BMV boss pushed fee, then took a job with a company that benefited

A top Indiana Bureau of Motor Vehicles official encouraged the use of a fee whose legality has been questioned — and now he works for a BMV contractor that benefited from that fee.

In the latest revelation of questionable actions by top BMV officials, The Indianapolis Star has learned that former Chief of Staff Shawn Walters signed a state contract with a relatively small contractor called Express MVA, allowing the company to charge customers a so-called “convenience fee” for providing services traditionally available only through the BMV.

He later took a newly created executive job with the company without seeking an opinion from the state ethics commission.

The move raises questions about whether he complied with a conflict-of-interest law designed to prevent state employees from using their office to help a future employer at the expense of the public.

BMV officials declined to comment on the propriety of Walters’ hiring by Express MVA, saying only that he is prohibited from working on BMV matters while at the company. They acknowledge, however, there’s no way to verify his compliance.

Walters did not return phone calls or emails from The Star. Neither did the owners of Express MVA. But in a legal deposition in another matter, Walters said he has no oversight of the company’s Indiana operations.

His potential conflict of interest aside, critics of the BMV cite the convenience fees promoted by Walters and others as yet another example of the BMV gouging Hoosier drivers.

At least one state lawmaker says they may have been illegal.

“They’ve been charging a fee for the better part of a decade without the statutory authority to do it,” said state Rep. Dan Forestal, the top Democrat on the House Roads and Transportation Committee. “They were operating outside of their authority and overcharging Hoosiers.”

The BMV defends the legality of the convenience fees, which it has allowed private contractors to charge for years. But only this year did the state pass legislation expressly allowing the fees.

It wouldn’t be the first time the BMV overcharged Hoosier motorists. As The Star reported in an ongoing investigation of the agency, a class-action lawsuit filed in 2013 resulted in the BMV refunding $30 million to motorists for higher-than-allowed operator license fees. Since then, the BMV has refunded another $30 million in other overcharges. And a second, still-pending lawsuit seeks to recoup up to $40 million more in overcharges.

A Star investigation published in March found that top BMV officials — including Walters — knew about some of those fee problems for years, but chose to ignore or cover up the overcharges rather than refund the extra money and adjust to significant budget losses. Another Star investigation showed lingering vestiges of a political patronage system used to hire top officials of the agency.

The convenience fees were not part of either lawsuit. And BMV officials say they have no idea how much money private contractors have charged customers in convenience fees. But the potential charges are great.

The contractors have handled more than a million title and registration transactions for the BMV during the past 18 months alone — about 6 percent of all BMV transactions. With convenience fees that can double or even triple the price charged by the BMV, the charges amount to millions of dollars.

Speed vs. Accuracy

With an eye toward speeding up service at the BMV’s license branches, Walters and other leaders took an unprecedented step in 2010: They allowed a private, for-profit company to open what they called a “partial service license branch,” complete with BMV-provided workstations and access to the BMV’s STARS computer system.

The arrangement allowed the relatively new company, Express MVA, to quickly process registration and title transactions — even fairly complicated ones — at its office on Southeastern Avenue in Indianapolis. It was a convenience for customers, often auto dealerships, because they did not have to stand in line at a BMV branch.

The BMV paid the company nothing, but their five-year contract allowed Express MVA to charge “a convenience charge as determined by the contractor to cover the Contractor’s costs of operation.” Auto dealerships often passed that convenience fee on to car buyers.

Today, Express MVA tacks on convenience fees of $10 to $15 for common transactions, in some cases doubling the cost of the same service at the BMV.

Express MVA grew rapidly thanks to the arrangement. In 2012, Walters personally signed an amended contract with the company allowing it to open a second branch in Evansville. Soon, it was the largest automotive title processor in the state.

The BMV went on to make similar arrangements with four other companies. Walters personally signed most of those contracts.

If the arrangements proved lucrative for the companies, they were helpful to the BMV, too.

“It moves the large volume commercial customers out of the branches, which allows the citizens to have quicker access to transactions,” Walters explained in an April 7 legal deposition.

The expanded use of private contractors also helped advance the agenda of then-Gov. Mitch Daniels. He had campaigned on improving customer service at BMV license branches, where long wait times had become the butt of jokes. When he left office at the end of 2012, reduced BMV wait times were a major feather in his cap.

But the BMV’s emphasis on speed has raised questions about whether it came at the expense of accuracy — specifically as it relates to fees. What fees the BMV is allowed to charge is directly governed by law, but the BMV sometimes exceeded its legal limits.

At one point in his deposition, Walters is asked whether speed or accuracy was more important to him at BMV.

“They were equally important,” he said.

A scandal and a new job

Walters left the BMV soon after the first of two class-action lawsuits rocked the agency in 2013.

In depositions from second lawsuit, several BMV officials testified they warned Walters about probable overcharges and urged him to authorize an outside audit back in 2011 — two years before the lawsuit publicly exposed overcharges for the first time.

But in each case, the officials said, Walters refused. When one of them went over his head and took the problem to then-BMV Commissioner Scott Waddell, Walters — a 23-year veteran Army officer — chewed him out and accused him of insubordination, according to the official’s sworn testimony.

