BILL ANALYSIS
AB 1731
Page 1
Date of Hearing: May 4, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1731 (Tran) - As Introduced: February 4, 2010
As Proposed to be Amended
SUBJECT : VEHICLE RENTAL CONTRACTS: CONSUMER PROTECTION
KEY ISSUES :
1)SHOULD CERTAIN HIGHER-PRICED VEHICLES BE EXEMPT FROM THE
CONSUMER PROTECTIONS THAT OTHERWISE APPLY TO RENTAL CAR
TRANSACTIONS, WITH APPROPRIATE DISCLOSURES TO THE CONSUMER?
2)IF HIGHER-PRICED VEHICLES ARE EXEMPT FROM THE DAMAGES
LIMITATIONS THAT OTHERWISE PROTECT RENTERS, SHOULD CONSUMERS
BE PROTECTED FROM POTENTIALLY SUBSTANTIAL FINANCIAL LIABILITY?
3)SHOULD THE MAXIMUM COST OF RENTAL CAR DAMAGE WAIVERS BE
DISCONNECTED FROM THE RETAIL PRICE OF THE VEHICLE ON THE
GROUND THAT IT IS UNRELATED TO THE AMOUNT OF THE DAMAGE
LIABILITY WAIVED?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill is sponsored by Enterprise Rent-A-Car Company. As
proposed to be amended, the bill removes higher-priced cars -
those with a retail price of $70,000 or more - from the consumer
protections that otherwise limit car renter liability for
damages. According to the sponsor, this exemption is justified
because the theft-protection devices with which these
higher-priced cars are equipped is so effective as to make theft
of the vehicle without fault by the renter virtually impossible.
If true, the Committee may nevertheless wish to explore with
the author whether it would be prudent for all concerned to
require some provision for insurance coverage, consistently with
the sponsor's existing business practice, because these
expensive cars are usually not covered by the renter's personal
auto insurance policy, nor are they covered under standard
credit-card insurance policies that normally protect car
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rentals. The bill also deletes from current law the provision
limiting the price of damage waivers for all car rentals based
on the manufacturer's suggested retail price (MSRP). Supporters
contend the link to MSRP is unnecessary and cumbersome to
administer. Consumer groups opposed the bill as introduced. It
is not known whether the proposed amendments address all of
their concerns.
SUMMARY : Revises consumer protections regarding vehicle
rentals. Specifically, this bill :
1)Exempts higher-priced rental cars (those with a retail price
of $70,000.00 or more) from existing consumer protections
regarding limits on liability for loss due to theft and
physical damage related to theft.
2)Disconnects damage waiver fee caps from the retail price of
the vehicle.
EXISTING LAW:
1)Authorizes a rental company and a renter to agree that the
renter will be responsible for, among other things, loss due
to theft of the rented vehicle up to its fair market value,
provided that the rental company establishes by clear and
convincing evidence that the renter or the authorized driver
failed to exercise ordinary care while in the possession of
the vehicle. (Civil Code section 1936(b)(2).)
2)Similarly allows a car rental contract to make the renter
liable for physical damage resulting from vandalism occurring
in connection with or after the theft of the vehicle up to the
fair market value of the vehicle in those circumstances where
the renter is liable for the theft of the vehicle. (Civil
Code section 1936(b)(3).)
3)Authorizes a car rental company to sell a damage waiver,
subject to specified rate limitations related to the class and
price of the vehicle. (Civil Code section 1936(h).)
COMMENTS : The author states that the purpose of this bill is to
"update the damage provisions of Civil Code section 1936 to more
accurately reflect the economic and pricing realities of today's
rental vehicle marketplace." In particular, the author and
sponsor contend, "Section 1936 was enacted to regulate car
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rental transactions for consumers renting for business, vacation
and insurance replacement reasons. In 1989, when section 1936
was adopted, the exotic vehicle rental market basically did not
exist. Now it is a recognizable niche market, particularly in
the more affluent communities of California."
The bill is sponsored by the Enterprise Rent-A-Car company.
According to the sponsor, Enterprise Holdings owns and operates
more than one million cars and trucks under the Alamo Rent A
Car, Enterprise Rent-A-Car and National Car Rental brands, the
largest fleet of passenger vehicles in the world today. As
North America's largest and most comprehensive car rental
company, Enterprise Holdings also operates a network of more
than 7,600 car rental locations in neighborhoods and at airports
worldwide, and leads the industry with more than a third of all
airport business in the U.S. and Canada.
Removes Higher-Priced Cars From the Consumer Protections That
Otherwise Limit Car Renter Liability For Damages. Under
existing law, car rental consumers may be liable for, among
other things, loss due to theft of the rented vehicle, as well
as physical damage to the vehicle in connection with the theft,
up to the fair market value of the vehicle, as described in
further detail below.
