BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2059 (Calderon)
As Amended August 20, 2010
Hearing Date: August 26, 2010
Fiscal: No
Urgency: No
SK:jd
PURSUANT TO SENATE RULE 29.10
SUBJECT
Vehicle Rental Agreements: Damage Waivers
DESCRIPTION
Existing law permits a rental car company to sell a damage
waiver to a consumer and caps the daily amount of that charge
depending on the manufacturer's suggested retail price (MSRP) of
the vehicle rented. Currently, damage waiver charges for rental
cars with an MSRP of less than $23,000 are capped at $9 per day.
This bill, co-sponsored by the Consumer Attorneys of California
and Enterprise Holdings (operator of Enterprise, Alamo, and
National rental car companies), would instead provide that
rental cars with an MSRP of less than $17,000 would be capped at
$8 per day. Under existing law, damage waiver charges for
vehicles with an MSRP of $23,001 to $43,000 are capped at $15
per day. This bill would instead provide that rental cars with
an MSRP of $17,001 to $35,000 are subject to a cap of $14 per
day. Under existing law, the damage waiver charge is not capped
for vehicles with an MSRP of more than $43,000. This bill would
instead decrease this MSRP to $35,000.
This bill would also require a rental car company that enters
into a vehicle rental agreement with a renter who is not a
resident of this country to accept service of process of any
complaint against that renter for harm, loss, or damage related
to the car rental when he or she purchases supplemental
liability insurance as part of the agreement. This bill would
(more)
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provide this mechanism for service of process only where the
plaintiff agrees to limit his or her recovery to the limits of
protection provided by the insurance.
This bill would sunset on January 1, 2016.
BACKGROUND
A damage waiver is an optional product offered by most rental
car companies to their customers. The damage waiver is a
contractual agreement between the rental car company and the
renter in which the company, in exchange for a fee, agrees to
waive the renter's liability for damage to or loss of the car
during the rental period. Damage waivers do not relieve a
renter of all liability, however. For example, a renter may
still be liable if the damage or loss results from the
authorized driver's intentional, willful, wanton, or reckless
conduct.
In 1988, in order to address concerns that rental car customers
were being subjected to coercive damage waiver sales techniques
at the rental counter, California enacted a $9 cap on the amount
that rental car companies could charge for the product. (See AB
3006, Connelly, Ch. 1523, Stats. 1988.) This cap applied to all
rental vehicles. AB 3006 was sponsored by Attorney General John
Van de Kamp and initially proposed to prohibit damage waivers
entirely. At the time, the sponsor argued that damage waivers
were a "complex and unfair scheme" that was "adhesive in nature,
contrary to public policy, and violative of the common law
allocation of lessors' and lessees' respective
responsibilities." As a result of a "carefully negotiated
compromise" between the author, Attorney General, consumer
groups, and industry, the bill was amended to provide for a
comprehensive scheme regulating damage waivers.
Since then, there have been several attempts, supported by the
rental car industry, to either increase or eliminate entirely
the cap on the amount that a rental car company may charge for a
damage waiver. In 1998, AB 2314 (Papan, 1998) would have
repealed the $9 damage waiver cap for the rental of any vehicle
above the compact car class. That bill died in this Committee.
The next year, AB 966 (Papan, 1999) would have, among other
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things, eliminated the $9 cap and required a rental car company
to clearly disclose the existence and amount of a damage waiver
in any advertisement. That bill also died in this Committee.
In 2001, AB 491 (Frommer, Ch. 661, Stats. 2001) provided that
rental cars with an MSRP of $19,000 (now approximately $23,000
as adjusted for inflation) or less were subject to the $9 cap.
That measure also increased the $9 cap to $15 for new rental
cars with an MSRP of between $19,001 and $34,999 (now
approximately $43,000 as adjusted for inflation). AB 491 also
eliminated the cap for rental cars over $35,000 (now $43,000).
Last year, the introduced version of AB 833 (Perez) would have
increased the damage waiver cap to $22 for all rental cars.
That provision was subsequently removed from AB 833 when the
bill was pending in the Assembly Judiciary Committee.
This bill was amended on August 20, 2010 to include provisions
relating to damage waiver charges. Specifically, this bill
would decrease the MSRP levels as well as the caps on damage
waiver charges. The remaining provisions of this bill relating
to service of process were heard and approved by this Committee
on June 22, 2010.
CHANGES TO EXISTING LAW
1.Existing law specifies restrictions on rental vehicle
agreements and regulates a renter's liability for loss due to
theft, a rental company's loss of use, damage, or loss to the
car, damage waivers and damage waiver fees. (Civ. Code Sec.
1936.)
