BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          AB 2051 (O'Donnell)
          Version: June 13, 2016
          Hearing Date: June 28, 2016 
          Fiscal: No
          Urgency: No
          TH   


                                        SUBJECT
                                           
                              Rental Passenger Vehicles

                                      DESCRIPTION  

          Existing law governs contracts between rental car companies and  
          their customers in connection with the rental of passenger  
          vehicles.  Under existing law, a rental car company may collect,  
          in addition to the rental rate, certain fees and charges,  
          including a customer facility charge.  Existing law authorizes  
          airports to require rental companies to collect a customer  
          facility charge to finance, design, and construct consolidated  
          airport vehicle rental facilities, common-use transportation  
          systems that move passengers between airport terminals and car  
          rental facilities, and terminal modifications made solely to  
          provide customer access to common-use transportation systems.

          This bill would recast and reorganize these provisions, and  
          would establish separate authority for the Los Angeles  
          International Airport to require rental companies to collect a  
          customer facility charge that can be used for additional  
          specified purposes.
           
                                      BACKGROUND  

          In recent years, many airports have adopted the practice of  
          locating rental car services in consolidated facilities that  
          house all car rental companies in one location.  Common-use  
          transportation systems, including shuttle bus systems and  
          automated trains, are often used to transport rental car  
          customers to and from terminals and the consolidated rental car  








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          facility.  These facilities and their associated transport  
          systems are financed largely via Customer Facility Charges (CFC)  
          collected from rental car patrons who choose to rent a vehicle  
          from a company housed in the consolidated rental facility.
          The authority to collect CFC charges began in California in 1999  
          when the Legislature passed and the governor signed SB 1228  
          (Vasconcellos, Ch. 760, Stats. 1999), which permitted San Jose  
          International Airport to collect a customer facility charge of  
          $10.15 per rental contract to finance and construct a  
          consolidated rental car facility.  In 2001, AB 491 (Frommer, Ch.  
          661, Stats. 2001) authorized other public airports in California  
          to collect a $10 fee per contract to finance, design, and  
          construct consolidated rental car facilities.  In 2007, SB 641  
          (Corbett, Ch. 44, Stats. 2007) repealed the special  
          authorization for San Jose International Airport and instead  
          applied the more general provisions enacted by AB 491 to San  
          Jose International Airport, thus permitting it to collect a $10  
          per contract CFC. 

          For approximately ten years, the allowable CFC fee was set at  
          $10 per rental contract, regardless of the duration of the car  
          rental.  In 2010, the Legislature revised the CFC fee structure  
          in response to feedback from the airports that the existing $10  
          per contract fee was inadequate to fund some proposed  
          consolidated rental car facilities.  SB 1192 (Oropeza, Ch. 642,  
          Stats. 2010) permitted airports to impose a CFC calculated on an  
          alternative basis, which, under current law, allows up to $6 per  
          day for a maximum of five days per rental contract to be  
          collected.  The new CFC fee structure allows an airport to  
          increase its daily CFC according to a statutory schedule which  
          would permit the collection of up to $45 over the length of a  
          rental contract by January 1, 2017.  SB 1192 also expanded the  
          range of uses for which CFC revenue could be spent, including  
          purchasing vehicles for a common-use transport system that would  
          shuttle passengers between the consolidated rental facility and  
          the airport terminals, and for terminal modifications undertaken  
          to provide access to a common-use transport system. 

          In order to protect customers and ensure that the CFC charged by  
          an airport was appropriately and necessarily spent on  
          consolidated rental facilities and associated common-use  
          transport systems, SB 1192 also imposed an audit requirement,  
          directing airports to complete independent audits of CFC funded  
          projects prior to the initial charge of a CFC, prior to any  
          increase in the CFC, and every three years after its initial  







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          collection or any increase.  SB 1192 initially required the  
          State Controller's Office to review these audits, but SB 1006  
          (Senate Budget and Fiscal Review Committee, Chapter 32, Statutes  
          of 2012) eliminated this requirement.  SB 1006, a budget trailer  
          bill, also struck language in existing law that set out  
          guidelines regarding the scope of a CFC audit and the standards  
          for determining whether an airport's chosen CFC rate was  
          necessary and justified based on how the funds were being spent.

