BILL ANALYSIS
AB 2761
Page 1
Date of Hearing: May 4, 2004
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 2761 (Leno) - As Amended: April 27, 2004
SUBJECT : RENTAL CAR CONTRACTS: BUSINESS PROGRAMS
KEY ISSUE : SHOULD RENTAL CAR COMPANIES BE PERMITTED TO
SEPARATELY QUOTE AND CHARGE ADDITIONAL CHARGES FOR CERTAIN
BUSINESS PROGRAMS PROVIDED THAT CERTAIN CONDITIONS ARE MET,
INCLUDING THAT THE TOTAL CHARGE IS "RE-BUNDLED" FOR THE RENTER
AT THE TIME THE RESERVATION IS MADE AND AT THE TIME HE OR SHE
PICKS UP THE CAR?
SYNOPSIS
This measure, sponsored by Cendant Car Rental Group (Avis and
Budget), the Hertz Corporation and Vanguard Car Rental USA
(Alamo and National), provides an exception to existing law's
requirements relating to rental rate bundling laws for certain
business programs and requires that certain conditions must be
met in order for this exception to apply. The bill requires
that, although additional charges may be separately quoted and
charged, the renter must be provided the bundled total as
follows: (1) At the time of the reservation, the renter must be
provided with a good faith total of all of the charges that will
be incurred; and (2) At the commencement of the rental, the
rental car company must give the renter a statement that clearly
and conspicuously discloses a total of all charges for the
entire rental. The sponsors intend that these provisions will
ensure that an employee-renter knows of the terms and conditions
of the contract that their employer has established for them.
The bill also contains related definitions. The sponsors
contend the measure is necessary to permit the financial
arrangements mutually agreed to by the parties in these
commercial contracts to be implemented in California by
permitting the pass-through of these kinds of charges to the
business entity.
Both the Office of the Attorney General and Consumers Union have
an "oppose unless amended" position on the measure. The author
and his sponsor have committed to working with these groups to
address their concerns which are described in the analysis. At
the time of the writing of this analysis, all interested parties
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indicate that discussions are ongoing. Enterprise Rent-a-Car
opposes the measure arguing, among other things, that it creates
two classes of car renters, allows rental car companies to
"unbundle" and separately charge airport concession fees to
business renters, and creates a statutorily authorized un-level
playing field among competitors.
SUMMARY : Seeks to provide an exception to existing law's
requirements relating to rental rate bundling laws for certain
business programs. Specifically, this bill :
1)Provides that a rental car company may do the following in
connection with the rental of a passenger vehicle to a
business renter of a business program sponsor under the
sponsor's business program:
a) Separately quote additional charges for the rental, if,
at the time the quote is provided, the person receiving the
quotation is also provided a good faith estimate of the
total of all the charges for the entire rental. The bill
provides that this estimate may exclude mileage charges and
charges for optional items and services that cannot be
determined prior to completing the reservation based upon
the information provided by the renter.
b) Separately impose additional charges for the rental, if
the rental contract, or another document provided to the
renter at the time and place the rental commences, clearly
and conspicuously discloses the total of all the charges
for the entire rental, exclusive of charges that cannot be
determined at the time the rental commences.
2)Defines "additional charges" as charges other than a per
period base rental rate and specifies that "quote" includes
telephonic, in-person, and computer-transmitted quotations.
3)Defines "business program" as:
a) A contract between a rental company and a business
program sponsor that has established the rental rate, or
any other material term, on which the rental company will
rent passenger vehicles to persons authorized by the
sponsor; or
b) A plan, program, or other arrangement established by a
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rental company at the request of, or with the knowledge and
cooperation of, a business program sponsor under which the
rental company offers to rent passenger vehicles to persons
authorized by the sponsor at rates, or on other material
terms, that are not the same as those generally offered by
the rental company to the public.
