BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
AB 2761 A
Assembly Member Leno B
As Amended June 28, 2004
Hearing Date: June 29, 2004 2
Civil Code 7
GWW:cjt 6
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SUBJECT
Car Rental Contracts: Unbundling of Rates for Qualified
Business Renters
DESCRIPTION
This bill would permit rental car companies to separately
quote and charge additional rental fees and charges in
addition to the contract base rental rate to qualified
business renters renting under a business program, so long
as a good faith estimate of the total charge is provided to
the renter at the time the reservation is made or when the
car is picked up for rental. This exception to current
law's requirement to quote or charge a "bundled" rental
rate would apply only in cases of a "qualified business
rental" where the business renter has produced more than
$10,000 in gross rental revenue in the past year or is
expected to produce that amount of rental revenue in the
upcoming year.
BACKGROUND
Current law requires car rental companies to advertise and
quote a "bundled" rate that includes all the anticipated
charges from renting a car, except for gas, mileage, and
airport facility charges. This law was enacted in response
to deceptive ads from rental companies that advertised a
low base price and then charged a significantly higher
total price because of undisclosed add-on fees and charges
(such as an airport concession fee or a vehicle license
fee).
(more)
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This bill is being sponsored by Hertz, Avis, Budget, Alamo,
and National to enable them to separately charge for and
collect certain costs in their business rentals which
California law does not now permit. Their business rental
programs typically charge a base rental rate for the
vehicle and then adds separate charges for vehicle license
fees, airport concession fees, and any local taxes.
However, that practice, allowed in 47 other states, is
prohibited in California because of California's bundling
law. This bill would make an exception to that law for
specified business rentals.
The June 28 amendments primarily addressed drafting
concerns raised by Committee staff. They also required a
rental company's continued compliance with other provisions
of the "bundling" law and moderated to a small degree the
proposed ability to "unbundle" the quoted and charged car
rental rate. They do not, however, resolve the fundamental
core question presented by AB 2761:
Should an exception to the law requiring the quoting and
charging of a "bundled" (all-inclusive) rate be made in
the case of a qualified business renter renting under a
business program, who could instead be separately quoted
and charged additional rental charges for the rental (on
top of the business program's contracted base rental
rate) if the person is also provided a good faith
estimate of the total of all charges for the time of the
rental?
Enterprise Rent-A-Car opposes AB 2761, asserting that it
creates an un-level playing field among competitors and
that it would be the foundation for new "below-the-line"
airport fees. The Center for Public Interest Law also
opposes the bill, asserting that unbundling can lead to
abusive practices once again. The Consumers Union is
neutral, as is the Attorney General's office.
CHANGES TO EXISTING LAW
Existing law r egulates the contents of rental car contracts
used by rental car companies, and 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 any airport
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customer facility charge. (Civil Code Section 1936(n). All
further references are to this Code.) This requirement is
commonly referred to as "bundling."
This bill would create an exception to that law and allow a
rental car company to quote and charge an "unbundled" rate
to a "qualified business renter" of a "business program
sponsor" under the sponsor's "business program." The bill
would allow the rental car company to separately quote or
impose additional charges for a "qualified business
rental," if, at the time the quote is made or the rental
commences, the person receiving the quotation is provided a
good faith estimate of the total of all the charges for the
entire rental. The estimate may exclude mileage charges
and charges for optional items and services that cannot be
determined at the time of reservation or when the rental
commences.
The bill would enact the definitions for the terms
"additional charges," "quote," "business renter," "business
program," "qualified business rental," and "business
program sponsor." (See Comments 3 and 4.)
COMMENT
1. Stated need for bill and arguments in support
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. . . . 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 assert:
Current law prohibits rental car companies from
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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 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.
2. Opposition from Enterprise and Center for Public Interest
Law
Enterprise Rent-a-Car opposes the measure, stating that
the company is "unique, in that unlike the primarily
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airport based companies which depend on the out-of-state
business and pleasure traveler, over 85% of Enterprise's
renters reside in California." Enterprise also argues
that AB 2761 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. The company 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,
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
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business practices and efficiency in the marketplace,
not statutory carve outs.
On the one hand, AB 2761 might be seen simply as a fight
between competing businesses, each of whom wants to
improve their own profit line and market share while
attempting to reduce their competitors. On the other
hand, AB 2761 could be seen as the latest attempt to
weaken California's law prohibiting "unbundled" car
rental rates in order for car rental companies to
increase their bottom line. That is the view taken by
Professor Fellmeth of the Center for Public Interest Law,
who writes:
We regretfully oppose AB 2761, which represents yet
another attempt by the large car rental firms to
undermine historical reforms enacted by this
Legislature following well-documented consumer abuses.
He argues that the current law that requires bundling of
charges has a rationale that extends to both personal and
business rental customers, and that bundling enables both
types of customers to compare prices between companies.
