BILL ANALYSIS Ó AB 753 Page 1 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 AB 753 Page 2 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 AB 753 Page 3 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 AB 753 Page 4 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 AB 753 Page 5 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 AB 753 Page 6 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. AB 753 Page 7 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 AB 753 Page 8 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 AB 753 Page 9 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 driverif the vehicle is subject to a safety recallafter the rental company has received notice pursuant tofederal law governing motor vehicle defect and noncompliance notification (Part 577 AB 753 Page 10 (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 noncompliancerequired to comply with that federal lawhave 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 recallto areceived by a parent company of a rental company shall be deemed notice to each of its subsidiaries and noticeto anyreceived 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 AB 753 Page 11 Alamo Avis Budget Enterprise Hertz National Analysis Prepared by : Kevin G. Baker and Rachel Taylor / JUD. / (916) 319-2334