BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 1981 (Brown)
As Amended June 15, 2014
Hearing Date: June 24, 2014
Fiscal: No
Urgency: No
TH
SUBJECT
Rental Vehicles: Contracts: Damage Waivers
DESCRIPTION
Existing law governs contracts between vehicle rental companies
and their customers and authorizes a rental company to sell
damage waivers at a maximum rate of $9 or $15 per rental day,
based in part on the manufacturer's suggested retail price
(MSRP) and model year of the rented vehicle.
This bill would remove the MSRP as one of the criteria for
determining the rate of a damage waiver sold by a rental
company, and would instead set the rate of damage waivers
according to the vehicle's classification using criteria set by
the 2014 Association of Car Rental Industry Systems Standards
for North America. This bill would increase the maximum rate of
the damage waiver to $11 per rental day for vehicles designated
as an "economy car," "compact car," or another term denoting the
two smallest categories of vehicles described by the standards.
This bill would also increase the maximum rate of the damage
waiver to $17 per rental day for vehicles in the next 3
body-size categories of vehicles designated in the standards.
However, vehicles that are older than the previous year's model
year would be capped at $11.
(This analysis reflects author's amendments to be offered in
Committee.)
BACKGROUND
A damage waiver is an optional product offered by most rental
(more)
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car companies to their customers. The damage waiver is a
contractual agreement between a rental car company and a renter
in which the company, in exchange for a fee, agrees to waive the
renter's liability for damage to or loss of the car during the
rental period. Damage waivers do not relieve a renter of all
liability, however. For example, a renter may still be liable
if the damage or loss results from the authorized driver's
intentional, willful, wanton, or reckless conduct.
In 1988, in order to address concerns that rental car customers
were being subjected to coercive damage waiver sales techniques
at the rental counter, California enacted a $9 cap on the amount
that rental car companies could charge for the product. (See AB
3006, Connelly, Ch. 1523, Stats. 1988.) This cap applied to all
rental vehicles. AB 3006 was sponsored by Attorney General John
Van de Kamp and initially proposed to prohibit damage waivers
entirely. At the time, the sponsor argued that damage waivers
were a "complex and unfair scheme" that was "adhesive in nature,
contrary to public policy, and violative of the common law
allocation of lessors' and lessees' respective
responsibilities." As a result of a "carefully negotiated
compromise" between the author, the Attorney General, consumer
groups, and industry, the bill was amended to provide for a
comprehensive scheme regulating damage waivers.
Since then, there have been several attempts, supported by the
rental car industry, to either increase or eliminate entirely
the cap on the amount that a rental car company may charge for a
damage waiver.
In 1998, AB 2314 (Papan, 1998) would have repealed the $9 damage
waiver cap for the rental of any vehicle above the compact car
class. That bill died in this Committee. The next year, AB 966
(Papan, 1999) would have, among other things, eliminated the $9
cap and required a rental car company to clearly disclose the
existence and amount of a damage waiver in any advertisement.
That bill also died in this Committee. In 2001, AB 491
(Frommer, Ch. 661, Stats. 2001) provided that rental cars with
an MSRP of $19,000 or less were subject to the $9 cap. That
bill also increased the $9 cap to $15 for new rental cars with
an MSRP of between $19,001 and $34,999. AB 491 also eliminated
the cap for rental cars over $35,000. In 2009, the introduced
version of AB 833 (Perez) would have increased the damage waiver
cap to $22 for all rental cars. That provision was subsequently
removed from the bill when the bill was pending in the Assembly
Judiciary Committee. AB 1731 (Tran, 2010) would have kept the
$9 and $15 per day caps intact, but would have changed which
rental cars were subject to each rate limitation by deleting the
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MSRP references and providing instead that the damage waivers
for rental cars in the rental company's lowest two rental
classes would be capped at $9 per day. For intermediate,
standard, full, and premium class vehicles, rental car companies
would have been permitted to charge $15 per day. That bill died
in this Committee. Two years later, AB 2379 (Huber, 2012) would
have increased the $9 and $15 caps to $11 and $18, respectively,
and would have automatically allowed those caps to adjust in
line with the Consumer Price Index. That bill died in the
Assembly Judiciary Committee.