AB 2761's unbundling of the base rental rate from other
potential charges, such as vehicle license fee and
airport concession fees, that are now part of the bundled
rate, would lead to increased costs for those consumers
and, at the very least, make comparisons difficult. He
further writes:
The gist ? of this bill is . . . an attempt to
authorize price add-ons that are not disclosed in
advertising but are included in small print as one
picks up the car and which are then added to the
advertised rate. Moreover, such allowance creates an
inevitable downward spiral - for each competitor gains
an advantage by stating a base rate lower than
competitors. Granted, the harm is less pronounced
with business clients under contract. But, even
there, the base rate exclusion gives an advantage - it
means more inquiries, more possible clients to begin
negotiations for "business status." As far as the
customer knows, the add-ons that are unbundled are
uniformly applied by any competitor - indeed, they
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have been traditionally packaged to convey exactly
that impression. In order to maintain market share,
each competitor has to shave back that base rate back
and add as much as possible to the add-ons as the
rental firms interact for competitively. The
advantage of the current post-reform is that this
cannot happen - it is properly taken off the table as
an arena for abuse. Instead, all speak the same
language and competition flourishes without
deteriorating into a "who can fool the most with the
cleverest aftercharges?" dynamic. All gain, including
the system as a whole, from the current state of the
law.
CPIL does not see what problem this bill solves, but
clearly sees those it will create.
While the professor's letter used advertising abuses as
an example, his comments would seem equally applicable
to add-ons to the price quoted when a reservation is
made.
In response, the sponsors might argue that under AB 2761,
the business renter must be given a good faith estimate
of the total price of the rental at the time of making
the reservation. In this way, they argue, the rental
rate is "re-bundled" and allows for comparison-shopping.
3. Bill is limited to "qualified business rentals"
AB 2761 would only apply to a "qualified business
rental," which would cover only those situations where
the car rental revenue from a business program sponsor
and its affiliates has produced gross rental revenues in
excess of ten thousand dollars ($10,000) in the preceding
year, or is expected to exceed $10,000 in the upcoming
year.
This qualification was added in the Assembly to address
concerns by the Attorney General's office about the
bill's potential for "unintended consequences to some
employees and small-business owners." While large
businesses have the bargaining power to avoid the
consumer traps associated with unbundling, unwary small
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business owners or sole proprietors may not. Thus, the
$10,000 per year rental revenue threshold was added to
provide some assurance that the business program sponsor
is truly a large business and therefore, presumably, able
to handle its business affairs without the protection of
Civil Code Section 1936.
Consumers Union had also requested the limitation as a
condition of removing its opposition. In its opinion,
narrowing the bill to cover only large businesses (that
presumably have the ability and bargaining power to avoid
the potential pitfalls of unbundling in the car rental
market) would ensure that small businesses and sole
proprietorships would continue to be subject to the
current protections available for all renters and which
are necessary to guard against unfair competition and
abuses in the rental car marketplace.
4. Other proposed definitions and impacts
"Additional charges" would mean "charges other than a per
period base rental rate established by a business
program," and "quote" would include telephonic,
in-person, and computer-transmitted quotations.
"Business renter" would mean any person authorized by the
business program sponsor to rent a vehicle under the
sponsor's business program. For example, the rental
could be by an employee for business or purely personal
use. In either event, that renter would be quoted a
contract unbundled rate and given a good faith estimate
of the total charges for the rental.
However, the term would not apply to any of the
following: a) A non-employee member of a not-for-profit
organization (such as a Calif. AAA member); 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 (the
tourist given a car as part of a travel package); and c)
A person whose car rental is a temporary replacement car
paid for by insurance or the repair shop repairing the
renter's own vehicle. In these excepted instances, the
protections of Civil Code Section 1936 would continue
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apply and these consumers would be quoted and charged a
bundled rate instead of the business program's unbundled
contract rate.
"Business program" would mean (A) a contract between a
rental company and a business program sponsor that has
established the per period base rental rate, and any
other material term relating to additional charges, 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 rental
company at the request of, or with the consent of, a
business program sponsor under which the rental company
offers to rent passenger vehicles to persons authorized
by the sponsor at per period bases rental rates, and any
other material terms relating to additional charges, that
are not the same as those generally offered by the rental
company to the public. (The June 28 amendments clarified
that the base rental must include, if applicable, any
material term relating to additional charges. Prior to
the amendment, the bill allowed for the contract to
establish the rental rate, or any other material term,
for the business rental. Committee staff deemed that
language to be too open-ended and subject to abuse, and
asked for the clarification.)
"Business program sponsor" would mean a legal entity,
other than a natural person, that is a corporation,
limited liability company, or a partnership. (This
language excludes state and local governments from the
bill, as well as all other forms of businesses not
specifically listed, thereby maintaining current law's
protection of a quoted, advertised, or charged "bundled"
rental rate for these entities. This limitation also
addressed concerns raised by Consumers Union and the
Assembly Judiciary Committee.)
Support: California Hotel and Lodging Ass'n.; California
Teamsters Public Affairs Council; Port of Oakland
Opposition:Enterprise Rent-A-Car; Center for Public
Interest Law
HISTORY
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Source: Cendant Car Rental Group (Avis and Budget) Hertz
Corporation; Vanguard Car Rental USA (Alamo and
National)
Related Pending Legislation: None Known
Prior Legislation:AB 491 (Frommer), Chapter 661, Statutes
of 2001, permits a rental car company to
separately charge and collect a "customer
facility fee" to finance, design, construct,
or operate consolidated airport car rental
facilities and/or a common use
transportation system that move passengers
between the airport terminals and the
consolidated car rental facilities. That
measure also increased the maximum allowable
fees for sale of a collision damage waiver
option.
Prior Vote:Assembly Floor (56 - 5)
Assembly Judiciary (7 - 0)
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