BILL ANALYSIS
AB 491
Page 1
Date of Hearing: September 13, 2001
ASSEMBLY COMMITTEE ON JUDICIARY
Darrell Steinberg, Chair
AB 491 (Frommer) - As Amended: September 6, 2001
FOR CONCURRENCE
SENATE VOTE: 29-4
SUBJECT : RENTAL VEHICLES: COLLISION DAMAGE WAIVER
KEY ISSUES :
1)SHOULD THE $9 CAP ON THE AMOUNT RENTAL CAR COMPANIES MAY
CHARGE FOR CDWs BE REPEALED FOR MORE EXPENSIVE RENTAL
VEHICLES?
2)SHOULD ADDITIONAL PROTECTIONS BE PROVIDED TO CONSUMERS
INCLUDING (1) ELIMINATING THE RENTER'S LIABILITY FOR LOSS DUE
TO THEFT, EXCEPT IN SPECIFIED CIRCUMSTANCES, (2) LIMITING A
RENTAL COMPANY'S CLAIM FOR REPAIR COSTS AND (3) REQUIRING
DISCLOSURE OF THE FACT THAT THE RENTER'S CREDIT CARD MAY
PROVIDE COVERAGE FOR THE VEHICLE?
SYNOPSIS
This bill lifts the $9 per day cap on the "Collision Damage
Waiver" (CDW) fee in current law for those cars with a
manufacturer's suggested retail price of over $19,001. The bill
also makes changes to the law relating to airport facility fees,
and revises certain rights and obligations of a renter under a
rental car contract. This bill, which was heard by the
Committee in intent language form, has been referred to as "a
bill of tradeoffs." The bill increases the CDW fee for certain
rental vehicles. The bill also provides consumers some
additional protections in this area of the law, namely
eliminating the renter's liability for loss due to theft, except
in specified circumstances, limiting a rental company's claim
for repair costs and requiring disclosure of the fact that a
consumer's credit card may provide coverage for the vehicle.
SUMMARY : Amends current law limiting the "Collision Damage
Waiver" (CDW) fee to a maximum of $9 per day, makes changes to
the law relating to airport facility fees, and revises certain
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rights and obligations of a renter under a rental car contract.
Specifically, this bill :
1)Increases the $9 cap on CDW fees to $15 for those rental
vehicles that have a manufacturer's suggested retail price
(MSRP) of between $19,001 and $35,000 and are not older than
the model year of the preceding calendar year.
2)Permits an unlimited fee for any rental vehicle with an MSRP
of over $35,000, regardless of the model year.
3)Provides that the current $9 maximum fee would remain
applicable to rental vehicles with an MSRP of $19,000 or
below, or which are designated as a "compact," "sub-compact,"
or "economy" rental by the rental company. The $9 maximum fee
would also apply to the rental of older cars that are more
than two model years old that had an original MSRP of between
$19,000 and $35,000. The MSRP thresholds would be adjusted
annually, beginning January 1, 2003, to reflect changes from
the previous year in the Consumer Price Index for All Urban
Consumers.
4)Permits a rental car company to charge and collect a "customer
facility fee" to finance, design, and construct consolidated
airport car rental facilities or common use transportation
system that moves passengers between the airport terminals and
the consolidated car rental facilities.
5)Limits the fee to $10 per rental contract when the fee is
imposed for both a consolidated rental car facility and a
common use transportation system. In the case of a fee
assessed for customers of off-airport operations who use the
common use transportation system, the fee would be a
proportionate, reduced customer facility fee. In addition,
any fee would be deemed a user fee and not a tax and must be
separately identified in the rental agreement.
6)Provides that the authorization for an airport to impose a
customer facility charge becomes inoperative when the bonds
used for financing are paid.
7)Permits the $10 customer facilities fee to be advertised,
quoted, and charged as an "unbundled" rate, but would require
its clear disclosure.