4)Defines "business program sponsor" as: (a) A legal entity
other than a natural person, including without limitation, a
corporation, limited liability company, partnership,
government, or municipality; (b) A for-profit business being
conducted in the form of a sole proprietorship.
5)Defines "business renter" as, for any business program
sponsor, a person who is authorized by the sponsor to enter a
rental agreement under the sponsor's business program. The
bill specifically provides that a business renter does not
include the following:
a) A non-employee member of a not-for-profit organization;
b) The purchaser of a voucher or other prepaid rental
arrangement from a person, including a tour operator,
engaged in the business of reselling those vouchers or
prepaid rental arrangements to the general public;
c) A person whose car rental is eligible for reimbursement
in whole or in part as a result of the person being insured
or provided coverage under a policy of insurance issued by
an insurance company;
d) A person whose car rental is eligible for reimbursement
in whole or in part as a result of the person purchasing
passenger vehicle repair services from a person licensed to
perform such services.
EXISTING LAW :
1)Regulates the contents of car rental contracts used by rental
car companies. (Civil Code Section 1936. All further
statutory references are to this Code.)
2)Provides that a rental car company can only advertise, quote,
and charge a rental rate that includes the entire amount that
a renter must pay to rent a car, except for taxes, mileage and
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any airport customer facility charge. (Section 1936.) This
requirement is commonly referred to as "bundling."
FISCAL EFFECT : The bill as currently in print is keyed
non-fiscal.
COMMENTS : In support of the measure, the author writes, "Civil
Code 1936, that governs car rental transactions, was enacted in
1988 in response to certain alleged sales abuses by some rental
car companies. That section prohibits, with specified
exceptions, any charge in addition to the advertised price . .
. While these provisions enhance consumer protection for
'retail customers', they are of no value in the world of
commerce where contracts are knowingly entered between rental
companies and business entities for their mutual advantage. . .
. Typically a business program sponsor would be a corporation
and the actual user of the rental car would be the corporation's
employee."
The sponsors of the measure further explain the need for the
bill, stating:
Current law (Civil Code 1936 enacted in 1988) prohibits
rental car companies from quoting, advertising or charging
customers for most items not included in the advertised
price. This provision had been created for the protection
of retail customers who, prior to the law's enactment,
could book a car based on advertised rates, only to learn
about additional charges and fees at the counter. AB 2761
does not, in any way, alter this protection for retail
consumers. AB 2761 does, however, adjust those provisions
by bringing California into conformity with 47 other states
in regards to the pricing of corporate and other commercial
contracts.
In all those states, the rental company and the business
entity have agreed upon a contract that establishes a
discounted rental rate for employees and certain others
associated with the business. In those states, the rate,
by the consent of both parties, is usually supplemented,
through additional charges (such as airport concession
fees, vehicle license fees, rental car surcharges, and
stadium construction fees) imposed upon the rental company
or its customers. Existing California law does not allow
those extra charges - even when the charges are part of the
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agreed commercial contract.
AB 2761 would permit the financial arrangements mutually
agreed to by the parties in these commercial contracts to
be implemented in California by permitting the pass-through
of these kinds of charges to the business entity. This
flexibility would allow the rental company to grant certain
benefits that a business desires, in exchange for other
charges. Further, there are provisions in the bill that
ensure the employee-renter knows of the terms and
conditions of the contract that their employer has
established for them.
Concerns Expressed by the Attorney General's Office and
Consumers Union. Both the Office of the Attorney General and
Consumers Union have an "oppose unless amended" position on the
measure. The author and his sponsor have committed to working
with these groups to address their concerns. At the time of the
writing of this analysis, all interested parties indicate that
discussions are ongoing. Briefly, the Attorney General's Office
is concerned about the bill's potential for "unintended
consequences to some employees and small-business owners."
Specifically, the Office writes:
First, the "business program" exception is not limited to
an independent master agreement that establishes the
basis for charges for future authorized rentals and the
simple execution of a rental contract itself. A related
concern is that this measure does not distinguish between
a "business renter" who is a one-person professional
corporation, or a small business, and a "business renter"
such as Oracle or I.B.M. who can, and will be motivated
to, negotiate a multi-state master rental agreement with
a rental car company. While large businesses have the
bargaining power to avoid the consumer traps associated
with unbundling, unwary small business owners or sole
proprietors may not. Second, the bill does not expressly
prohibit subjecting the employee of a business renter to
personal liability or extra charges as the authorized
renter and signatory to the rental contract. The bill
does not appear to allocate risk solely to the "business
program."
Similarly, Consumers Union writes:
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In general, Consumers Union does not believe that car
rental companies should be allowed to unbundle and
separately charge consumers for fees related to renting a
car. It is important that consumers be able to obtain
rate quotes in which all cost factors are included in
order to give consumers an accurate basis for comparing
rates among car rental companies. We understand that the
bill, as amended on April 27, has attempted to address
this issue by allowing a rental car company, with respect
to business renters of a business program, to separately
quote additional charges as long as the person receiving
the quotations is also provided a good faith estimate of
the total of all of the charges for the entire rental.
We do not believe that this exception to the prohibition
against unbundling would be appropriate in the general
consumer market. Additionally, we do have concerns about
allowing unbundling for any segment of the market.
However, we would remove our opposition to this bill if
it were more narrowly tailored to cover only large
businesses that have the ability and bargaining power to
avoid the potential pitfalls of unbundling in the car
rental market. This would ensure that small businesses
and sole proprietorships would continue to be subject to
the current protections available for all renters,
protections which are necessary to guard against unfair
competition and abuses in the rental car marketplace.
Appropriations Committee Request. The Appropriations Committee
has requested a referral of this measure upon passage by this
Committee. The Rules Committee has granted this request and,
therefore, the bill should be referred to the Appropriations
Committee upon passage by the Judiciary Committee.
ARGUMENTS IN OPPOSITION : Enterprise Rent-a-Car opposes the
measure, stating that the company is "unique, in that unlike the
primarily airport based companies which depend on the
out-of-state business and pleasure traveler, over 85% of
Enterprise's renters reside in California." The company raises
a number of objections to the measure and writes:
Twenty-four states have statutes regulating car rental
agreements, including nine with laws very similar to
California's. None of these states have any type of
exemption for business travelers. Under AB 2761,
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California would become the first state with a statute
similar to California's to create two classes of car
renters - one with bundled rates and one without them. . .
. Most importantly, AB 2761 would allow car rental
companies to un-bundle and separately charge airport
"concession" fees . . . to their eligible business renter
customers. AB 2761 would also permit car rental companies
to pass-through the currently bundled vehicle license fee
to eligible renters. . . .
The proponents argue that AB 2761 is necessary because they
have national contracts with their business clients and
other states permit them to pass through fees and charges
that they cannot pass through in California. From this
fact they argue that they therefore make less profit on
their California rentals to business clients. What they
fail to point out is that there is no requirement that
their national contracts specify one rental rate for all
fifty states. There is no reason in law or logic that
different daily rental rate for states like California that
require mandatory fees and charges be bundled in the daily
rental rate cannot be specified in their national
contracts.
AB 2761 creates a statutorily authorized un-level playing
field among competitors. By permitting the pass through of
concession fees and other fees and charges to one class of
customer but not another, AB 2761 gives some car rental
companies a competitive advantage based on their book of
business. Competitive advantage among competitors should
be based on good business practices and efficiency in the
marketplace, not statutory carve outs.
REGISTERED SUPPORT / OPPOSITION :
Support
Cendant Car Rental Group (Avis and Budget)
Hertz Corporation
Vanguard Car Rental USA (Alamo and National)
Opposition
Consumers Union (unless amended)
Enterprise Rent-a-Car
AB 2761
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Office of the Attorney General (unless amended)
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334