BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1981| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1981 Author: Brown (D) Amended: 7/1/14 in Senate Vote: 21 SENATE JUDICIARY COMMITTEE : 7-0, 6/24/14 AYES: Jackson, Anderson, Corbett, Lara, Leno, Monning, Vidak ASSEMBLY FLOOR : 64-3, 5/23/14 - See last page for vote SUBJECT : Rental vehicles: contracts SOURCE : Enterprise Holdings DIGEST : This bill removes the manufacturers suggested retail price (MSRP) as one of the criteria for determining the rate of a damage waiver sold by a rental company, and instead sets 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 increases 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 also increases 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 are capped at $11. ANALYSIS : Existing law: CONTINUED AB 1981 Page 2 1.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. 2.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. 3.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. 4.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. 5.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: A. $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 B. $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. This bill provides, 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: CONTINUED AB 1981 Page 3 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 $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 $17. For rental vehicles that are older than the previous year's model year, the rate shall not exceed $11. Background A damage waiver is an optional product offered by most rental 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. (AB 3006, Connelly, Chapter 1523, Statutes of 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 CONTINUED AB 1981 Page 4 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, Chapter 661, Statutes of 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 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 7/1/14) Enterprise Holdings (source) CONTINUED AB 1981 Page 5 Avis Budget Group, Inc. California Travel Association Hertz ARGUMENTS IN SUPPORT : According to the author: 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. ASSEMBLY FLOOR : 64-3, 5/23/14 AYES: Achadjian, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Fong, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Holden, Jones, Jones-Sawyer, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Skinner, Stone, Ting, Wagner, Waldron, Wieckowski, Williams, Yamada, Atkins NOES: Fox, Levine, Wilk NO VOTE RECORDED: Alejo, Bonilla, Donnelly, Eggman, Frazier, Hall, Harkey, Roger Hernández, Mansoor, V. Manuel Pérez, Salas, Weber, Vacancy CONTINUED AB 1981 Page 6 AL:nl 7/2/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED