In this issue:

The

Bureau

of

Regulatory

Serviceswww.Michigan.gov/sos

Auto Repair NewsWho is the customer in insurance-paid

repairs? Is it the vehicle owner, theinsurance company or both?

In every repair transaction, the customer isthe person who owns or operates thevehicle. Generally, a repair facility is notcomplying with the law if it gives an estimateto and receives authorization to do repairsonly from an insurance companyrepresentative.

A customer, however, may give theinsurance company signed authorization tocontract for repairs. In that case, the repairfacility complies with the law by providingthe estimate only to the insurance company.

To avoid problems, keep the followingpoints in mind when dealing with collisionrepairs:• Allow insurers to obtain the requiredauthorization from the customer beforeproviding an estimate.• You are not the insurance company’sagent and are not responsible for obtainingthe customer’s permission allowing you toprovide an estimate directly to the insurancecompany.• Be sure the authorization has the

Collision repairs - who really is the customer?

Page 1Collision repairs - who reallyis the customer?

Insurance fraud

Page 2Avoid being an audit target

Do you need an originalrepair facility registration?

Disposing of replaced parts:Old parts must be saved indisputes

Page 3Disciplinary actions

Spread the News

Page 4Go online for the RepairFacility Manual

Problems with crankcaseflushes

Review: Invoicerequirements Recent investigations of collision repair facilities revealed some disturbing instances of

insurance fraud. Some of these shops departed from the original estimate without customerauthorization and billed the insurance company for repairs not performed. They also chargedfor original equipment manufacturer (OEM) parts, but installed cheaper aftermarket parts;charged for new parts, but repaired the parts or installed used parts; and charged for parts orservices not performed.

Other facilities falsely claimed that vehicle owners authorized changes with theunderstanding their deductible would be waived. When customers did agree to a change toavoid paying the deductible, investigators found the facilities made additional changes withoutcustomer approval. In all cases, insurance companies were billed for repairs not performed.

Insurance fraud is not a legitimate way to reduce a customer’s bill or increase profits. Thefinal invoice must reflect the actual repairs performed and the repair facility may only charge forthat work.

Insurance fraud

Summer 2004Vol. 23, Issue 1

customer’s signature before giving theestimate to the insurance company.• If repairs are needed beyond the originalestimate and they will cost more than $10 or10 percent, whichever is less, you must getapproval from the customer. This is trueeven when the customer has given theinsurance company signed authorization toaccept the original estimate, unless it alsoallows the insurance company to approveadditional repairs.• Any changes or additional damages foundlater must be relayed to the customer even ifthey will be paid for by the insurancecompany. The customer must be given theopportunity to accept or deny any changesfrom the original estimate.• The customer is entitled to the return ofthe replaced parts and to a detailed final bill.

Many insurance companies contact theDepartment of State when they believecollision shops commit fraud. Theinformation is reviewed in the same manneras a consumer complaint and may result inan investigation. Such investigations haveresulted in disciplinary action against severalrepair facilities.

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2AR-0204 (7/04); 12,000; $661.79; $0.06. Printed under authority of P.A. 300 of 1974.

The Bureau of Regulatory Services(BRS) routinely audits repair facilityrenewal applications for correct feepayments.

If you are asked to verify the renewal feesubmitted, it will be necessary to providedocumentation that shows how the feewas calculated. With the exception ofbusinesses with a gross annual revenuethat exceeds $340,000, the gross annualrevenue entered on line 8 of theregistration renewal form should be anexact amount. Never leave line 8 blank orenter an estimated amount, such as$100,000 or $140,000. Failure to enter anamount or entering an estimate willincrease the likelihood you will be audited.

How can your registration renewal feebe calculated correctly without needinghelp from an accountant or corporateattorney? The annual fee each repairfacility is required to pay is based on thegross revenue obtained from theperformance of motor vehicle repairs,including parts and goods sold inconjunction with repairs, for the previousfederal income tax year. If the businesshas not completed a full federal income taxyear, the fee is based on the reasonablyanticipated gross revenue for the first fullfederal income tax year of operation.