In his deposition, Walters said he didn’t recall those conversations. In fact, his memory failed him more than 30 times during his deposition. He did say he remembered raising his voice with the employee he considered insubordinate.

Despite his central role in the fee scandal, Walters was never publicly disciplined or reprimanded.

He instead landed a new position as chief of staff at another state agency, the Family and Social Services Administration, where he received a raise and earned $125,000 a year.

But he didn’t stay there long. A year later, in June 2014, Walters took a job as chief operating officer at Express MVA, the company whose expansion he enabled while at the BMV.

The company’s owners — Kevin Calvert and Doug Pillow — apparently created the new executive position for Walters. He testified in his deposition that the position hadn’t previously existed at the company.

The state requires a one-year cooling-off period for employees who want to take a job with a company that does business with the state. The law is intended to prevent private companies from using lucrative jobs to entice or reward state officials who have the power to award them contracts.

The state ethics law says the cooling off period begins when a state official “ceases to be a state officer, employee, or special state employee.” It had been more than a year since Walters worked for the BMV, but he had remained a state executive right up until he took the job with Express MVA.

How the ethics law applies in Walters’ situation is unknown because he never asked.

In his deposition, he said he did not consult the state ethics commission. Nor did he obtain a waiver of the rule, according to a review of ethics commission records.

A new law

The legality of the convenience fee is another matter. Although the BMV has allowed contractors to collect the fees for years, insisting they were legal, the state this year passed legislation that appears to have allowed them for the first time.

The new legislation raises a question: If the fees were already legal, why was the new law needed?

The events leading up to the passage of the legislation offer some insight.

Shortly after Walters left the BMV, Gov. Mike Pence hired Indianapolis law firm Barnes and Thornburg to conduct a review of the BMV’s fees in light of the first lawsuit.

The Pence administration has refused to release the results of that review, arguing it is protected by attorney-client privilege, so it’s impossible to know what, if anything, the review found in regard to the convenience fees.

But after the review, Pence said his administration would work with Rep. Ed Soliday, the Republican leader of the House Roads and Transportation Committee, on House Bill 1393, a wide-ranging BMV-related measure intended to simplify the complicated web of state laws and regulations that govern the agency’s 1,000-plus fees.

During a February hearing on that bill, Forestal, the committee’s ranking Democrat, objected to a provision that said “a partial services provider may impose, collect, and retain a convenience fee.”

He read an email he had received from a former BMV title director expressing concerns about the convenience fees: “I do not believe the BMV has statutory authority to allow a company to charge an additional fee on top of existing transaction fees, yet this process has been common practice for years,” the email said.

The BMV’s attorney, Patrick Price, deferred Forestal’s questions to lobbyist Mark Shublak. He represents Envirotest, a BMV contractor that charges customers $45 for a vehicle title that would cost $15 at a license branch.

“It’s nothing more than an abundance of caution and to clarify the code,” Shublak said.

Price also defended the convenience fee.

“If the companies do not have the ability to charge any fee then they have no opportunity to recoup any costs for performing these services and that hurts everyone,” he said.

Ultimately, Forestal’s effort to strip the language from the bill failed.

When The Star later questioned the convenience fee provision, BMV officials denied seeking the change — a denial that seems to contradict what Soliday said about the motivation for the new language.

He told The Star it stemmed from “vulnerabilities” discovered by the BMV or outside legal counsel it hired to review fees after the 2013 lawsuit.

“At least one plaintiff’s attorney thinks he has a fertile field for taking taxpayer money and putting it in his pocket,” the Valparaiso Republican said, referring to Irwin Levin, the Indianapolis attorney behind the class action lawsuits. Levin’s law firm, Cohen & Malad, received $6 million as part of the first lawsuit.

“It was clarified so that any lawyer could understand it,” Soliday said. “If a lawyer came in and said, ‘here are some vulnerabilities in the law that are poorly drafted,’ would you fix it?”

In an email exchange with The Star earlier this year, the BMV’s new commissioner, Kent Abernathy, also defended the new law.

“Like any private vendor, the vendor has a right to charge a service or convenience fee to make a profit,” he said. “Our website says that convenience fees may apply. Vendors are also required by contract to announce the fee to customers before the transaction is performed.”

But both Forestal and Soliday said that doesn’t always happen — especially at auto dealerships where customers may not know that a third party is processing their title and registration for a significant fee.

Soliday said lawmakers would likely take up that issue during next year’s legislative session.

“The real issue,” he said, “is if it’s transparent enough.”

Call Star reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.

Stories in this series

Today: BMV official pushed fee, then took job with company that benefited A top BMV official encouraged the use of a fee whose legality has been questioned – and now he works for a BMV contractor that benefited from the fee.

May 24: Did patronage lead to BMV overcharges? The qualifications of several top BMV officials raise serious questions about whether expertise or political connections were more important at the troubled agency.

March 22: BMV ignored overcharges Top officials at the BMV knew for years they were likely gouging Hoosier motorists with tens of millions of dollars in excessive fees, but those officials chose to ignore or cover up the overcharges rather than refund the extra money and adjust to significant budget losses.