BILL ANALYSIS Ó
AB 1981
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CONCURRENCE IN SENATE AMENDMENTS
AB 1981 (Brown)
As Amended August 20, 2014
Majority vote
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|ASSEMBLY: |64-3 |(May 23, 2014) |SENATE: |34-0 |(August 26, |
| | | | | |2014) |
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Original Committee Reference: JUD.
SUMMARY : Increases consumer fees for rental car damage waivers.
Specifically, this bill :
1)Increases the damage waiver fee for the two smallest classes
of rental cars from $9 to $11 each day.
2)Increases the damage waiver fee for intermediate, standard and
full-size cars from $15 to $17 per day.
3)Imposes no limits on the price of damage waivers for all cars
in body-size categories above full-size, regardless of the
manufacturer suggested retail price (MSRP), in place of
existing law that allows an unlimited fee for damage waivers
only when the vehicle as an MSRP of at least $47,000.
The Senate amendments make non-substantive changes to this bill
as it left the Assembly.
FISCAL EFFECT : None
COMMENTS : The author sets forth the reason for this bill as
follows, "It has been 26 years since the rate caps have been
established and 13 years since they have been 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 to be
offered, but do not cap the rate. Maintaining a rate cap does
not incentivize rental companies from offering competitive
rates. AB 1981 will maintain the cap but increase [it]? to more
closely reflect the market."
As the sponsors note, California and a handful of other states
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including New York and Illinois currently limit the price car
rental companies may charge for damage waivers. The current cap
in New York ($9 and $12 each day, based on the price of the car)
is lower than the current rate in California ($9 and $15 per day
based on car price, with no cap for expensive cars - i.e., those
starting at an MSRP of approximately $47,000). (See New York
General Business Law Section 396-z(2)(a).) The current rate in
Illinois is a flat $13.50 per day for all cars, following an
increase from $12.50 at the request of the industry last year.
Thus, this bill would increase that price protection
differential between California and New York, as well as between
California and Illinois.
These fee caps reflect a history of legislative concern about
the sale of this product. The car rental industry generally
argues that this history is long in the past and should no
longer concern current policymakers. Nevertheless, controversy
about the price and practices involved in the sale of this
product continue. In 2013, for example, Hertz paid $3 million
to settle a class action lawsuit alleging that its damage waiver
was unconscionable in that it provided illusory coverage for a
premium price. In addition, a number of lawsuits have recently
been filed against car rental companies alleging that customers
were unwittingly signed up for damage waivers even though they
had verbally declined it.
Indeed many consumer advocates do not recommend purchasing
damage waivers at all - particularly because the renter's credit
card and personal automobile insurance policy typically cover
damage to rental vehicles already. In addition, car rental
companies now face new third-party competition from companies
offering car rental insurance for $7.99 per day including all
car rental company fees. (See us.protectyourbubble.com.)
Perhaps for the reasons cited above, Enterprise Holdings notes
that the number of consumers who purchase damage waivers has
fallen over the years, to the point where most of those who
purchase the product are a segment of business travelers on
expense accounts. It may be that the dwindling number of
consumers who purchase damage waivers may diminish the total
profit car rental companies earn from this product. However,
the car rental companies have not claimed that they are making
less money, and they have declined to respond to the Assembly
Judiciary Committee's questions about profits they derive from
the sale of damage waivers, asserting they would be exposed to
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liability for illegal price-fixing if they did, despite the fact
that the price of this product is set by the Legislature, not
the companies.
The rationale offered for this bill is that the rate has not
increased since 2001, and that other consumer costs as well as
the cost of car repair have increased since that time. The
profitability of this product, however, would appear to be based
not on the price of consumer products generally, or even the
price of car repair, but rather on the loss rate - that is, the
frequency and extent of damages incurred by customers who
purchase the damage waiver. In any event, it appears that
profits from the sale of damage waivers may indeed be increasing
rather than decreasing, regardless of any general increase in
consumer prices. At least one company recently reported earning
5% of its total profit from this product alone in 2013,
reportedly up from 4% in 2011. Although this figure is not
known for the privately-held Enterprise Holdings, the largest
car rental company, the company reported record profits in 2012
for the third year in a row. Avis likewise recently announced
significantly higher profits in 2013. Under this bill, the rate
consumers can be charged for damage waivers will increase by 22%
(from $9 to $11 each day) for some vehicles, and 13% ($15 to $17
per day) for others. In addition, there will be no limit on the
price consumers will potentially pay for vehicles in the body
size categories above full-size, regardless of the price of the
vehicle. Currently, rental companies can impose unlimited
damage waiver fees only when the vehicle has a manufacturer's
suggested retail price (MSRP) of at least $47,000. Under this
bill, the damage waiver fee will be unlimited for many more
vehicles than under current law. For example, the suggested
industry model for the "premium" car classification that would
have an unlimited damage waiver fee is a Buick Lucerne. When
that vehicle was discontinued in 2011 it had an MSRP of less
than $30,000. Thus, rental companies would be allowed to charge
unlimited damage waiver fees for a car costing less than $30,000
under this bill, rather than cars priced at more $47,000 under
existing law. This bill does not currently provide any
concomitant consumer protections.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
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