What should and should not beincluded in gross annual revenue whencalculating the fee due?

Include:• The labor charges for motor vehiclerepairs performed (customer paid and/orwarranty repairs); and,• All parts and materials sold inconjunction with repairs performed.

Avoid being an audit targetDo not include:• Parts sold over the counter but notinstalled;• Motor fuels or lubricants sold at thepump;• Repairs performed on vehicles notrequired to be titled and registered (off-road vehicles);• Vehicles sold; and,

• Miscellaneous items, such as candy orcigarettes.

If your business only performs motorvehicle repairs, an easy way to determineyour facility’s gross annual revenue whenfiling a renewal application is to look at theprevious year’s federal income tax return.

If you are an individual owner, the grossannual revenue is on Form 1040, ScheduleC, line 1.

If your business is a partnership, grossrevenue will be listed on Form 1065,Schedule C, line 1. Corporate-ownedfacilities will find the gross revenue listedon Form 1120, Schedule C, line 1.

If, in addition to performing motorvehicle repairs, your business sellsvehicles or over-the-counter parts, repairsoff-road vehicles or derives income fromnon-automotive repair-related items, theseitems should be deducted from grossrevenue to establish the proper renewalfee.

Hopefully, this information will behelpful in calculating your gross annualrevenue and in reducing the likelihood ofbeing targeted for an audit. Questionsregarding this subject should be directedto (517) 373-4868.

If you buy an existing repair facility or open a new one, you must file an application foran original repair facility registration.

The only exception is if you buy a Corporation or Limited Liability Company (LLC). Inthis case, if the entity is staying the same, you do not have to change or apply for a newregistration. However, you do have to fill out and submit a Motor Vehicle Repair FacilityRegistration Change of Officer, Director, Stockholder Application.

You cannot legally operate under a registration issued to a previous owner. A repairfacility registration is transferable to another address if the ownership of the businessremains the same. If you need a registration application or want to change your officersor business address, please call (517) 636-6400.

Do you need an original repair facilityregistration?

If a complaint is filed against yourfacility, replaced parts are valuableevidence to determine the facts of thecase. Many facilities are exoneratedof wrongdoing when an examinationof the replaced parts disprovesallegations. Facilities that fail to meetrequirements for retaining thereplaced parts are in violation of theMotor Vehicle Service and Repair Act.Review the following requirements:

• Facilities must save replaced partsfor two business days after thecustomer picks up the vehicle. Thisincludes core parts unless thecustomer authorizes immediatedisposal of the parts.

• If the customer questions or raisesa dispute about the repairs or chargeswithin two business days afterpicking up the vehicle, the facilitymust hold any replaced parts in itspossession until the disputed matteris resolved.

• If a dispute involves a replaced partthat the customer has chosen not toremove from the facility, the facilitymust immediately affix a permanentmark to identify the part. This mustbe done in the customer’s presence ifhe or she is still at the facility.

Pay close attention to the italicizedlanguage in the bullet points above.It refers to requirements that areoften misunderstood. To reiterate:Replaced parts must be held for twobusiness days after the customerpicks up the vehicle. Some facilitiesmistakenly believe they may disposeof the parts two business days afterthe repairs are completed.

In addition, facilities are required tohold replaced parts “where there is aquestion or dispute raised by thecustomer within two business dayswith respect either to repairs orcharges for repairs…” (Rule 44). Inother words, the parts must beretained if the facility receives acustomer complaint within twobusiness days.

Disposing ofreplaced parts:Old parts must besaved in disputes

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Disciplinary actionsSince the last issue of the Auto Repair News,

the Bureau of Regulatory Services has takendisciplinary actions resulting in two repairfacility registrations being revoked and sixrepair facilities entering into probationagreements.

In addition, the bureau has revoked onemechanic certification, suspended two othersand entered into probation agreements withfour mechanics.