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8)Revises the terms of a car rental agreement as follows:
a) Existing law, which allows car rental companies to
charge and collect for each day of rental a proportionate
share of the vehicle license fee paid by the company on the
rental vehicle, will sunset as scheduled on December 31,
2001.
b) The renter's liability for loss due to theft would be
revised. Under existing law, the renter is liable if the
car rental company establishes by clear and convincing
evidence that the renter failed to exercise ordinary care
while in possession of the vehicle. The bill would
provide, in addition, for a rebuttable presumption
affecting the burden of proof that the renter has no
liability if specified requirements are met. The car
rental company may rebut the presumption by establishing
that the authorized driver committed, or aided and abetted
the commission of the theft. The bill also repeals
existing law which provides that a damage waiver shall not
apply to any loss due to theft of the vehicle.
c) The renter's liability for loss of use of the vehicle,
up to $500, would be repealed. However, costs incidental
to the loss of use could be included in the administrative
charge (which is capped under current law at a maximum of
$150.)
d) In cases of damage or loss to a rental car, the bill
would require that any claim against the renter by the car
rental company "resulting from damage or loss to the rental
vehicle shall be reasonably and rationally related to the
actual loss incurred" and the rental car company would be
required to mitigate damages where possible.
e) If the claim of damage or loss against the renter is
covered by the renter's personal or business insurance
policy and the coverage is confirmed during regular
business hours, the renter may require that the rental
company submit any claims to the renter's applicable
personal or business insurance carrier. Upon request of
the renter and after confirmation of coverage, the bill
would require the claim to be resolved between the
insurance carrier and the rental company. The renter would
remain responsible for payment to the rental car company
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for any loss sustained that the renter's insurance policy
does not cover.
f) In addition to the current clear and conspicuous
disclosures required by law in relation to the sale of
damage waivers, the rental company would also be required
to disclose that the renter's credit card used to pay for
the car rental transaction may provide coverage for all or
a portion of the renter's potential liability, and that the
renter should consult with his or her credit card issuer to
determine the amount of coverage and deductible, if any,
for which the renter may be liable.
g) In the absence of express permission from the renter, a
rental company may not seek to recover any portion of any
claim of vehicle loss or damage by processing a credit card
charge or causing any debit or block to be placed on the
renter's credit card account.
EXISTING LAW :
1)Defines "damage waiver" as an agreement between the rental
company and the renter not to hold the renter responsible for
all or a portion of any losses related to damage to a rental
car. (Civil Code section 1936. All further references are to
this code unless otherwise noted.)
2)Provides that a CDW may not be sold for more than $9 per
rental day and prohibits a rental company from requiring a
consumer to purchase a CDW. (Section 1936.)
3)Provides that a damage waiver shall not apply to any loss due
to theft of the vehicle. (Section 1936.)
4)Requires a car rental company that offers a CDW as an extra
charge to clearly and conspicuously disclose specified
information in the rental car contract, including the nature
of the renter's liability and requires that all advertisements
in which rental car rates are quoted include a clear statement
that identifies the charge for a CDW and disclose that a CDW
is optional. (Section 1936.)
5)Provides that a rental car company can only advertise, quote,
and charge a rental rate that includes the entire amount
(except taxes and mileage) that a renter must pay to rent a
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car. Any airport surcharge or fee for transporting the
customer to the rental car location must be included in the
base rate. (Section 1936.) This requirement is commonly
referred to as "bundling."
6)Provides an exception to the above "bundling" rule only for
San Francisco, San Diego and San Jose airports, allowing
rental car companies at these airports to impose a separate
surcharge, which is not included in the base rate, for use of
a transportation system that moves passengers between the
terminal and the airport rental car facilities, consolidated
rental car facilities, and for financing a parking structure.
(Government Code section 50474.1; San Diego Unified Port
District Act section 57.5.)
7)Includes, until January 1, 2002, vehicle license fees in the
definition of taxes which may be charged to consumers, but
which do not have to be included in the rental rate
advertised, quoted and charged by the rental car company.