This bill would exempt cars with a retail price of $70,000 or
more from these provisions. Enterprise refers to these vehicles
as "exotics," and adds: "The exotic car rental market is less
than of 1% of the total rental car market. Vehicles that
would be considered exotic include convertibles such as the
Mercedes SL550 or the Porsche Boxster, luxury SUVs like the BMW
X5 or Range Rover Sport and a Bentley Continental. The typical
exotic car renter is a film industry executive, a foreign
dignitary or business executive. Physical damage insurance is
generally required as a condition of renting the vehicle. With
the exception of premium credit cards, coverage for these
vehicles is excluded based on a value of $50,000.00, designation
of the vehicle."
The Effect Of This Exemption Would Be To Relieve Rental
Companies Of Evidentiary Requirements Regarding Loss And Damage
Due To Theft. Under existing law the rental company can hold
the renter liable for loss due to theft, and physical damage
associated with the theft, up to the fair market value of the
vehicle, if the rental company establishes by clear and
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convincing evidence that the renter or the authorized driver
failed to exercise ordinary care while in the possession of the
vehicle. This bill would delete the clear and convincing
evidence standard for the exempted vehicles, making it easier
for rental companies to hold renters liable for theft and
damage.
Current law also establishes a consumer-protection presumption
that would be deleted by the bill for the exempted vehicles.
Under that presumption, the renter is presumed to have no
liability for any loss or physical damage due to theft if (1) an
authorized driver has possession of the ignition key furnished
by the rental company or an authorized driver establishes that
the ignition key furnished by the rental company was not in the
vehicle at the time of the theft, and (2) an authorized driver
files an official report of the theft with the police or other
law enforcement agency within 24 hours of learning of the theft
and reasonably cooperates with the rental company and the police
or other law enforcement agency in providing information
concerning the theft. This presumption would no longer apply to
the higher-priced vehicle rentals, making it easier for rental
companies to hold renters liable for theft and damage.
According to the sponsor, the exemption is justified because the
theft-protection devices with which these higher-priced cars are
equipped is so effective as to make theft of the vehicle without
fault by the renter virtually impossible (unless the renter
loses the key). Therefore, supporters argue, renters of these
vehicles do not need the evidentiary protections of the current
statute. Presumably these renters will have a strong incentive
to purchase damage waivers from the rental company, the price of
which would not be capped under this bill.
Would It Be Prudent For Rental Car Companies To Determine That
Insurance Coverage Is Available When The Renter Is An Individual
Consumer, As Responsible Companies Already Do? As the sponsor
indicates, many renters of these higher-priced vehicles may be
wealthy. Others however may be moderate-income customers
engaged in a one-time splurge, such as for a wedding, high
school prom, anniversary, special vacation, or other
celebration. Whatever the occasion, in order to protect itself
against loss due to theft and vandalism for these expensive
vehicles the rental company generally requires that an
individual consumer have sufficient coverage through his or her
personal motor vehicle insurance policy, or if not that a rider
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be added to the renter's personal insurance policy covering the
specific rental vehicle, identified by VIN number, and making
the rental company an additional insured. As the sponsor
indicates, credit card coverage on rental vehicles usually cuts
off beyond $50,000, and therefore does not extend to these
higher-priced cars. This practice of requiring insurance
coverage not only protects the rental company, it protects
consumers and puts them on notice that this is not a normal car
rental transaction. For corporate accounts, the sponsor's
practice is not to verify personal insurance coverage but to
otherwise provide for insurance by contract with the corporate
account holder.
Despite the salutary reasons for these common-sense practices,
the sponsor has indicated that it is unwilling to incorporate
them into the bill. The Committee may wish to explore with the
author whether it is sensible to protect individual consumers
(not corporate accounts), and put them on effective notice that
higher-end rental transactions are not subject to the customary
damage limitations, by requiring that rental companies determine
that there is sufficient insurance coverage to protect the
consumer and the rental company from the high costs of theft and
theft-related damage for these expensive vehicles.
A Similar Provision Was Dropped From A Bill Sponsored By The
Industry Last Year. The sponsor of this measure also sponsored
a similar measure last year, AB 833, which would have exempted
higher priced vehicles (at the higher threshold of $100,000)
from all protections of the rental car statute. That provision
was subsequently deleted and the bill was ultimately not
presented to the Committee.
This Bill Deletes MSRP From the Damage Waiver Fee Caps.
Currently, the fee that rental companies can impose for the
damage waiver product they sell is $9 per day for small vehicles
below a specified retail price and $15 per day for more
expensive cars, up to a maximum MSRP of approximately $43,000.
Beyond that, there is no limit on the price rental car companies
can charge for damage waivers. This bill would revise these
rules by deleting the tie to MSRP, which the industry contends
is cumbersome to administer because it requires that the retail
price of each vehicle be tracked, rather than allowing damage
waivers to be sold for all compacts, for example, at the same
price. While MSRP may be roughly related to the cost of repair
in that the cost of repairing damage to an inexpensive car is
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presumably lower than for an expensive one, MSRP does not appear
to be an essential element of damage waiver pricing because
damage waivers are sold without regard to the amount of damage
liability waived - i.e., $100 in damage (regardless of the price
of the vehicle) is waived for the same price as $10,000 in
damage.