Repair Facility Actions

The following repair facilities were chargedwith violations and given the penalties noted:

• Brighton Tire & Automotive (F142463),7200 W. Grand River, Brighton, 24-monthprobation, $2,300 penalty. Charges: Chargedfor repairs not performed; performed repairswithout a properly certified mechanic;performed unauthorized repairs or exceededestimate without customer authorization; failedto hold replaced parts for two business days oruntil dispute resolved (two counts); failed toreveal a material fact (four counts); gaveimproper invoice (five counts); and failed toallow inspection of records during postedbusiness hours.

• David’s Auto Repair (F151105), 720Lincoln Rd., Otsego, 24-month probation,$150 penalty. Charges: Falsely representedthat repairs were necessary; performedunnecessary repairs; and performed repairswithout a properly certified mechanic.

• Fred & Sons 1 Collision, Inc. (F143621),17600 Livernois, Detroit, 24-month probation,$3,500 penalty. Charges: Departed from ordisregarded accepted motor vehicle repairindustry standards; made an untrue ormisleading statement of a material fact; andmisrepresented a part as new or of a certainmanufacture.

• KDS Automotive, Inc. (F144222), 31330Ford Rd., Garden City, 24-month probation,$1,000 penalty. Charges: Charged for repairsnot performed; made an untrue or misleadingstatement of a material fact; and continued inoperation without renewal of registration.

• Lee’s All Automotive, Inc. (F125064),2607 E. Grand River, Howell, amendedprobation agreement, signs posted. Charges:Violated terms of a cease and desist order or acondition of a probation agreement; barredcustomer from reclaiming replaced part; failedto do repairs in promised or reasonable periodof time; performed unauthorized repairs orexceeded estimate without customerauthorization (two counts); and failed to holdpart for two days or until dispute resolved.

• M-89 Quality Mufflers & Brakes(F147864), 1211-1/2 B M-89, Plainwell,revocation of registration. Charges: Chargedfor repairs not performed; made an untrue ormisleading statement of a material fact (twocounts); failed to give a written invoice (fourcounts); performed repairs without a properlycertified mechanic (six counts); and failed toreveal a material fact (six counts).

• Moore & Peterson Enterprises, Inc. d/b/aUS 1 Transmissions (F139719), 12132Gratiot, Detroit, 24-month probation, $1,728penalty. Charges: Failed to give writteninvoice after repairs (12 counts); failed to dorepairs in promised or reasonable period oftime (nine counts); and performed repairswithout a properly certified mechanic (twocounts).

• Mr. Computer (F151066), 90 Portage,Highland Park, revocation of registration anddenial of any future application. Charges:Performed repairs without a properly certifiedmechanic (15 counts); charged for repairs notperformed (three counts); failed to maintainrecords for required period of time (11 counts);improper invoice (23 counts); failed to honoran express warranty (two counts); failed toreveal a material fact (19 counts); usedimproper warranty terms (two counts); andfailed to do repairs in promised or reasonableperiod of time (four counts).

• Top Notch Enterprises LLC (formerly Topof the Hill of Montrose) (F151966/F156501),9210 Vienna Rd., Montrose, 24-monthprobation, pending application processed.Charges: Charged for repairs not performed;and gave improper invoice (three counts).

During the same period, nine repairfacilities signed Assurance of Discontinuanceagreements.

Mechanic Actions

The following mechanics were charged withviolations of the law and given the penaltiesnoted:

• Randall D. Combs (T195057), 4104Crooked Tree SW, Wyoming, 24-monthprobation. Charges: Performed repairswithout proper mechanic certification (eightcounts); and hindered, obstructed, or otherwiseprevented an inspection by providing falseinformation to representatives (three counts).

• Jeffrey D. Harmon (M211544), 828Winston, Monroe, suspension of mechaniccertificate until Rescission Order received fromcourt. Charges: Noncompliance with theSupport and Parenting Time Enforcement Act.

• Steven M. Herman (M148552), 59445Foxpointe Lane, South Lyon, 24-monthprobation, $787 restitution to customer.Charges: Made untrue or misleading statementof a material fact.

• Robert E. Hill (M185479), 623 JeffersonSt., Jackson, suspension of mechanic certificateuntil Rescission Order received from court.Charges: Noncompliance with the Support andParenting Time Enforcement Act.