(Section 1936.)
FISCAL EFFECT : The bill as currently in print is not keyed
fiscal.
COMMENTS : When this bill was heard by the Committee, it set
forth legislative intent regarding various rental car issues.
At that time, the author and sponsor of this bill indicated they
were working with the Attorney General and other consumer
advocates to determine whether any changes to current law would
be beneficial. The author indicated his intent to use this bill
as a vehicle in the event that an agreement was reached and
agreed to bring the bill back to this Committee for a full
policy hearing at that time. The Attorney General's office has
a neutral position on this bill, and Consumers Union has not
taken a position on the bill. The California Public Interest
Research Group (CALPIRG), has expressed concern about the bill's
provisions relating to an increase in some CDW fees charged.
The Senate Judiciary Committee analysis referred to this bill as
"a bill of tradeoffs." The Committee analysis stated:
In addition to keeping the $9 rate applicable to a
significant number of car rentals, the sponsor asserts that
AB 491 also confers other significant benefits to car
renters "in exchange" for a higher CDW fee for
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higher-priced cars. For example, the industry is not
seeking an extension of the authorization to collect VLF
fees. The bill would also reduce the renter's liability
for loss due to theft, and would eliminate the renter's
liability (except for an incidental administrative charge)
for loss of use due to vehicle damage or theft. Another
provision would limit a rental company's claim for repair
costs, by requiring the claim to reflect all discounts and
price reductions and requiring the company to mitigate
damages where possible. Disclosure of the fact that the
renter's credit card may provide insurance coverage for the
rental vehicle would also be required. And, the rental
company would be precluded from collecting on the claim by
charging the renter's credit card, unless that charge was
expressly approved by the renter.
In support of the bill, the author states:
AB 491 seeks to resolve several issues between the rental
car industry and the Attorney General concerning a variety
of issues including the manner in which car rental rates
are advertised, quoted, confirmed and changed, as well as
the maximum daily rate that companies may charge for
collision damage waivers, known as CDW.
Current law limits the CDW to a maximum for $9.00 per day.
That limit was set in 1988 and has never been adjusted for
inflation. Pursuant to an agreement worked out with the
Attorney General, the CDW cap would remain at $9 for cars
worth $19,000 or less and would increase to $15 per day for
cars worth between $19,001 and $35,000 and would be
eliminated for vehicles worth more than $35,000. This
agreement better reflect the costs of providing the
product.
Some CDW Details: A CDW is an optional service offered by most
rental car companies to their customers. For a fee, the rental
company agrees not to hold a renter liable for: (1) all or any
portion of the damage or loss related to the rental vehicle,
regardless of fault; (2) any business loss ("loss of use")
incurred by the rental company because the damaged rental
vehicle is not available to be rented; and (3) any storage,
impound, towing, or administrative charges related to the
damaged rental vehicle. However, CDWs do not relieve consumers
of all liability. For example, under existing law, a CDW does
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not release the renter from liability if the vehicle is stolen.
This bill proposes to delete this requirement, thus providing
that a damage waiver may relieve a consumer of liability if the
vehicle is stolen (provided that the rental car company did not
meet the requirements of 8) b), above).
Finally, some individuals refer to CDWs as insurance, and in
practice they have the same effect as insurance (i.e., the
purchase of CDW generally relieves the renter of liability for
damage to the rented vehicle). Technically, however, they are
contractual agreements between rental car companies and their
customers in which the rental car company, in exchange for
consideration, agrees to "waive" the renter's liability for
damage to or loss of the car during the rental period.
Adding to the confusion surrounding this issue is the fact that
some consumers' insurance policies already cover damages to
rental cars - though most consumers may be unaware of the
specifics of their policies at the time they rent a car, or
specifically, at the time they make the decision whether to
purchase a CDW for a $9 surcharge. Existing law requires that
the notice given to a renter at the time that he or she signs a
rental contract indicate that the renter's own insurance may
cover all or part of the renter's financial responsibility for
the rental vehicle. This bill requires that the notice also
tell a renter that the credit card used to pay for the rental
transaction may also cover the financial responsibility.