          Under existing law, CFC revenue is generally used to pay back  
          bonds issued for the construction of combined rental facilities,  
          certain terminal modifications, and the construction and  
          operation of common-use transportation systems.  Existing law  
          states that upon repayment of these bonds, the authority to  
          collect a CFC is eliminated.  This bill would, for the Los  
          Angeles International Airport, expand the types of debts that  
          may be repaid with CFC revenue to include capital contributions,  
          availability payment contracts, lease agreements, or other forms  
          of financing.  This bill would also, for the Los Angeles  
          International Airport, increase the range of allowable uses to  
          which CFC revenue could be directed to include improving  
          combined rental facilities, maintaining or improving common-use  
          transportation systems, and improving terminal modifications, as  
          specified.  Finally, this bill would recast and reorganize  
          existing law pertaining to contracts between rental car  
          companies and their customers in connection with the rental of a  
          passenger vehicle, and make technical and clarifying changes to  
          existing law throughout these provisions.

                                CHANGES TO EXISTING LAW
           
           Existing law  , Civil Code Section 1936, governs contracts between  
          rental car companies and their customers in connection with the  
          rental of passenger vehicles.

           Existing law  defines a "Customer Facility Charge" (CFC) as any  
          fee, including an alternative fee, required by an airport to be  
          collected by a rental company from a renter for any of the  
          following purposes:
           to finance, design, and construct consolidated airport car  
            rental facilities;
           to finance, design, construct, and operate common-use  
            transportation systems that move passengers between airport  
            terminals and those consolidated car rental facilities, and  
            acquire vehicles for use in that system; or







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           to finance, design, and construct terminal modifications  
            solely to accommodate and provide customer access to  
            common-use transportation systems.  (Civ. Code Sec.  
            1936(a)(6)(A).)

           Existing law  states that the aggregate amount of CFC revenue to  
          be collected shall not exceed the reasonable costs, as  
          determined by an independent audit paid for by the airport, to  
          finance, design, and construct these facilities.  Existing law  
          requires, in the case of a transportation system, the audit to  
          also consider the reasonable costs of providing the transit  
          system or busing network.  (Civ. Code Sec. 1936(a)(6)(B).)

           Existing law  prohibits fees designated as a customer facility  
          charge from being used to pay for terminal expansion, gate  
          expansion, runway expansion, changes in hours of operation, or  
          changes in the number of flights arriving or departing from the  
          airport.  (Civ. Code Sec. 1936(a)(6)(B).)

           Existing law  specifies that the authorization for an airport,  
          except for the Oakland International Airport, to impose a CFC  
          shall become inoperative when the bonds used for financing are  
          paid.  (Civ. Code Sec. 1936(a)(6)(C).)

           Existing law  specifies that if a bond or other form of  
          indebtedness is not used for financing, or the bond or other  
          form of indebtedness used for financing has been paid, the  
          Oakland International Airport may require the collection of a  
          customer facility charge for a period of up to 10 years from the  
          imposition of the charge.  (Civ. Code Sec. 1936(a)(6)(D).)

           Existing law  defines a "Vehicle Registration Fee" to mean any  
          fee imposed pursuant to any provision of Chapter 6 (commencing  
          with Section 9101) of Division 3 of the Vehicle Code."  (Civ.  
          Code Sec. 1936(a)(16).)

           Existing law  states that a rental company shall not use, access,  
          or obtain any information relating to the renter's use of the  
          rental vehicle that was obtained using electronic surveillance  
          technology, except in specified circumstances.  (Civ. Code Sec.  
          1936(n).)

           Existing law  states that the above subdivision does not prohibit  
          a rental company from obtaining, accessing, or using information  
          from electronic surveillance technology for the sole purpose of  







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          determining the date and time the vehicle is returned to the  
          rental company, and the total mileage driven and the vehicle  
          fuel level of the returned vehicle, as specified.  (Civ. Code  
          Sec. 1936(n)(6).)

           This bill  would, for the Los Angeles International Airport,  
          expand the range of permissible uses for which a CFC may be  
          applied to include the maintenance and improvement of  
          consolidated airport vehicle rental facilities, common-use  
          transportation systems, and authorized terminal modifications,  
          as specified.

