a federal consumer agency is investigating the failture of Auto -Train Corp. to pay nearly $700,000 in refunds due its customers.
Investigators for the office of Consumer Affairs of the Department of Health, Education and Walfare are looking for ways to force the Washington-based railroad to repay promptly customers who bought tickets but later cancelled their reservations.
The agency began looking into the case after receiving complaints from consumers in several states about difficulties in getting refunds from Auto -Train.
The Interstate Commerce Commission earlier this year accused the railroad of misusing its passengers' money by stalling refunds for months at a time and using the cash to pay other debts.
Auto-Train owed $695,000 refunds to passengers as of Nov. 15, and more than a quarter of those customers had waited three months or more for their money, the company reported to the ICC last week.
The ICC refused last summer to approve a routine loan refinancing by Auto-Train until the company paid the overdue refunds.
Last week, Auto-Train asked the ICC to reconsider its decision and allow the company to borrow funds before it pays back its passengers.Auto Train asked the ICC to approve the action by this Friday, saying it would have to pay higher interest rates if the decision were delayed.
Auto-Train has been in financial trouble for months and told the ICC it needs to borrow $3 million from the Paul Revere Insurance Co. so Auto-Train can repay an overdue $3 million loan from American Security Bank.
While the ICC has been weighing the railroad's fiscal problems against the consumer's right to prompt refunds, the HEW consumer affairs office has been gathering information on the refunds dispute and the company's fiscal health.
Consumers could be left out in the cold, unable to get their money back, if the company's financial problems worsen, HEW officials fear. On the other hand, forcing Auto-Train to repay customers immediately might put the railroad out of business, ICC sources said.
Immediate aid for customers awaiting Auto-Train refunds is not, likely, however, because neither the ICC nor the HEW consumer office has the legal authority to force the railroad to pay its debts to consumers. A lawsuit on behalf of consumers could do that, but neither agency has the power to go to court for consumers.
Auto-Train President Eugene K. Garfield said yesterday the railroad is paying the refunds "as quickly as we can."
"We're working it down; we've paid more than a million dollars," Garfield said. But while the railroad was paying back $1 million in old refunds, it was building up an additional backlog of new money owed to consumers, he admitted.
Garfield said the HEW action "is not a formal investigation. They don't have the power to do that."
Asked whether Auto-Train could pay back the customers immediately if it had to, Garfield answered, "We'll cross that bridge when we come to it."
The Auto-Train president said the railroad is authorized by the ICC to use any money it collects from advance ticket sales to pay for operating expenses. The money due passengers for refunds "paid for fuel. It paid for food for passengers. It paid the salaries of the train crews." Garfield said.
Garfield confirmed reports that Auto-Train recently hired the law firm of William and Connelly as special counsel, but he said Edward Bennet Williams was not brought in to handle either the refund issue or an onging investigation of the company by the Securities and Exchange Commission.