As introduced, the bill would have raised the damage waiver
fees. Although the author's proposed amendments delete the
proposed fee increases, the sponsor indicates that it wishes to
continue to seek a fee increase as the bill moves forward.
Increasing these fees, or completely eliminating the fee caps,
has been a long-sought goal of the industry since damage waiver
fees became regulated by the enactment of AB 3306 (Connelly) of
1989. Last year's AB 833 initially proposed to increase the fee
to $22 for all vehicles. That proposal was not presented to
this Committee. In 1998, the same sponsor advocated for
elimination of the fee caps in AB 2314. That measure was
opposed by consumer groups, and the damage waiver fee provision
was deleted by amendments taken in this Committee.
Proposed Author's Amendments. To address concerns that the bill
reached too far in limiting consumer protection and imposed
unfair costs, the author judiciously proposes to amend the bill
as follows:
1936 (b)(2) ? The limitations on evidence and presumptions
provisions regarding a renter's liability for loss due to theft
contained in this paragraph shall not apply to the renter of a
vehicle with a manufacturer's suggested retail price of sixty
seventy thousand dollars ($60,000) ($70,000) or more.
1936 (b)(3) ? The limitations on evidence and presumptions
provisions regarding a renter's liability for loss due to theft
contained in this paragraph shall not apply to the renter of a
vehicle with a manufacturer's suggested retail price of sixty
seventy thousand dollars ($60,000) ($70,000) or more.
Add new (b)(4): A rental company that rents a vehicle with a
manufacturer's suggested retail price of seventy thousand
dollars ($70,000) or more shall clearly and conspicuously
disclose the following information in the rental contract or
holder in which the contract is placed and, also, in signs
posted at the place, such as the counter, where the renter signs
the rental contract, and, for renters who are enrolled in the
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rental company's membership program, in a sign that shall be
posted in a location clearly visible to those renters as they
enter the location where their rental cars are parked or near
the exit of the bus or other conveyance that transports the
enrollee to a car: (A) the nature of the renter's liability,
such as liability for all collision damage regardless of cause,
(B) the extent of the renter's liability, such as liability for
damage or loss up to a specified amount, (C) the renter's
personal insurance policy or the credit card used to pay for the
car rental transaction usually do not provide coverage for all
or any portion of the renter's potential liability, (D) the
renter should consult with his or her insurer to determine the
scope of insurance coverage, including the amount of the
deductible, if any, for which the renter is obligated, (E) the
renter may purchase an optional damage waiver to cover all
liability, subject to whatever exceptions the rental company
expressly lists that are permitted under subdivision (f), and
(F) the range of charges for the damage waiver.
(2) In addition to the requirements of paragraph (1), a rental
company that rents a vehicle with a manufacturer's suggested
retail price of seventy thousand dollars ($70,000) or more shall
orally disclose to all renters that the rental is not subject to
the limits on loss and damages related to theft applicable to
most car rentals, that theft and damage coverage are usually not
covered by the coverage the customer maintains under his or her
own policy of motor vehicle insurance. The renter's receipt of
the oral disclosure shall be demonstrated through the renter's
acknowledging receipt of the oral disclosure near that part of
the contract where the renter indicates, by the renter's own
initials, he or she acknowledges liability for loss and damage
due to theft.
Delete proposed amendment to 1936 (b)(4) as introduced
Revise subdivision 1936 (h) as follows:
(h)Notwithstanding any other provision of law, a rental company
may sell a damage waiver subject to the following rate
limitations for each full or partial 24-hour rental day for the
damage waiver.
(1) For rental vehicles that the rental company designates as an
"economy car," "subcompact car," "compact car," or another term
having similar meaning when offered for rental, or another
vehicle having a manufacturer's suggested retail price of
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nineteen thousand dollars ($19,000) or less, For rental vehicles
in the rental company's two lowest rental classes, the rate
shall not exceed nine dollars ($9).
(2) For rental vehicles not described in paragraph (1) that
have a manufacturer's suggested retail price from nineteen
thousand one dollars ($19,001) to thirty-four thousand nine
hundred ninety-nine dollars ($34,999), inclusive, and that are
also either vehicles of next year's model, or not older than the
previous year's model, the rate shall not exceed fifteen dollars
($15). For those rental vehicles older than the previous year's
model-year, the rate shall not exceed nine dollars
($9).
(3) The rate limitations contained in paragraphs (1) and (2)
of this subdivision shall not apply to rental vehicles with a
manufacturer's suggested retail price of sixty seventy thousand
dollars
($60,000) ($70,000) or more.
ARGUMENTS IN OPPOSITION: As indicated below, two consumer
groups filed opposition to this bill, focused on provisions that
are to be deleted in the proposed amendments. It is not known
whether these amendments remove all opposition concerns.
REGISTERED SUPPORT / OPPOSITION :
Support
Enterprise Rent-A-Car
California Chamber of Commerce
Opposition (Prior to Proposed Amendments)
Center for Public Interest Law
Consumer Federation of California
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334