Existing law provides that a nonresident driver impliedly
consents to the appointment of the director of the Department
of Motor Vehicles (DMV) as his or her agent for service of
process in any action against the nonresident driver for
injuries caused by an accident or collision. Existing law
provides that service of process shall be made by delivering a
copy of the summons and complaint to the director. The
plaintiff must also send a copy of the summons and complaint
by registered mail to the nonresident driver, return-receipt
requested. (Veh. Code Secs. 17451, 17454, 17455, 17456.)
This bill would require a rental car company that enters into a
vehicle rental agreement with a renter who is not a resident
of this country to do both of the following when that renter
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purchases supplemental liability insurance, as defined, as
part of the agreement:
1. accept service of process of any complaint against
the renter regarding harm, loss, or damage related to the
use or operation of the rental car. Process may be
served by first-class mail, return receipt requested, or
by personal service by a registered process server; and
1. provide a copy of the summons and complaint to the
renter by first-class mail, return receipt requested, or
registered mail.
This bill would provide the above-described mechanism for
service of process only where the plaintiff agrees to limit
his or her recovery to the limits of protection provided by
the insurance.
This bill would provide that the above-described provisions
sunset on January 1, 2016.
2.Existing law defines a "damage waiver" as a rental car
company's agreement not to hold a renter liable for damage to
or loss of the rental car, any loss of use of the rental car,
or any storage, impound, towing, or administrative charges.
(Civ. Code Sec. 1936(a)(5).)
Existing law provides that a rental car company may provide that
a damage waiver does not apply in certain circumstances,
including, among others, that the damage or loss results from
the authorized driver's intentional, willful, wanton, or
reckless conduct or from that driver's operation of the
vehicle under the influence of drugs or alcohol. (Civ. Code
Sec. 1936(f)(1).)
Existing law provides that a damage waiver is optional and a
consumer may not be required to purchase a damage waiver. A
rental car company must also provide a consumer with specified
notice regarding the damage waiver. (Civ. Code Secs. 1936(g),
(k).)
Existing law provides that a rental car company may sell a
damage waiver subject to the following rate limitations for
each full or partial 24-hour rental day and provides that the
MSRPs described below shall be adjusted annually to reflect
changes from the previous year in the Consumer Price Index:
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1. $9 per day for rental vehicles that the rental car
company designates as an "economy car," "subcompact car,"
"compact car," or another term having similar meaning, or
another vehicle having an MSRP of $23,000 (as adjusted for
inflation) or less; and
b. $15 per day for rental vehicles that have an MSRP from
$19,001 to $43,000 (adjusted for inflation), and that are
also either vehicles of next year's model, or not older
than the previous year's model. If the vehicle is older
than the previous year's model-year, the rate for a damage
waiver may not exceed $9. (Civ. Code Sec. 1936(h)(i).)
This bill would revise the above limitations to instead
provide that a rental car company may charge the following for
a damage waiver:
a. Decreases to $8 per day the damage waiver cap for
rental vehicles that have an MSRP of $17,000 or less; and
b. Decreases to $14 per day the damage waiver cap for
rental vehicles that have an MSRP between $17,001 and
$35,000 that are either vehicles of next year's model, or
not older than the previous year's model. If the vehicle
is older than the previous year's model-year, the rate for
a damage waiver may not exceed $8.
This bill would provide that, commencing January 1, 2012, the
MSRP be adjusted annually to reflect changes from the previous
year in the Consumer Price Index.
This bill would provide that the above-described provisions
would sunset on January 1, 2016.
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COMMENT
1. Stated need for the bill
With respect to the most recent amendments regarding the
collision damage waiver, the author writes:
Current law requires that the MSRP be annually adjusted for
inflation, the Collision Damage Waiver (CDW) is, however, not
required to be adjusted for inflation. Since AB 421 (Frommer)
was enacted almost 10 years ago and the Consumer Price Index
(CPI) has changed significantly, it is time to revisit the
current tier-pricing system to make necessary adjustments in
the CDW that are both equitable and reflective of the changes
in the inflation rate. The amendments to the bill provide a
new tier-pricing system, where the cap amount is more closely
related to MSRP. Also, these prices maintain the commitment
of providing affordable, optional protection for consumers.
Co-sponsor Consumer Attorneys of California (CAOC) writes that
the bill's service of process provisions will help Californians
because the service of process requirements under the Hague
Convention are "onerous obstacles [which] can be avoided if the
rental company simply accepts service of process on behalf of
its renter." CAOC also points out that:
California tourist areas such as the Bay Area, Los Angeles,
and Orange Counties are the hub of car rental activities. A
high percentage of the car rentals out of LAX are with
out-of-country residents. The problem arises when a foreign
renter drives recklessly and injures or kills a California
resident and then leaves the state. If a lawsuit ensues, the
injured California citizen then needs to locate, and serve,
the out-of-country resident. In one case in San Francisco, a
Tibetan resident rented a car and purchased the SLP
[supplemental liability policy] sold by that company. The
Tibetan caused a major accident, leaving a California resident
severely injured, and left the country. In this case, the
plaintiffs actually had to hire a yak to serve the reckless
driver.