This bill would take a somewhat less comprehensive approach
toward altering the damage waiver fee caps and calculation
methodologies set by AB 3006 and AB 491. This bill would remove
a rental vehicle's MSRP as a criterion for setting the damage
waiver rate and instead would set up two rate classes capped at
$11 and $17 per rental day based on the rental vehicle's
classification in the 2014 Association of Car Rental Industry
Systems Standards for North America. However, as under existing
law, damage waivers for vehicles that are older than the
previous year's model year would be capped at the lower rate.
CHANGES TO EXISTING LAW
Existing law defines a "damage waiver" as a rental car company's
agreement not to hold a renter liable for damage to or loss of
the rental car, any loss of use of the rental car, or any
storage, impound, towing, or administrative charges. (Civ. Code
Sec. 1936(a)(5).)
Existing law specifies that a damage waiver must provide that a
renter has no liability for damage, loss, loss of use, or a
related cost or expense. (Civ. Code Sec. 1936(e)(1).)
Existing law states that a rental car company may provide that a
damage waiver does not apply in certain circumstances,
including, among others, when the damage or loss results from
the authorized driver's intentional, willful, wanton, or
reckless conduct or from that driver's operation of the vehicle
under the influence of drugs or alcohol. (Civ. Code Sec.
1936(f)(1).)
Existing law provides that a damage waiver is optional and a
consumer may not be required to purchase a damage waiver. A
rental car company must also provide a consumer with specified
notices regarding the damage waiver. (Civ. Code Secs. 1936(g),
(k).)
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Existing law provides that a rental car company may sell a
damage waiver subject to the following rate limitations for each
full or partial 24-hour rental day and provides that the MSRPs
described below shall be adjusted annually to reflect changes
from the previous year in the Consumer Price Index:
1)$9 per day for rental vehicles that the rental car company
designates as an "economy car," "subcompact car," "compact
car," or another term having similar meaning, or another
vehicle having an MSRP of $19,000 or less; and
2)$15 per day for rental vehicles that have an MSRP from $19,001
to $34,999, and that are also either vehicles of next year's
model, or not older than the previous year's model. If the
vehicle is older than the previous year's model-year, the rate
for a damage waiver may not exceed $9. (Civ. Code Sec.
1936(h), (i).)
This bill would provide, in place of the damage waiver fee caps
and calculation methodologies above, that a rental car company
may sell a damage waiver subject to the following rate
limitations for each full or partial 24-hour rental day:
1)For rental vehicles that the rental company designates as an
"economy car," "compact car," or another term having similar
meaning to the two smallest body-size categories of vehicles
established by the Association of Car Rental Industry Systems
Standards for North America, as of January 1, 2014, when
offered for rental, the rate shall not exceed eleven dollars
($11).
2)For rental vehicles, that the rental company designates as an
"intermediate car," "standard car," or "fullsize car," or
another term having similar meaning to the next three
body-size categories of vehicles established by the
Association of Car Rental Industry Systems Standards for North
America, as of January 1, 2014, and that are also either
vehicles of the next model year or not older than the previous
year's model, when offered for rental, the rate shall not
exceed seventeen dollars ($17). For rental vehicles that are
older than the previous year's model year, the rate shall not
exceed eleven dollars ($11).
This bill would make additional non-substantive changes.
COMMENT
1. Stated need for the bill
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The author writes:
It has been 26 years since the [rental vehicle damage waiver]
rate caps [were] established and 13 years since they [were
last] adjusted. As vehicles become more technologically
sophisticated, they also become more costly to fix when a
collision or other damage occurs. California is one of the
few states that cap the rate. In fact, there are 47 states
that allow damage waiver[s] to be offered, but do not cap the
rate. Maintaining a rate cap does not incentivize rental
companies from offering competitive rates.
For purposes of clarity for consumers, AB 1981 will eliminate
MSRP as the measure of vehicle class/value and substitute it
with the Association of Car Rental Industry Systems Standards
(ACRISS) car classification code (economy, compact,
intermediate, standard, fullsize). . . . In addition, AB 1981
will increase the rate cap for damage waivers by two dollars.
