BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 753
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          Date of Hearing:  April 5, 2011

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
                    AB 753 (Monning) - As Amended: March 22, 2011
                                           
                               As Proposed to be Amended

           SUBJECT  :  RENTAL CAR SAFETY: THE RAECHEL AND JACQUELINE HOUCK 
          RENTAL CAR SAFETY ACT

           KEY ISSUE  :  SHOULD CAR RENTAL COMPANIES BE PROHIBITED FROM 
          RENTING OR SELLING VEHICLES UPON RECEIPT OF NOTICE THAT ARE 
          SUBJECT TO ANY FEDERAL SAFETY RECALL?

           FISCAL EFFECT  :  As currently in print this bill is keyed 
          non-fiscal.

                                      SYNOPSIS
           
           This bill would prohibit car rental companies from renting or 
          selling cars that are subject to a recall notice under federal 
          motor vehicle safety standards until the necessary repairs are 
          made.  Under current federal law, a similar rule already 
          prohibits car dealers from both selling and leasing vehicles 
          subject to a recall unless and until they are repaired.  The 
          author and sponsor, Consumers for Auto Reliability and Safety, 
          argue that consumers should be able to rent a vehicle without 
          worrying about safety issues that should have already been 
          repaired.  A tragic example, supporters state, occurred with the 
          deaths of Rachael and Jacqueline Houck after Rachael lost 
          steering ability on their rented PT Cruiser in the Santa Cruz 
          area.  Their vehicle was subject to a federal recall notice for 
          a defective power steering hose, which their rental company had 
          evidently received a month before.  The car rental companies and 
          other business groups acknowledge the tragedy involving the 
          Houck sisters, but suggest that the bill will not improve 
          safety-related issues that are already appropriately addressed 
          by existing common law surrounding negligence, as well as 
          statutory law prohibiting rental car companies from renting 
          unsafe vehicles.  They also contend that voluntary rental car 
          company policies are already in place to prevent such tragedies. 
           Finally, rental car companies suggest that the measure is 
          overly broad in failing to recognize that the federal recall 
          notices referenced do not distinguish between safety related 








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          issues and non-safety defects, and that the bill inappropriately 
          focuses solely on rental car companies rather than covering 
          other vehicle fleets that are used by persons other than the 
          owner.

           SUMMARY  :  Prohibits car rental companies from renting or selling 
          cars that are subject to federal recall notices.  Specifically, 
           this bill  :  

          1)Forbids car rental companies from renting or selling a vehicle 
            once notice has been received that the vehicle is subject to a 
            safety recall for a defect or noncompliance with federal 
            safety standards.

          2)Requires car rental companies to make the required repairs to 
            a vehicle subject to a safety recall under federal law before 
            allowing the vehicle to be rented or sold to consumers.

           EXISTING LAW  :

          1)Generally governs contracts between vehicle rental companies 
            and their customers and regulates an automobile renter's 
            liability for loss due to theft, a rental company's loss of 
            use, or damage or loss to a rental vehicle, a renter's credit 
            card liability, the submission of insurance claims, damage 
            waivers and damage waiver fees, and the notice to a renter 
            regarding financial responsibility and optional damage 
            waivers.  (Civil Code section 1936.)

          2)Provides that no person engaged in the rental of any vehicle, 
            for periods of 30 days or less, shall rent, lease or otherwise 
            allow the operation of such vehicle unless all of the 
            following requirements are met: (1) All necessary equipment 
            required by this code and regulations adopted pursuant to this 
            code for the operation of the vehicle upon a highway has been 
            provided or offered to the lessee for his or her use; (2) The 
            vehicle conforms to all applicable federal motor vehicle 
            safety standards established under the National Traffic and 
            Motor Vehicle Safety Act of 1966 (15 U.S.C. Sec. 1381 et seq.) 
            and the regulations adopted under that act; (3) the vehicle is 
            mechanically sound and safe to operate within the meaning of 
            Section 24002.  (Vehicle Code section 24010(a)(2).)