           This bill  would, for the Los Angeles International Airport,  
          expand the types of financing arrangements toward which CFC  
          revenue may be directed to include bonds, capital contributions,  
          availability payment contracts, lease agreements, or other forms  
          for financing, and would specify that the authorization to  
          collect CFC revenue shall become inoperative when the financing  
          is paid or reimbursed.

           This bill  would expand the definition of a "Vehicle Registration  
          Fee" to include any fee imposed pursuant to any law that imposes  
          a fee upon the registration of vehicles in this state.

           This bill  would specify that any person or entity other than a  
          rental company, including a passenger carrier or a seller of  
          travel services, that advertises a rental rate for a vehicle  
          rental that includes additional mandatory charges must clearly  
          disclose the existence and amount of the charges. This bill  
          specifies that if a rental company provides the person or entity  
          with rental rate and additional mandatory charges information,  
          the rental car company is not responsible for the failure of  
          that person or entity to comply with this requirement.

           This bill  would specify that a rental company is not prohibited  
          from obtaining, accessing, or using information from electronic  
          surveillance technology for the sole purpose of determining the  
          date and time the vehicle departs from and is returned to the  
          rental company, and the total mileage driven and the vehicle  
          fuel level of the returned vehicle, provided such information  
          obtained or accessed from electronic surveillance technology is  
          only used for this purpose.

           This bill  would recast and reorganize these provisions, and make  
          other technical and clarifying changes to existing law.







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                                        COMMENT
           
           1.Stated need for the bill
           
          The author writes:

            Civil Code section 1936, which governs rental car  
            transactions, was originally put into place in 1988.  In the  
            past 28 years, changes to the statute have resulted in  
            duplicative code sections and in some instances, conflicting  
            terms and definitions. This has led to several implementation  
            and interpretation issues.  State statute also does not  
            reflect the technological and consumer convenience  
            advancements made in today's market.  AB 2051 includes much  
            needed statute modernization and also provides rental car  
            companies the ability to better serve and protect its  
            consumers by cleaning up outdated requirements, granting the  
            use of GPS in limited circumstances and providing a clearer  
            comprehension of the requirements placed on the industry.

           2.Reorganization of existing law
           
          This bill reorganizes and reconciles the entirety of several  
          Civil Code sections addressing rental cars and rental car  
          facilities.  As indicated in the History below, this area of law  
          is frequently amended - almost on an annual basis - and several  
          years of cumulative amendments have made the law internally  
          inconsistent and difficult to understand.  Beginning late last  
          year, Committee staff and staff from the Legislative Counsel's  
          office began reconciling inconsistent provisions within these  
          code sections to bring uniformity to the law.  The draft  
          language produced by Counsel and the Committee forms the  
          framework of this bill.  Throughout the bill, non-substantive  
          and substantive changes are made to existing law to reconcile  
          terms and definitions, to strike repetitive and extraneous  
          language, and to clarify language that has proven to be  
          ambiguous in practice.  The author of this bill has expanded it  
          beyond Counsel and the Committee's original aim to make  
          additional changes to existing law, and the subsequent comments  
          below discuss the principal changes.  Beyond these principal  
          changes, the changes to existing law proposed here would replace  
          specific statutory disclosures regarding the advertising of  
          rental rates and the imposition of additional mandatory charges  
          with a requirement to provide general disclosures that clearly  







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          disclose the same information without prescribing the wording of  
          the disclosure.  This bill would also reinsert a safe harbor  
          that was inadvertently struck in AB 675 (Alejo, Ch. 333, Stats.  
          2015) concerning rental car advertising performed by third  
          parties, such as sellers of travel services, that holds rental  
          car companies harmless for the failure of third parties to make  
          the required disclosures.




           3.Expansion of vehicle registration fee
           
          In addition to the changes noted above, this bill would expand  
          the types of government-imposed fees that may be passed on to  
          rental car customers in the form of a "Vehicle Registration  
          Fee."  Under existing law, recoverable vehicle registration fees  
          are limited to those fees imposed pursuant to Chapter 6 of  
          Division 3 of the Vehicle Code, which encompasses the current  
          range of fees that must be paid to register a vehicle in  
          California.  This bill would expand the scope of recoverable  
          vehicle registration fees to include those required by "any  
          other law that imposes a fee upon the registration of vehicles  
          in this state."  This expansion anticipates future vehicle  
          registration programs that impose alternate fee structures, such  
          as a tax based on annual miles travelled by a vehicle.  Enacting  
          this change would authorize rental car companies to pass these  
          new fees on to rental car consumers as separate line items in  
          their bill or contract should they be imposed in the future.