The rate for the first tier (economy and compact) will be
changed from $9 to $11 per day. The second tier
(intermediate, standard, and fullsize) will be increased from
$15 to $17 per day.
2. Revising existing rate cap structure
Existing law prohibits rental car companies from charging more
than $9 per day for a damage waiver on vehicles designated by
the company as being an "economy car," "subcompact car," or
"compact car," or another vehicle having an MSRP of $19,000 (in
2001 dollars) or less. Rental car companies are also prohibited
from charging more than $15 per day for rental vehicles that
have an MSRP from $19,001 to $34,999 (in 2001 dollars). This
bill would delete these MSRP references and instead set up two
rate classes capped at $11 and $17 per rental day based on the
rental vehicle's classification using the 2014 Association of
Car Rental Industry Systems Standards for North America. With
the author's proposed changes, this bill raises the policy
question of whether it is appropriate to revise what is
essentially a "bright-line" value-based standard (MSRP) to a
standard that is less clearly related to the value of the asset
being protected.
The bright-line MSRP standard was amended into California law in
2001 as part of AB 491 which provided for the current structure
tying the damage waiver daily cost to the MSRP of the vehicle.
At the time, it was stated that the bill and its rate structure
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would preserve the $9 charge for a significant number of rental
cars. AB 491 was a carefully negotiated compromise between
Attorney General Bill Lockyer, the rental car industry, and
other stakeholders. The bill's express link to the covered
vehicle's MSRP was thought to be the most reasonable, bright
line standard by which to draw the line between the lower and
higher damage waiver caps.
This bill, in contrast, draws the line between the higher and
lower caps by reference to an industry vehicle classification
system - the 2014 Association of Car Rental Industry Systems
Standards for North America (ACRISS). Staff notes that the 2014
reference date currently in the bill creates essentially a new
bright-line static standard, and is therefore not subject to
manipulation like previous proposals to tie rate classes to
vehicle classifications set up by the rental car companies
themselves. (See e.g. AB 1731 (Tran, 2010).) The question
remains, however, whether the Legislature ought to change the
existing rate setting system.
Supporters note that the new damage waiver fee structure would
aid pricing transparency, especially for consumers who reserve
rental cars on the Internet. Under the existing scheme, a
prospective renter is frequently unable to obtain an accurate
quote on the price of a damage waiver since it is tied to the
MSRP of the actual car being rented. Because rental car fleets
are constantly in flux, a rental car company may not know which
car will ultimately be assigned to a particular consumer until
they arrive to pick up the car. As Enterprise Holdings states
in its letter of support, the existing rate structure may not
allow a consumer to "see the total price of their rental vehicle
across all companies and all classes of vehicles" before they
enter into a rental agreement (assuming they purchase the damage
waiver).
However, it is important to note that by shifting away from an
MSRP based rate structure towards an industry classification
based structure, more vehicles may end up in the higher rate
tier than under the existing system, thereby raising the general
cost of damage waivers for rental cars. This added cost would,
of course, be in addition to the $2 increase implemented across
all rate categories also proposed in this bill. All told, these
changes would make damage waivers more expensive for consumers
who opt to purchase them as part of their rental agreement. The
Committee is unaware of any evidence - and the supporters have
submitted none - indicating that the existing rate structure is
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uneconomical or fails to adequately cover losses paid out
through damage waivers. Without evidence to the contrary, the
increases in damage waiver rate caps proposed in this bill may
simply make this product more profitable for rental car
companies without delivering any increased benefit to consumers.
3. Damage waivers are often unnecessary
Staff also notes that for many consumers, rental car damage
waivers may be unnecessary. According to the United Services
Automobile Association (USAA), a Fortune 500 financial services
company that sells personal automobile insurance:
[g]enerally, coverage from your primary auto insurance will
extend to a rental vehicle. If you cause an accident while
driving the rental, your liability insurance would pay up to
your policy limits for the damages to other cars or property.