          3)Provides the Department of Motor Vehicles may conduct periodic 
            inspections, without prior notice, of the business premises of 








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            persons engaged in the rental of vehicles for periods of 30 
            days or less and of the vehicles themselves, for the purpose 
            of ascertaining that the vehicles are in compliance with the 
            foregoing section regarding vehicle safety, and that any 
            vehicle which is found not in compliance shall not be rented 
            or leased until proof of full compliance with this section is 
            made to the satisfaction of the department.  (Vehicle Code 
            section 24010(b).)

          4)Requires auto manufacturers to notify owners, dealers, and 
            distributors of motor vehicles about a defect that relates to 
            motor vehicle safety or is in noncompliance with a Federal 
            motor vehicle safety standard.  (49 C.F.R. section 577.1.)

          5)Requires new car dealers to be advised in the notification 
            that it is a violation of federal law for a dealer to deliver 
            a new motor vehicle under a sale or lease, or any new or used 
            item of motor vehicle equipment, covered by the recall 
            notification until the defect or noncompliance is remedied.  
            (49 C.F.R. section 577.13.)

          6)Prohibits new car dealers from selling or leasing a vehicle 
            subject to a safety recall notice until repairs have been 
            made.  (49 U.S.C. section 30120(i).)

           COMMENTS  :  The author explains the purpose of the bill as 
          follows:

               Existing federal and state laws permit rental car companies 
               to rent out cars that are being recalled due to safety 
               defects, or that fail to comply with federal safety 
               standards.  Federal law already prohibits auto dealers from 
               selling new cars that are being recalled.  

               AB 753 is needed to ensure that the Houck tragedy does not 
               occur again.  A consumer should be able to rent a car 
               without worrying about safety issues that should have 
               already been repaired.  We need to ensure that rental car 
               companies don't become complacent with their policies and 
               rent out recalled car, as well as ensure that smaller 
               rental car companies who do not have policies do not rent 
               out recalled cars to retain their smaller customer base.

          The bill's sponsor, Consumers for Auto Reliability and Safety 
          (CARS), likewise argues for consistency in the treatment of the 








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          sale or rental of recalled autos, adding "It shouldn't matter if 
          you're buying or renting - the car should be safe."

           The Need For This Bill Arises From A Tragic Accident.   According 
          to the author, all the major rental car companies have a record 
          of renting out or selling vehicles that are under federal safety 
          recalls, placing their customers at potential risk of serious 
          injury or death, and posing a threat to other drivers.  By 
          contrast, the author notes, car dealers are prohibited from 
          selling or leasing new cars that are under a recall notice.  As 
          explained below, the industry contends that its existing 
          practices are adequate to the standard needed to guard against 
          undue safety risks.

          The author states that a tragic example of this risk occurred in 
          the Santa Cruz area when sisters Raechel and Jacqueline Houck 
          were killed while driving a recalled PT Cruiser rented from 
          Enterprise.  Approximately one month before the Houck sisters 
          were killed, Enterprise received notice from Chrysler that the 
          PT Cruiser had a defective steering component that was prone to 
          catch fire, the author reports.  Despite the warning, Enterprise 
          reportedly rented out the car to three other customers before 
          renting the PT Cruiser to the Houck sisters.

          According to the author, while some rental car companies claim 
          they have voluntarily changed their policies as a result of the 
          Houck case, legislation is necessary to ensure that rental car 
          customers are not placed in unknown danger when renting a car 
          under a manufacturer's safety recall notice.  

          According to a recent article in the Los Angeles Times, federal 
          lawmakers are also considering but have not introduced 
          legislation to require rental car companies to immediately take 
          cars off the road that have been recalled for safety defects.  
          Sen. Charles Schumer (D-N.Y.) cited the death of the Houck 
          sisters as a reason Congress should adopt a bill to bar agencies 
          from renting out cars that have been recalled because of safety 
          issues.  Current law prohibits car dealers from selling a 
          recalled vehicle, but the law doesn't address rental car 
          agencies.  It also prohibits a rental car company from renting 
          an unsafe vehicle.

