Maybe it is harsh, but I've called the police before when I've seen unrestrained children. In some areas, there is even a 'hotline' for reporting it. They are doing something illegal, and not only illegal but putting a child's life at risk (and maybe not even their own child!). Even though its not my kid, if its a kid I was caring for and leaving MY house then I feel some responsibility. And even if it was a random person in a random car I saw somewhere, its still not the CHILD's choice to be unsafe, its the parent making the stupid choice and they should be punished for it. Just because its their kid doesnt mean they have the right to break the law and risk killing the child because they are too lazy to walk or get a proper carseat.
When I was a nanny when ds was little I always had to fix the little girl's carseat, the straps were always falling off of her. I fixed it pretty much every day for months before they got the picture, but eventually they realized that they needed to keep things tight to keep her safe.
When my son's friends come over, I do peek at their carseats, and I have asked parents to make an adjustment here and there if it was something risky (like a FF seat installed with the RF belt path for a 15month old, she was happy to go ahead and re-rearface him and has left it correctly installed RF sense then). I've made it pretty clear that Im a carseat nerd and their child WILL leave my house in a safe carseat. Thats just how I am.
While I love carseat safety as much as the next mama, I think calling the police is a little extreme. Particularly when you have the option of speaking to the parents first and trying to change their habits without police interference. Just like I wouldn't let a friend get in the car drunk and then call the police (as opposed to first saying "hey I think you've had too many can I drive you home?"), I wouldn't just say nothing and call the police. I might call the police if I saw someone on the highway with a baby on their lap or unrestrained, but I definitely wouldn't say something to a friend. People are just too uninformed about carseats to expect total compliance without educating them first. A friend of mine had no idea that you couldn't just turn the baby around at 1, you had to wait until they were 20lbs. Now she knows!
OP, I'd print off a listing for a very cheap but adequate carseat and give it to the parents and have a talk about using a carseat. You don't have to make it really awkward but it might feel that way because you're confronting them about something and most people don't like to do that. You could even say that you can't stand the thought that if they got in an accident the kid might be killed, or that they could get pulled over and fined. I'd also demand that if you take the kids out, they have a proper carseat, because you can't be expected to take that responsibility on yourself just because they might be a little negligent.