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CARFAX Settles Class Actions

Agrees to Include Prominent Warning that its Reports May Not Be Complete

January 19, 2007

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Car buyers who purchased a CARFAX vehicle-history report before Oct. 27, 2006, would be entitled to additional, free reports or other benefits under a proposed settlement of a nationwide class-action lawsuit against the company.

The suit charged that CARFAX misled consumers into believing that its reports contain complete information about vehicle histories. The settlement provides that CARFAX must include a prominent warning in its marketing materials that its reports may not be complete.

Consumers can fill out an online claim form to be included in the settlement. Final court approval of the settlement is scheduled for April 27.

The proposed settlement would conclude nine cases alleging that the the Fairfax, Va., company violated states' consumer-protection laws "by not properly disclosing terms and conditions for, and limitations of, CARFAX Vehicle History Reports," according to a notice mailed to customers.

Under the terms of the proposed settlement, consumers who bought CARFAX reports could get free or reduced-price CARFAX reports or they could choose to have CARFAX pay part of the cost of having cars inspected for signs of past problems.

The settlement covers all former CARFAX customers unless they opt out in writing by March 13. Those who accept the settlement would give up their right to sue CARFAX for past problems.

Kansas attorney Bernard Brown called the settlement "worse than no settlement at all" and said it is little more than a marketing tool for CARFAX. He said claimants should get cash instead of vouchers for additional CARFAX reports.

Other attorneys said the settlement might be the best consumers could hope for, especially since the company is governed by Virginia law, which is very hostile to class actions.

In agreeing to settle the case, CARFAX denied any wrongdoing.

Company "Overstated" Its Capabilities

When he filed his lawsuit, McLaughlin says his investigation revealed that CARFAX overstated what it could do for consumers.

"The problem I had with CARFAX from the very beginning was that it claimed it could tell consumers if a vehicle had been in a major accident," he says. "But CARFAX doesn't say what a major accident is, and few accidents result in titling events (changing or branding the title).

He adds: "If you think of every policing agency, in every county in America, and all the municipalities in the country, and then add them up, how many of those agencies track accidents by vehicle identification numbers (VIN) numbers? How many enter that data into a computer or report it to CARFAX? Some police agencies are still writing reports by hand."

CARFAX acknowledges it only receives police reports from "selected states."

McLaughlin also says CARFAX doesn't receive accident information from insurance companies -- perhaps the biggest data pool of wrecked vehicles.

Would he rely on CARFAX when buying a used car?

"I would never close a deal based on a CARFAX report," he says. "Unless there's been a huge shift in how it gathers its data nationwide, I'd presume it has the same shortcomings it did when we started all this."

McLaughlin's 2003 suit charged that auto dealer Mid-South Motors purchased a 1995 BMW 525i from another wholesaler in 2002 after buying a CARFAX report that showed no "salvage" brands and no police accident or damage disclosure records.

A subsequent check of a database maintained by the National Insurance Crime Bureau (NICB) revealed that the BMW had been declared a "total loss" three separate times after accidents in New York, Florida and Georgia that were reflected in police accident records, according to court documents.

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