          According to the Times:

               Schumer also pointed to a study by the National Highway 








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               Traffic Safety Administration that is still underway. 
               Looking at 10 recalls by General Motors and Chrysler from 
               2006 to 2010, the study showed:

               Hertz Rent-a-Car fixed only 34% of its vehicles affected by 
               those recalls within 90 days. Avis Car Rental and Budget 
               Rent a Car fixed 53% and Enterprise fixed 65% in the same 
               time frame.

               "The study suggests that tens of thousands of rental car 
               drivers have unknowingly rented vehicles under recall, 
               posing a serious threat to safety on the roadway," Schumer 
               said in a statement this month when he offered his bill, 
               the Safe Rental Car Act.

               An Enterprise spokeswoman said her company believes that 
               the law would be unnecessary, adding that Enterprise 
               already fixes recalled cars quickly.

               Five major car rental firms - Alamo, Avis Budget, 
               Enterprise, Hertz and National - dispute the NHTSA study. 
               In a letter to the agency, they said the repair rates cited 
               on its website were based on inaccurate information 
               submitted by auto manufacturers.

               The rental car companies sent NHTSA letters showing much 
               higher repair rates for the recalled cars.

               Enterprise told NHTSA that in one GM recall last year, for 
               example, it fixed 72% of its affected cars within 30 days 
               and 93% within 90 days.

               A spokesman for NHTSA declined to comment, saying the study 
               was ongoing.

          (Controversy Builds Over Renting Out Recalled Cars, Los Angeles 
          Times (March 14, 2011)
          (latimes.com/business/la-fi-0314-travel-briefcase-20110314,0,9152
          05.storylatimes.com.)

           Background on Federal Recall Rules - Debate Regarding Whether 
          The Recall Notice Standard Is The Appropriate Standard By Which 
          To Determine Rental Safety In Light of Industry Contention That 
          Existing Negligence Principles Are Sufficient To Guide Rental 
          Company Behavior.   The sponsor reports that auto manufacturers 








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          are required by federal law to recall vehicles when they meet 
          one of two criteria: they pose an unreasonable risk to safety; 
          or they fail to comply with the minimum federal safety 
          standards.  

          The sponsor (CARS) argues that manufacturers are required by law 
          to recall unsafe vehicles.  Although some wait for a federal 
          order, CARS reports that manufacturers almost always agree with 
          National Highway Traffic Safety Administration (NHTSA), which 
          has regulatory authority over auto manufacturers, if NHTSA 
          determines that a vehicle is not safe.  Auto manufacturers are 
          required by federal law to provide the repairs to customers, 
          including rental car companies, for free.

          According to CARS, typical safety recalls include seat belts 
          that fail to buckle or unlatch during impact; components prone 
          to catch fire; wheels that fall off; steering that fails, 
          causing loss of vehicle control; brake failure; intermittent 
          stalling in traffic; doors that fail to unlock, trapping 
          occupants inside; fuel tanks that don't meet federal standards; 
          air bags that fail to deploy when needed.

          If a defect is not sufficiently serious to justify a safety 
          recall, CARS states, federal law allows manufacturers to 
          petition NHTSA.  Manufacturers have on occasion filed such 
          petitions and NHTSA on occasion has agreed that a recall is not 
          necessary.

          Auto manufacturers are required to send safety recall notices to 
          the registered owners, including rental car companies.  If the 
          recall notice is sent to an individual, they are at liberty to 
          research information on the NHTSA website or in publications, in 
          order to assess the risk.  However, renters are in a different 
          position, as they usually lack access to information about the 
          level of risk represented in a safety recall.

          If parts may be delayed, CARS states, auto manufacturers and 
          NHTSA generally coordinate the scheduling of recall notices, and 
          stagger when they are sent out, in order to avoid lengthy repair 
          delays after a recall has been issued.

          The recall notice states the manufacturer's estimate of the time 
          needed to perform the labor to correct the problem, often a 
          matter of hours.  Manufacturers must replace or buy back 
          vehicles that are not repaired within a reasonable time.  








