A major problem in the used car industry is the illegal practice of ‘title washing,’ a process where salvaged wrecks are rebuilt and given new title information and then sold to unknowing buyers. Three consumer groups recently attempted to sue the federal government to force it to create a new national database of vehicle title information to prevent the practice from occurring, and now the U.S. Justice Department has finally reacted by introducing a nationwide electronic vehicle database.

Laws for a national database were enacted back in 1992 and 1996 but only now has any serious action been taken. Set to go live tomorrow, the database will initially include only 27 states with a further 10 states set to join later this year. This however is claimed to cover nearly 73% of all vehicle titles. By January 1, 2010, all 50 states will be required to be in the system, reports Automotive News.

The database was developed by the National Automobile Dealers Association (NADA) together with several carmakers, consumer groups, and the government. Over the course of the year, insurers and salvage yards are expected to start contributing to the database and update all the information.

Customers haven’t been the only ones victimized by the shady practice of title-washing. Dealers, too, often accept cars that were originally marked as junk or flood-damaged during trade-in thinking the cars have never had any trouble. There are also cases where two different half-cut wrecks are welded together and sold as a single car, and many of these vehicles can be very dangerous to drive.

You may remember Texas-based Unique Performance was recently investigated for altering the vehicle identification numbers of some of its cars, and Police only acted because some customers who fronted the six-figure price tag hadn’t received their cars after several years.