           4.New allowable uses for Consumer Facility Charge revenues
           
          Over the last 17 years, several California airports have  
          financed the design and construction of consolidated rental car  
          facilities and their associated transport systems via the  
          collection of Customer Facility Charges (CFC) from rental car  
          patrons who choose to rent a vehicle from a company housed in a  
          consolidated rental facility.  Existing law governing the  
          collection and use of CFC funds includes strong consumer  
          protection provisions designed to ensure that airports do not  
          misuse or overcollect these funds.  Under existing law, an  
          airport that imposes a CFC fee for the first time or that  
          increases its CFC fee must conduct an audit that ensures the  
          fees are necessary to construct consolidated rental facilities  
          and their associated transport systems, that the fees would not  







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          or are not being used to fund unauthorized airport construction,  
          and that the chosen CFC fee level is reasonable, taking into  
          account alternate revenue sources for constructing these  
          facilities.  Existing law also limits the uses to which CFC  
          revenues can be directed to, principally, the design and  
          construction of combined rental facilities, certain terminal  
          modifications, and the construction and operation of common-use  
          transportation systems.  Existing law also specifies that, with  
          the exception of the Oakland International Airport (OAK), CFC  
          funds may be directed to pay off bonds used for the financing of  
          these projects, and in the case of OAK, that if alternate  
          financing is used, the authority to impose a CFC is limited to  
          10 years.

          This bill would, in the case of the Los Angeles International  
          Airport (LAX), authorize CFC revenue to be collected and used  
          for the improvement of these facilities, and would also  
          authorize CFC revenue to be directed toward paying off other  
          financing arrangements for the facilities, including capital  
          contributions and lease agreements, without any time period  
          limitations.  Writing in support, the Mayor of Los Angeles  
          states:

            Investing in the modernization of LAX is necessary to ensure  
            it keeps up with growing the demand and needs of a 21st  
            century economy.  Critical improvements needed at LAX include  
            a consolidated rental car facility and an automated people  
            mover to facilitate the flow of passengers to and from the  
            airport.  AB 2051 will allow financing from an alternate  
            Customer Facility Charge at LAX to fund portions of these  
            important projects.  Doing so will ensure that these projects  
            have a local funding stream.  AB 2051 will better ensure that  
            these projects, which will create jobs, reduce traffic, and  
            reduce pollution, remain on time and on budget.

          Authorizing CFC revenue to be directed toward financing  
          arrangements other than bonds could have several benefits to  
          LAX, including allowing the airport to transfer some of the risk  
          involved in a project to a third party through a public-private  
          partnership.  Involvement of third parties through leaseback  
          agreements could also allow an airport to potentially lower the  
          cost of a combined rental car facility and related  
          infrastructure by allowing the third party to depreciate the  
          value of these assets - something a city cannot typically do.








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          However, authorizing these new forms of financing could also  
          significantly increase the cost passed on to consumers.  Market  
          pressure in bond markets tends to confine the amount of  
          financing and repayment terms an airport can obtain for a  
          project.  Other financing arrangements, such as a sale-leaseback  
          or lease-leaseback, would potentially allow an airport to avoid  
          these market confines by liberalizing the terms on which  
          combined rental car facilities are constructed and paid off.   
          Whether any alternate financial arrangement is economical for a  
          local agency depends on a variety of factors, including market  
          conditions, tax laws, lease structure, and the relative costs of  
          other financing arrangements.  The normal pressure of limited  
          resources that drives government decisionmakers to make  
          economically sound decisions concerning infrastructure finance  
          may not be present in this case, since much of the cost can be  
          passed on to rental car customers.  Without explicit repayment  
          timelines similar to those in existing CFC authorizations, and  
          with the expanded purposes to which CFC revenue can be directed,  
          this new authorization for LAX may turn CFC revenue into an  
          unending source of funding at the expense of Californians and  
          others who rent cars.