What is the impact of the increase? The Senate Judiciary
Committee analysis stated the following with respect to the
impact of the increase proposed by this bill:
According to statistics for year 2000 provided by the car
rental agencies, about 17.76% of the renters in California
purchased the CDW product. Of these, about 16% of the
purchases applied to rentals of cars with a MSRP of $19,000
or less; about 79.59% of the purchases applied to rentals
of cars with a MSRP of between $19,001 and $35,000; and
about 4.84% of the purchases were for rentals of cars with
a MSRP of over $35,000.
According to the statistics, there are about 14 million car
rental transactions annually. Of these numbers, about
1,967,633 current CDW customers would be subject to the
proposed price increase. However, the anticipated revenue
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from AB 491 (or costs to consumers) is difficult to
extrapolate. It is not known how many of the current 1.96
million buyers rent a car from just one day, as opposed to
a weekend or weekly rental. A weekly rental will net seven
times the CDW revenue as a car rented for one day.
Further, it cannot be assumed that all current renters will
continue to purchase the product if the price increases
significantly. By way of comparison, the national purchase
rates of CDW for the year 2000 were significantly lower,
perhaps due to the higher costs. Nationwide, only 9.12% of
the car renters purchased CDW, as compared to 17.76% of
renters in California. Thus, as the price goes up,
penetration or purchase rates may indeed come down.
Customer Facility Fees : The "customer facility fee" is a recent
innovation, first used by San Francisco International Airport,
and later the San Jose International Airport, to finance the
construction of consolidated car rental facilities away from the
immediate vicinity of the airport terminal (to reduce
congestion) and a common use transportation system to transport
the rental car customers between the rental companies and the
airport. Rather than use local funds, this approach raises the
needed revenues from the users. Other airports now wish to
adopt this approach to finance their construction of similar
facilities.
This bill permits a rental car company to charge and collect
such a customer facility fee to finance, design, and construct
consolidated airport car rental facilities or common use
transportation system that moves passengers between the airport
terminals and the consolidated car rental facilities. The bill
requires that the fee be separately identified in the rental
agreement and provides that the authorization for an airport to
impose a customer facility charge becomes inoperative when the
bonds used for financing are paid.
Varying CDW Charges Based Upon The Cost Of The Rented Vehicle.
This bill revises current law limiting the CDW fee to a maximum
of $9 per day, based on the MSRP of the rental vehicle. Under
the bill's provisions, a maximum fee of $15 per day would be
permitted when the rental vehicle has a MSRP of between $19,001
and $35,000 and is not older than the model year of the
preceding calendar year. The fee would be unlimited for any
rental vehicle with an MSRP of over $35,000, regardless of the
model year. The current $9 maximum fee would remain applicable
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to rental vehicles with an MSRP of $19,000 or below, or which
are designated as a "compact," "sub-compact," or "economy"
rental by the rental company. The $9 maximum fee would also
apply to the rental of older cars that are more than two model
years old that had an original MSRP of between $19,000 and
$35,000.
Because of this newly-created "tiered" approach, there is
arguably no necessary relationship between the CDW fee and the
damage sustained to the rental vehicle. While it may be the
case in some instances that higher priced cars cost more to
repair or replace, in other instances the costs to replace a
lower priced car may exceed the costs to repair a higher priced
car. For example, if a $19,000 car is totaled, it may cost that
much to replace it. In this case, the CDW fee would be $9. On
the other hand, if a $50,000 car sustained minor fender damage,
the cost to repair is likely to be much less than $19,000. Yet,
the CDW fee would be unlimited in the latter case.
ARGUMENTS IN SUPPORT: According to supporters of the bill,
several reasons argue for the proposed increase:
California car rental companies, by far, are forced to
charge the lowest rate in the nation, with the overwhelming
prevailing rate in the country being $16.99 to $17.99.
