Transportation regulators from out of state are calling on Washington to fix a state law they complain is fueling illegal auto schemes and spelling trouble for consumers around the country.
The issue involves the Washington wholesale auto dealer's license.
The license allows a dealer to buy vehicles from or sell vehicles to other licensed dealers.
For instance, a wholesale auto dealer can buy cars in bulk at auctions and sell them to retail shops, but a wholesale dealer cannot legally sell those cars directly to consumers.
KING 5 found Washington makes obtaining one of these licenses relatively easy and, as a result, the license is attracting people intent on bending the rules.
KING 5 obtained state records indicating applications for the wholesale dealer license in Washington increased more than 700% over three years, and in that same time, the number of new licensees approved for business more than tripled from 237 to 775.
Washington's wholesale auto license requires licensees to pay a $975 fee and maintain an office space in a commercial building, but it does not require the wholesale auto dealer to maintain any regular business hours like an auto retailer is required to do.
KING 5 found dozens of wholesale auto dealers set up business fronts that their landlords said were rarely if ever used.
Some of the offices were tucked inside closets and buildings littered with graffiti.
"They basically set it up to stage it for the Department of Licensing to come inspect when they moved in," said Carl Erickson, who rented out two of his Soap Lake properties to some of these dealers. "Meet the minimum requirements of having that business, that is really the only purpose of them having it."
Complicating the situation, many wholesalers are obtaining assistance from third party companies, like American Dealer License.
For a fee, the companies help individuals apply for a license and provide an office space, eliminating any requirement that the wholesalers, personally, ever set foot in Washington state.
"I simply offer the ability for individuals to enter into a marketplace," said American Dealer License Mauricio Kiglies. "I have zero say over who gets approved and who gets declined. It is then the state's job to screen out the folks who aren't licensable."
"It just goes against what the original intent of the law is," said Department of Licensing State Administrator Lewis Dennie, who is in charge of regulating wholesale auto dealers.
Dennie said the situation makes it tough for him to take action or compel prosecution when one of these dealers commits a crime.
While the dealer, holds a Washington license, often the crime has occurred out of state, Dennie said.
"Our jurisdiction ends at the border," Dennie said.
KING 5 obtained complaints from regulators in other states indicating that predicament is frequently happening.
An investigator in Wyoming wrote the Washington DOL about a father-son duo operating under a Washington license recently accused of writing bad checks and auto theft in Wyoming.
The father in that father-son duo is now behind bars in Colorado facing similar accusations.
In another email, a Chicago police investigator complained, "I am seeing more and more Washington dealer plates driving around."
In Iowa, investigator Matt Dingbaum wrote Washington for help after several unwitting Iowa auto buyers ended up with vehicles containing washed titles and turned back odometers purchased from a Washington wholesaler.
"I think everyone is frustrated," Dingbaum said. "They (the consumers) can't drive it legally, and they can't sell it without putting another person out to be victimized. So, really they are out the money they spent."
Dingbaum said he and his staff are spending a growing number of hours investigating crimes occurring in the state of Iowa at the hands of Washington wholesalers.
"There is a lot of hours of work put into just one of these transfers," Dingbaum said.
Dennie said the DOL takes action to terminate a license when it learns that a licensee is tied to illegal activity or is not maintaining a Washington presence, but KING 5 found some businesses that are maintaining active licenses even months after a complaint has been filed.
"Due process takes time. When there is a final adjudication on that, then we would take action on their license," Dennie said.
State records indicate Dennie's department opened an investigation about 245 times last year. The DOL said about 20 staff members were devoted largely to this one issue and logged thousands of hours.
"So, there is significant consumer harm happening out there," Dennie said.
Legislative Director Tony Sermonti admits the state's current policy isn't working.
"They have found a loophole," Sermonti said. "It really gives a bad name to Washington licensees that are doing good business."
Lawmakers nearly eliminated the license last year, then saved it, at the urging of Rep. Steve Kirby, D-Tacoma.
"The only thing I'm worried about is putting legitimate people, who are doing the wholesale auto business, out of business inadvertently," Rep. Kirby said. "And I was mistaken."
Rep. Kirby is now leading an effort to eliminate the Washington wholesale auto dealer license with HB1722.
"They made their money exploiting the easy law we have here," Rep. Kirby said. "We can't have that."
Washington wouldn't be the first state to eliminate the wholesale auto dealer license.
It's not offered in about half of the country, and Indiana most recently eliminated its wholesale auto dealer license under similar pressure.
Kiglies argues lawmakers aren't solving anything. He said they are just passing their problems on to other states.
"Both ways I win," Kiglies said. "If it goes away, then I have an entire state of people who will want this wholesale license that can no longer get it in their state. You have an opportunity to really nail the problem head on and yet you are choosing not to."
Kiglies argued the state should recognize the demand for the license and instead of eliminating it, increase requirements on wholesalers for reporting their business activities.
"This, in our opinion, is a play to eliminate an entry door to an industry that otherwise requires significant resources to be able to get," Kiglies said.
Legislative Director Sermonti said the state isn't trying to put anyone out of business. It's trying to eliminate an entry door to people with no intention of doing business in Washington and, in some cases, looking to do harm.
"Washington state was looked at as a state of convenience," Sermonti said. "We think this is a reasonable approach."
If HB1722 passes, it would phase out the wholesale auto dealer license over three years. After that, dealers who wished to remain in business would need to obtain a retail auto dealer license or work for a retail auto dealer, Sermonti said.
VIDEO: Wholesale auto law
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