Co-sponsor Enterprise Holdings writes that the bill "preserves
the commitment to having affordable DW [damage waiver]
protection for the compact and economy classes by lowering the
maximum rate for vehicles having an MSRP under $17,000 to $8 per
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day. It also reduces the maximum rate for vehicles having an
MSRP between $17,000 and $35,000 (the intermediate, standard,
full and premium classes of vehicles) to $14 per day. The DW
for more expensive vehicles will remain uncapped. AB 2059
represents a modest adjustment to the pricing of DW that retains
the commitment to have a lower cost DW for the entry level
rental vehicles while allowing more competitive prices for the
majority of rental vehicles. By comparison, if DW had been
indexed for inflation since 2001 similar to the MSRP, the
current $9 rate would now be over $15 and the current $15 rate
would now be over $23."
2. Bill would require rental car companies to accept service of
process for out-of-country renters; plaintiff's recovery
limited
This bill would require a rental car company to accept service
of process for out-of-country renters and would provide that
process may be served by first-class mail, return receipt
requested, or by personal service by a registered process
server. A plaintiff who elected to serve the renter in the
manner prescribed by the bill would be limited in his or her
recovery against the renter or the rental company to the limits
of the protection extended by the supplemental liability
insurance.
Under this bill, the rental car company would be required to
provide a copy of the summons and complaint to the
out-of-country renter by first-class mail, return receipt
requested, or registered mail. Once service of process
requirements are met in this way, the plaintiff would be able to
bring his or her claim against the supplemental liability
insurance policy in order to recover.
3. Existing service of process mechanisms: Hague Convention of 15
November 1965 on the Service Abroad of Judicial and
Extrajudicial Documents in Civil or Commercial Matters (Hague
Convention)
The author and his sponsors assert this bill is necessary
because "[s]ervice of process on out of country defendants is
complicated, expensive, and difficult as (1) the onerous
provisions of the Hague Convention of 1965 On the Service Abroad
of Judicial and Extrajudicial Documents in Civil or Commercial
Matters must be met; (2) not all countries have agreed to the
Hague Convention; (3) the paperwork must be translated into the
language of the defendant; and (4) a service processor must be
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located." Legal commentators have also noted the complexity of
serving international defendants. (See, e.g., Comment,
Dysfunctional Equivalence: The New Approach to Defining "Postal
Channels" Under the Hague Service Convention, (2007) 55 UCLA L.
Rev. 205; Greenwood, Serving Them Right: When Taking on
International Defendants, Expect Challenges, Even Complications,
(2005) 91 A.B.A.J. 24.)
One supporter describes a case "in which a Denmark resident
caused my client to suffer a serious injury as a result of
negligent driving of a vehicle that was rented here in
California. The Denmark driver purchased bodily injury
liability insurance through the rental company. The insurance
company knows of the bodily injury and the negligence that
caused my client to suffer damages. The insurance company will
eventually cover the loss, however, the insurance company is
refusing to even negotiate on the claim unless and until we
effect service of process on the driver in Denmark. This has
unnecessarily delayed the claim, which is causing additional
damages to my client, and that is preventing other companies
here in California to be reimbursed for medical expenses that
they incurred as a result of the Denmark driver's negligence.
Moreover, this has caused an unnecessary lawsuit to be filed,
just so that we can effect service in Denmark complying with the
Hague Service Convention. Furthermore, we will incur
substantial additional cost and delay as a result. All of this
would have been unnecessary if your [b]ill had already been the
law."
By requiring rental car companies in certain instances to accept
service of process for international renters, this bill
implicates service of process outside of the United States.
Both California law and the Hague Convention govern the
transmission of documents outside the United States. In
addition, under the Supremacy Clause (U.S. Const. Art. VI), the
Hague Convention preempts any inconsistent state laws.
(Volkswagenwerk Aktiengesellschaft v. Schlunk (1988) 486 U.S.
694.) There are currently 61 countries, or "Contracting
States," that are parties to the Hague Convention, which "deals
primarily with the transmission of documents; it does not
address or comprise substantive rules relating to the actual
service of process." (Outline, Hague Service Convention, Hague
Convention of 15 November 1965 on the Service Abroad of Judicial
and Extrajudicial Documents in Civil or Commercial Matters,
http://www.hcch.net/upload/outline14e.pdf .) Contracting States
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may opt out of one or more forms of service.