           5.New use of surveillance technology
           
          This bill would also authorize a minor expansion in the range of  
          uses for which a rental car company can use electronic  
          surveillance technology.  Under existing law, a rental car  
          company is prohibited from using electronic surveillance  
          technology to use, access, or obtain any information relating to  
          the renter's use of the rental vehicle except in specified  
          situations, including:
           to locate a stolen, abandoned, or missing rental vehicle, as  
            specified;
           in response to a specific request from law enforcement  
            pursuant to a subpoena or search warrant;
           to discover or repair a defect in the GPS-based technology  
            that provides navigation assistance to the occupants of the  
            rental vehicle;
           to allow for the remote locking or unlocking of a vehicle at  
            the request of the renter;
           to provide roadside assistance, such as towing, flat tire, or  
            fuel services, at the request of the renter; and
           for the sole purpose of determining the date and time the  
            vehicle is returned to the rental company, and the total  
            mileage driven and the vehicle fuel level of the returned  







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            vehicle.

          Existing law explicitly prohibits a rental car company from  
          using electronic surveillance technology to track a renter in  
          order to impose fines or surcharges relating to the renter's use  
          of the rental vehicle.

          This bill would additionally allow a rental car company to use  
          electronic surveillance technology for the sole purpose of  
          determining the date and time a vehicle departs from the rental  
          car company.  Under existing practice, rental car company  
          employees record the date and time rental vehicles leave  
          possession of the company to determine the starting point of the  
          rental period.  This change in existing law would allow these  
          companies to automate the checkout process through the use of  
          on-board or nearby electronic surveillance infrastructure, like  
          license plate reading cameras.


           Support  :  City of Los Angeles

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  Avis Budget Group; Enterprise; Hertz

           Related Pending Legislation  :  None Known

           Prior Legislation  :

          AB 675 (Alejo, Ch. 333, Stats. 2015) authorized a rental  
          company, when quoting a rental rate, to separately state the  
          rental rate, additional mandatory charges, if any, and a mileage  
          charge, if any, that a renter must pay to hire or lease the  
          vehicle for the period of time to which the rental rate applies.  
                            This bill defined "additional mandatory charges" to mean any  
          separately stated charges that the rental car company requires  
          the renter to pay to hire or lease the vehicle for the period of  
          time to which the rental rate applies, which are imposed by a  
          governmental entity and specifically relate to the operation of  
          a rental car business, including, but not limited to, a customer  
          facility charge, airport concession fee, tourism commission  
          assessment, vehicle license recovery fee, or other government  
          imposed taxes or fees.







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          AB 1981 (Brown, Ch. 417, Stats. 2014) removed the manufacturer's  
          suggested retail price as one of the criteria for determining  
          the rate of a damage waiver sold by a rental company, and  
          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 increased 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 increased the maximum rate of the damage waiver to $17  
          per rental day for vehicles in the next three body-size  
          categories of vehicles designated in the standards, except as  
          specified.

          AB 2747 (Cmte. on Jud., Ch. 913, Stats. 2014), the Assembly  
          Committee on Judiciary's Omnibus Bill, extended 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.

          AB 359 (Holden, Ch. 549, Stats. 2013) provided guidelines  
          regarding the scope of a CFC audit, and required audits to be  
          posted on an airport's Internet Web site.  This bill removed the  
          requirement that an airport conduct an audit every three years  
          after the initial collection of the CFC, and instead require an  
          airport to conduct an audit every three years after the initial  
          collection of the CFC only if the charge is used for the purpose  
          of operating a common-use transportation system or to acquire  
          vehicles for use in such a system.

          SB 1006 (Cmte. on Budget, Ch. 32, Stats. 2012) See Background.

          SB 1192 (Oropeza, Ch. 642, Stats. 2010) See Background.

          SB 641 (Corbett, Ch. 44, Stats. 2007) See Background.

          AB 491 (Frommer, Ch. 661, Stats. 2001) See Background.

          SB 1228 (Vasconcellos, Ch. 760, Stats. 1999) See Background.

           Prior Vote  :








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          Assembly Floor (Ayes 78, Noes 0)
          Assembly Privacy and Consumer Protection Committee (Ayes 11,  
          Noes 0)
          Assembly Judiciary Committee (Ayes 10, Noes 0)

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