOT for a $2 fee.[7]

Other states issue original titles to the lien holder, but do not issue duplicate original, non-negotiable titles to the owners. Instead, the owners use their registration card, called a registration receipt in Texas, as proof of ownership until the lien is removed, and they receive a lien free original title. Twenty-five states issue the original title to the lien holder.[8] Of those states, at least California, Maine, North Carolina, Oregon, Pennsylvania and South Carolina use the registration card as proof of ownership.[9]

If Texas no longer issued non-negotiable titles or CCDOs and allowed the registration receipt to serve as proof of ownership, RTS would require some modification. According to TxDOT estimates, the cost of these changes, would be minimal compared to the savings-a one-time cost of about $41,000, compared to annual savings of about $841,000.[10]


Recommendations

A. State law should be amended to remove the requirement for TxDOT to issue non-negotiable titles and to clarify that other documents may be used to prove ownership.

The requirement to issue non-negotiable titles and references to non-negotiable titles should be removed. In addition, the Transportation Code should specify that other documentation, including the receipt issued when the title is applied for and the registration receipt, are adequate proof of ownership. Texas Department of Transportation (TxDOT) should modify its rules, procedures and forms to reflect this change.

B. State law should be amended to clarify that the Texas Department of Transportation may issue registration purposes only documents and charge a fee.

This recommendation does not change the current practice or fee structure; however, removing the sections of law related to non-negotiable titles would eliminate TxDOT’s authority to continue this practice. To maintain the current practice and fee structure, the Transportation Code should be changed to clarify that TxDOT may issue registration purpose only documents and collect the $13 fee. However, as with duplicate original titles, similar documents would be used to prove ownership instead of an RPO non-negotiable title.


Fiscal Impact

TxDOT would realize a gross savings of about $856,000 annually from reduced paper, printing and mailing costs. The estimated savings below represent the amounts of the State Highway Fund revenue that could be redirected to other Texas Department of Transportation programs or budget items.

However, in fiscal 2002 the department would incur a one-time cost of about $41,000 to modify RTS. Since CCDOs would no longer be issued, TxDOT would also realize an annual revenue loss of about $26,000. This revenue loss would be reduced by a revenue gain of about $11,000 annually for increasing the number of receipts, which would be accepted as proof of ownership.

Fiscal Year
Savings/(Cost) to RTS
Restricted Amounts in
the State Highway Fund
Net Savings to the
State Highway Fund
Available to Redirect
2002
($41,000)
$841,000
2003
$0
$841,000
2004
$0
$841,000
2005
$0
$841,000
2006
$0
$841,000

Endnotes

[1 ]Interview with Sue Mainzer, branch manager, Title Control Systems, Vehicle Titles and Registration, Texas Department of Transportation, Austin, Texas, June 15, 2000; telephone interview with Sue Mainzer, branch manager, Title Control Systems, Vehicle Titles and Registration, Texas Department of Transportation, Austin, Texas, August 9, 2000; and V.T.C.A., Transportation Code §501.027.

[2] Memorandum from Jerry Dike, director, Vehicle Titles and Registration, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 12, 2000; Texas Department of Transportation, “Vehicle Title Report by County, Year End August 31, 1997,” Austin, Texas. (Computer printout.); Texas Department of Transportation, “Vehicle Title Report by County, Year End August 31, 1998,” Austin, Texas. (Computer printout.); and Texas Department of Transportation, “Vehicle Title Report by County, Year End August 31, 1999,” Austin, Texas. (Computer printout.).

[3] Interview with Sue Mainzer, branch manager, Title Control Systems, Vehicle Titles and Registration, Texas Department of Transportation, Austin, Texas, June 15, 2000.

[4] Interview with Sue Mainzer, branch manager, Title Control Systems, Vehicle Titles and Registration, Texas Department of Transportation, Austin, Texas, August 9, 2000.

[5] Interview with Sue Mainzer, branch manager, Title Control Systems, Vehicle Titles and Registration, Texas Department of Transportation, Austin, Texas, June 15, 2000.

[6] Memorandum from Jerry Dike, director, Vehicle Titles and Registration, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 12, 2000.

[7] Interview with Darryl Hunt, deputy director; Steve Elsner, chief, Administrative Operations; Danny Garza, assistant director, Field Operations; Bob Tanner, director, Technical Operations, Duane Pufpaff, chief, Headquarters Operations, Vehicle Titles and Registration, Texas Department of Transportation, Austin, Texas, March 28, 2000, and Memorandum from Jerry Dike, Vehicle Titles and Registration, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 12, 2000.

[8] American Association of Motor Vehicle Administrators, The Fast Track to Vehicle Services Facts, 1999 Edition (Dubuque, Iowa: Kendall /Hunt Publishing Company, 1999), p. 25.

[9] Texas Comptroller of Public Accounts, Telephone Survey of Other States, conducted June to August 2000.

[10] Memorandum from Jerry Dike, director, Vehicle Titles and Registration, Texas Department of Transportation, to Richard Mudge, BBP Consultant Study, April 12, 2000.