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          Failure to repair a vehicle within 60 days of its presentation 
          for repair is presumed to be unreasonable.

          As set out in more detail below, the car rental industry 
          responds that automakers issue recall notices for a wide variety 
          of problems that do not necessarily affect the safe operation of 
          the vehicle at all.  They note, for example, that recall notices 
          generally do not prohibit or advise owners against driving their 
          cars.  Rather, the industry contends, recall notices are issued 
          for problems that often merely "relate to" safety - a standard 
          that, they argue, may cover a wide variety of relatively minor 
          problems that may cause the car to be defective as a product -- 
          and therefore necessitating correction -- but simply do not 
          warrant grounding the vehicle.  They add that existing 
          negligence principles appropriately guide rental industry 
          practices, and that negligence principles have resulted in the 
          adoption of internal policies that have proven to be largely 
          effective to ensure rental car safety.

          The bill's supporters disagree with the industry's contention.  
          They argue that the bill is limited to safety recall notices.  
          If a vehicle is subject to a recall that is not safety related, 
          they contend, it is not subject to the bill.  Those lesser 
          problems identified by the industry, supporters argue, are dealt 
          with via a service campaign or a Technical Service Bulletin.  
          When a defect or noncompliance rises to the level where a 
          vehicle falls under a safety recall, they contend, those 
          vehicles are by definition unsafe.  Moreover, supporters note, a 
          manufacturer that believes a defect does not rise to the level 
          that makes a safety recall appropriate, may petition NHTSA not 
          to make a safety determination.

          However as noted more fully below, rental car company opponents 
          contend that federal safety notices are simply not a rational 
          proxy for them to be governed by as measure of safety.  They 
          contend they remain open to working with the author, his sponsor 
          and committee staff to try to develop an alternate statutory 
          approach to address the concern that unsafe vehicles be removed 
          from rental car company fleets.
           
           ARGUMENTS IN OPPOSITION  :  As noted below, several large car 
          rental companies have registered opposition to this bill.  

          The car rental companies state, "the vast majority of all rental 
          cars which experience a recall are fixed before being rented as 








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          a matter of policy."  The point to recent statistics provided to 
          the NHTSA, which they argue demonstrate the speed of repair in 
          the car rental industry.  Enterprise Holdings in a letter to the 
          NHTSA dated March 4, 2011, reported that the company has already 
          placed additional attention on responding to recall notices as 
          quickly as possible.  Based on Enterprise's internal numbers of 
          vehicles in the rental fleet, 92.75% were repaired within 30 
          days and 98.99% were repaired within 90 days during their last 
          fiscal year.

          The industry's first main concern is that the proposed bill is 
          too broad by addressing all safety recalls.  According to the 
          car rental companies, not all safety issues are created equal.  
          They offer the example of a safety recall notification sent to 
          owners of the Chevy Express and GMC Savannah vans due to a 
          potentially defective climate control knob which could crack and 
          limit ability to adjust the climate control, including the 
          defroster. "Although our companies made the repairs, a question 
          remains: Should customers who had reserved that car for rental 
          in a warm weather locale like Los Angeles in July have been 
          turned away because the climate control knob had not yet been 
          replaced?" 

          Secondly, the car rental companies argue that there are times 
          when the defect described can be temporarily fixed before a 
          permanent repair is made.  The Toyota recall for the risk of 
          accelerator pedal entrapment in the driver's floor mat affected 
          hundreds of thousands of cars, opponents note.  However, Toyota 
          did not present a procedure and parts to permanently address the 
          problem until months after the problem was identified.  The 
          rental car industry removed the floor mats and continued to 
          operate the cars without the floor mats until Toyota developed a 
          fix and modified floor mats could be reinstalled.  "It does not 
          make sense that, upon issuance of the recall months after the 
          problem is identified? rental car customers are denied the use 
          of a vehicle when no one asserts the vehicle represents any risk 
          whatsoever once the floor mats are removed," the car rental 
          companies argue.