• Frank Chance Lorenz (M235491), 7012Ingleside Ave., Flint, 24-month probation,pending application processed. Charges:Falsely represented that repairs werenecessary; and performed repairs withoutproper mechanic certification.

• Gregory Parker (M184043), 90 Portage,Highland Park, revocation of mechaniccertificate and denial of any future application.Charges: Departed from or disregardedaccepted motor vehicle repair industrystandards; performed, or inspected andapproved, repair service without propercertification (12 counts); and performed, orinspected and approved, repairs with expiredcertificate (9 counts).

• Mark H. Zilska (M193630), 15082Heybosk, Kentwood, 24-month probation,$225 penalty. Charges: Falsely representedthat repairs were necessary.

During the same period, seven mechanicssigned Assurance of Discontinuanceagreements.

The Auto Repair News is published bythe Department of State to inform repairfacilities of rules, disciplinary hearings,orders, judgments issued or obtained,and suspensions or revocations ofregistrations or licenses. It is mailed to allregistered repair facilities and postedon the department’s Web site atwww.Michigan.gov/sos under “Services toBusinesses.”

The law requires repair facilities toinform mechanics of these actions. Thisrequirement can be met by circulating theAuto Repair News among employees ormaking a copy for each employee.

Spread the News

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Michigan Department of StateBureau of Regulatory ServicesLansing, MI 48918-1200

PRSRT STDU.S. POSTAGE

PAIDLANSING, MI

PERMIT NO. 1200

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The Motor Vehicle Service and Repair Actrequires that a written statement (or invoice)be presented to the customer upon return ofa vehicle. Bureau investigations andinspections indicate that, while mostfacilities understand that an invoice isrequired, many fail to provide an invoicecontaining all of the information about therepair required by law.

All information on your invoices must bewritten or typed legibly and include thefollowing information:• The repairs requested by the customer;

• The repairs needed as determined by thefacility;• The repairs authorized by the customer;

• The facility’s estimate of repairs;

• The actual cost of repairs;

• The repairs or services performed,including a detailed identification of all partsthat were replaced, and a specification as towhich were new, used, rebuilt, orreconditioned;• The name and certification number of allmechanics who worked on the vehicle; and,• A certification that repairs were completedproperly or a detailed explanation of aninability to complete repairs properly.

Repairs: The invoice must list all repairs ina manner that identifies whether a repair was

Review: Invoice requirementsrequested by the customer or authorizedafter the repair was recommended by thefacility. The invoice must show the facility’sestimated cost of repairs and the actual cost.Repairs recommended by the facility mustalso be reported on the invoice, even if thecustomer declines the repair.

Detailed identification of all partsand labor: Parts must be identified on theinvoice. A part number alone or facility-created code is not a sufficient description.Use the part names. Labor must also bedetailed sufficiently to identify the servicesperformed.

Mechanic names: The names of allmechanics who worked on the vehicle mustbe reported on the invoice, along withcertification numbers, if applicable. Thisincludes non-certified mechanics doingminor repairs which do not require mechaniccertification.

Certification: The invoice must include acertification, signed by the facility owner ora person designated by the owner, that allrepairs were completed properly or adetailed explanation of an inability tocomplete repairs properly. The certificationmust be signed after the repairs arecompleted and may not be preprinted on theinvoice.

Problems withcrankcase flushes

Make sure the tools, equipmentand products you use for crankcaseflushes are compatible with thevehicle manufacturer’s specifications.

General Motors Corp. has issued aTechnical Service Bulletin reportingthat damage caused to engine sealsand bearings due to the use ofequipment and products notcompatible with GM parts will not becovered under the manufacturer’swarranty. Mechanics are responsible forperforming all repairs according toindustry standards. When a repairresults in damage to the consumer’svehicle, the facility is usually heldresponsible for corrective repairs.

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Go online for theRepair Facility Manual

The Repair Facility Manual isnow available only online. You willfind it at www.Michigan.gov/sosunder “Services to Businesses”--“Publications and Forms.” Pleaseremember to check regularly formanual updates. When you go online,the information you need is always atyour fingertips!