Likewise, if you carry collision coverage on your regular
policy, that would pay for accident-related damages to the
rental car you're driving. Finally, your comprehensive
coverage would take care of damages to the rental vehicle not
related to a traffic accident, such as theft or vandalism.
(Do You Need Rental Car Insurance? <
https://www.usaa.com/inet/pages/advice-auto-rentalcarinsuranceq
uestions?akredirect=true> (as of June 21, 2014).)
Further, for some consumers, additional rental car damage
protection is provided by their personal credit card:
Many credit cards come with benefits such as rental car
insurance, which can supplement - or even serve in place of -
your regular auto insurance policy. . . . For the coverage to
apply, you usually have to reserve and pay for the rental car
using that card. The terms and conditions vary widely,
depending on which card you have. Some cards offer primary
coverage, which doesn't require you to make a claim on your
regular auto policy. Other cards offer secondary coverage, in
which case the coverage would only pay your deductible or
other potential claim costs. (Id.)
Existing law requires rental car companies to expressly notify
consumers at point-of-sale that their personal insurance policy
or the credit card they use to pay for the car rental
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transaction may provide coverage for all or a portion of the
renter's potential liability. (See Civ. Code Sec. 1936(g)(1)
[written notifications]; Civ. Code Sec. 1936(g)(2) [oral
notifications].) While not strictly raised by the author's
bill, the Committee may wish to investigate whether the existing
disclosure requirements related to damage waivers adequately
inform consumers that this product may be unnecessary,
particularly for those consumers who reserve rental vehicles
online and may not receive an oral disclosure.
4. Author's amendments
The author proposes the following amendments, which amend the
bill as described in this analysis:
On page 10, strike lines 39 through 40
On page 11, strike lines 1 through 4, and insert:
(1) For rental vehicles that the rental company designates as
an "economy car," "compact car," or another term having
similar meaning to the two smallest body-size categories of
vehicles established by the Association of Car Rental Industry
Systems Standards for North America, as of January 1, 2014,
when offered for rental, the rate shall not exceed eleven
dollars ($11).
On page 11, strike lines 5 through 14, and insert:
(2) For rental vehicles, that the rental company designates as
an "intermediate car," "standard car," or "fullsize car," or
another term having similar meaning to the next three
body-size categories of vehicles established by the
Association of Car Rental Industry Systems Standards for North
America, as of January 1, 2014, and that are also either
vehicles of the next model year or not older than the previous
year's model, when offered for rental, the rate shall not
exceed seventeen dollars ($17). For rental vehicles that are
older than the previous year's model year, the rate shall not
exceed eleven dollars ($11).
5. Chaptering-out issues
Staff notes that AB 2747 (Committee on Judiciary), the Assembly
Committee on Judiciary's Omnibus Bill, would amend the same
section as this bill and double-jointing language must be added
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to the bill before it leaves the Senate to avoid any
chaptering-out of this bill's provisions.
Support : Avis Budget Group, Inc.; California Travel
Association; Hertz
Opposition : None Known
HISTORY
Source : Enterprise Holdings
Related Pending Legislation : AB 2747 (Committee on Judiciary),
the Assembly Committee on Judiciary's Omnibus Bill, would extend
until January 1, 2020, a sunset provision pertaining to a
requirement for rental companies to accept service of a summons
and complaint against a renter who resides out of this country
for an accident or collision resulting from the operation of the
rental vehicle in this state, as provided. This bill is set for
hearing in the Senate Committee on Judiciary.
Prior Legislation :
AB 2379 (Huber, 2012) See Background.
AB 1731 (Tran, 2010) See Background.
AB 833 (Perez, 2009) See Background.
AB 491 (Frommer, Ch. 661, Stats. 2001) See Background.
AB 966 (Papan, 1999) See Background.
AB 2314 (Papan, 1998) See Background.
AB 3006 (Connelly, Ch. 1523, Stats. 1988.) See Background.
Prior Vote :
Assembly Floor (Ayes 64, Noes 3)
Assembly Committee on Judiciary (Ayes 10, Noes 0)
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