The $9 rate does not fairly reflect the risk car
companies are taking with certain higher risk drivers who
may be otherwise uninsurable or uninsured. This is
particularly true in the case of higher priced cars which
costs more to repair or replace.
Repair costs have also increased significantly in the
intervening years.
Car rental companies need an increase in CDW rates to
increase their net profits in order to be more competitive
and offer better products. As a percentage of their
portfolio profits, profits from CDW sales have eroded over
time.
Further, with the sunset of the VLF fees, which is
estimated to raise about $30 million for the car companies
(before the license fee reduction), California car rental
companies are facing a significant revenue reduction in
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upcoming years. A stagnant economy would also hurt the
tourist trade.
Inflation since 1989 (when the current $9 cap went into
effect) has increased almost 45%, eroding the net returns
to its members. (Adjusted for inflation, $9 on January 1,
1989 would be $13.19 today.)
Market penetration, the percentage of rental customers
buying the product, has also decreased significantly, which
has decreased net revenues.
AB 491 would preserve the $9 fee for a significant
number of rental cars. All rentals designated as a compact
car or lower would stay under the $9 cap. So would any car
with a MSRP of $19,000 or below, and any older (more than 2
model years) rental car that originally had a MSRP of
between $19,001 and $35,000. (So, if the law were in
effect today, the $9 cap would apply to compact rental cars
and below, to any car with a MSRP of $19,000 or less, and
to 1999 model year cars which originally had a MSRP of over
$19,001, but less than $35,000, like a 1999 Ford Taurus or
Chevy Malibu. The $15 fee would apply to a year 2000,
2001, and even a year 2002 Ford Taurus or Chevy Malibu when
it is released later this year.)
Prior Related Legislation. AB 966 (Papan, 1999), which, among
other things, eliminated the $9 cap on CDWs and required a
rental car company to clearly disclose in any television, radio
or print advertisement the existence and amount of a CDW, died
in the Senate Judiciary Committee.
SB 1228 (Vasconcellos, Ch. 760, Stats. of 1999) required car
rental companies at the San Jose International Airport to act as
agents for the city in collecting a city-imposed Capital
Facilities Fee from their rental car customers, separate from
their base rate for the purpose of financing, designing, and
constructing: (1) a new consolidated rental car facility, and
(2) an airport mandated common use transportation system for
moving passengers between the terminals and the rental car
garage at the airport and permitted car rental companies to
collect a distinct and additional surcharge fee of up to $5 from
their airport customers for an airport-mandated common use
busing system that would be used until such time as the common
use transportation system is operating.
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AB 2314 (Papan, 1998), which repealed for certain vehicles the
$9 cap on optional CDWs offered by rental car companies, died in
the Senate Judiciary Committee.
SB 1907 (Burton and Peace, Ch. 889, Stats. of 1998) authorized
the San Francisco International Airport and the San Diego
Unified Port District to impose a user fee on the customers of
rental car companies for the purpose of financing a new ground
transportation system at San Francisco Airport and the
construction of a new parking facility which would be adjacent
to the San Diego Convention Center and required a rental car
company to comply with specified disclosure requirements for
consumer protection purposes.
REGISTERED SUPPORT / OPPOSITION :
Support
American Hotel and Lodging Association
ANC Rental Corporation (Alamo and National)
Avis Rent A Car System
Burbank-Glendale-Pasadena Airport Authority
California Association of Bed and Breakfast Inns
California Ski Industry Association
California Teamsters Public Affairs Council
California Travel Industry Association
Car and Truck Renting and Leasing Association of California
Contra Costa Convention and Visitors Bureau
Enterprise Rent A Car Company
Monterey Peninsula Airport District
Port of Oakland (Oakland Airport)
Redding Airport
Santa Barbara Airport
State Building Construction Trades Council
The Hertz Corporation
Opposition
None on file
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334