          Third, opponents argue, manufacturers may issue recall notices 
          before parts are available.  In 2010, General Motors reportedly 
          announced a recall of over 1 million Chevy Cobalts due to 
          potential problems with the power steering assist motor, making 
          handling at slow speeds like when parking, more difficult.  Due 
          to an assessment by the federal government that the severity was 








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          minimal, GM was allowed to notify Cobalt owners on a rolling 
          basis, opponents state.  "Due to its diligence, the rental 
          industry was able to repair most vehicles well before the 
          rotational timeframes."  However, as the industry contends, 
          under AB 753, 65,000 Cobalts would have been grounded for months 
          "needlessly impacting travel plans and rental costs for many 
          thousands."

          Fourth, the car rental industry notes that AB 753 would not 
          affect cars owned by large fleets, such as taxi and limousine 
          companies, state and local governments, utilities, major 
          corporations, and other businesses.  Because those vehicles 
          would still be able to operate without the repairs being made, 
          "it does not make sense to allow the drivers and passengers of 
          all the other vehicle fleets described above to operate without 
          regard to the existence of the recall."

          Finally, the industry believes that AB 753 ignores the realities 
          of the car rental business.  Because not all recalls are created 
          equal, determining the impact of the recall on whether the 
          vehicle should be operated pending completion of the recall work 
          requires "thoughtful and diligent analysis," the companies 
          contend.  They argue that the federal government amend its 
          recall notification procedures to categorize safety recalls. 

          Other opposition has come from the California Travel Industry 
          Association (CalTIA), which notes that "Ýd]epending on the 
          circumstances surrounding the recall, requiring such a uniform 
          policy will needlessly impact the travel plans and rental costs 
          for many thousands of Californians and its visitors."  The 
          California Chamber of Commerce also registered opposition, 
          stating that while it "appears reasonable on its face, it is 
          overly broad and will create unintended consequences for 
          California businesses."  

           Author's Proposed Clarifying Amendments.   To better capture the 
          intent of the bill, the author proposes the following clarifying 
          revisions:

               (u)(1) Notwithstanding any other law, a rental company 
               shall not rent,  sell or otherwise distribute in commerce  a 
                passenger  vehicle to an authorized driver  if the vehicle is 
               subject to a safety recall   after the rental company has 
               received notice  pursuant to  federal law governing motor 
               vehicle defect and noncompliance notification  (  Part 577 








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               (commencing with Section 577.1) of Title 49 of the Code of 
               Federal Regulations  that the vehicle is subject to a safety 
               recall  , unless the repairs  necessary to correct the defect 
               or noncompliance   required to comply with that federal law 
                have been performed on the vehicle.


                (2) If during a rental period a rental company receives 
               notice pursuant to Part 577 (commencing with Section 577.1) 
               of Title 49 of the Code of Federal Regulations that a 
               vehicle is subject to a safety recall, the rental company 
               shall immediately contact the renter and any other 
               authorized driver for whom the rental company has immediate 
               contact information to inform the renter and authorized 
               driver of the recall and offer to provide a comparable 
               alternative vehicle, at no additional cost to the renter, 
               until the repairs necessary to correct the defect or 
                                                noncompliance have been performed on the vehicle.  .


                (3)  For purposes of this subdivision, a notice of a safety 
               recall  to a   received by a   parent company of a  rental 
               company shall be deemed notice to each of its subsidiaries 
               and notice  to any   received by a  subsidiary of a rental car 
               company shall be deemed notice to its parent company

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Consumers for Auto Reliability and Safety (sponsor)
          California Nurses Association
          CalPIRG
          Consumer Action
          Consumer Attorneys of California
          Consumer Federation of California
          Consumers Union
          Consumer Watchdog
          Center for Auto Safety
          The Trauma Foundation

           Opposition 

           California Chamber of Commerce
          California Travel Industry Association








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          Alamo
          Avis
          Budget
          Enterprise
          Hertz
          National

           Analysis Prepared by  :  Kevin G. Baker and Rachel Taylor / JUD. / 
          (916) 319-2334