California law provides that, except as otherwise provided by
statute, a summons shall be served on a person outside the
United States as provided in the Code of Civil Procedure, as
directed by the court in which the action is pending, or, if the
court before or after service finds that the service is
reasonably calculated to give actual notice, as prescribed by
the law of the place where the person is served or as directed
by the foreign authority in response to a letter rogatory.
(Code Civ. Proc. Sec. 413.10.) These rules are subject to the
provisions of the Hague Convention. (Id.)
While the rules governing service of summons outside of the
United States are subject to the provisions of the Hague
Convention, depending on the receiving country, it would appear
that this bill's provisions requiring rental car companies to
mail a copy of the summons and complaint to the out-of-country
renter would likely meet service requirements. The sponsor
provides the following rationale:
. . . AB 2059 provides for an agent for service of process
within the United States (rental car company); therefore,
the Hague Convention is not the exclusive means of service.
[Also] AB 2059 is not inconsistent with the Hague
Convention. AB 2059 seeks to facilitate service of process
abroad. The Hague Convention "was formulated in 1964-65 by
delegates from the United States and 22 other nations ?
with the original intent to help ensure that defendants
sued in foreign jurisdictions would receive actual and
timely notice of suit and to facilitate proof of service
abroad." (citations omitted) The U.S. Supreme Court has
stated that: "We do not think that any country will draft
its internal laws deliberately so as to circumvent the
Convention in cases in which it would be appropriate to
transmit judicial documents for service abroad ? we
anticipate that parties may resort to the Convention
voluntarily, even in cases that fall outside the scope of
its mandatory application." (Volkswagenwerk at 705-706.)
AB 2059 is consistent with the intent and with the express
language of the Convention.
4. Bill would increase damage waiver cap by $5 per day for
approximately 40 percent of the sponsor's rental car fleet;
subjects an increased number of vehicles to no cap
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Under existing law, fees for damage waivers are generally
capped, depending on the MSRP of the vehicle rented. The
bright-line MSRP standard was amended into California law in
2001 as part of AB 491 which provided for the current scheme
tying the amount of damage waiver that may be charged to the
MSRP of the vehicle. AB 491 was intended to "preserve the $9
fee for a significant number of rental cars." (Senate Judiciary
Committee analysis, August 20, 2001). AB 491 was a carefully
negotiated compromise between Attorney General Bill Lockyer, the
rental car industry, and other stakeholders. This link to the
MSRP is arguably the most reasonable, bright line standard by
which to draw the line between the lower and higher damage
waiver caps rather than a more arbitrary, and more easily
manipulated, standard such as class of vehicle.<1> The changes
proposed by this bill are intended to maintain the bright line
standard.
As amended August 20, 2010, this bill would decrease the MSRP of
rental vehicles subject to the damage waiver caps while at the
same time lowering those caps. The effect of this change would
be to shift a significant number of the sponsor's vehicles
currently capped at the lower rate to instead be subject to the
higher rate cap. At the same time, the cap on those vehicles
not shifted to the higher rate cap would be reduced by $1 per
day to $8. The cap on those vehicles that are shifted to the
higher rate cap would be reduced by $1 per day to $14. In
addition, an unknown number of the vehicles currently subject to
the higher cap would instead move to the next level (which is
uncapped). The following chart helps to illustrate the changes
proposed by this bill:
-----------------------------------------------------------------
|Existing Law |AB 2059 |
|--------------------------------+--------------------------------|
| | |
|Rental cars with an MSRP of |Rental cars with an MSRP of |
|less than $23,000 = $9/day |less than $17,000 = $8/day |
| | |
|--------------------------------+--------------------------------|
---------------------------
<1> Such a change was proposed by AB 1731 (Tran, 2010) which
would have deleted the MSRP amounts and instead tied the
collision damage waiver caps to the class of vehicle rented.
That bill failed passage in this committee by a vote of 1-3.
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| | |
|Rental cars with an MSRP |Rental cars with an MSRP |
|between $23,001 and $43,000 = |between $17,001 and $35,000 = |
|$15/day |$14/day |
| | |
|--------------------------------+--------------------------------|
| | |
|Rental cars with an MSRP of |Rental cars with an MSRP of |
|more than $43,001 = no cap |more than $35,001 = no cap |
| | |
-----------------------------------------------------------------
Information recently provided to the Committee indicates that
these changes could have a significant impact on consumers who
purchase damage waivers. For example, Enterprise Holdings
indicates that approximately 50 percent of its current fleet is
subject to the $9 per day cap. Under the changes proposed by
this bill, the company indicates that approximately 40 percent
of its rental cars would move up to the next level ($14 per
day), leaving only 10 percent subject to the lower rate cap of
$8 per day.
As a result, it would appear that, under this bill, Enterprise
Holdings could charge $14 per day for damage waivers for a
significant percentage of its rental car fleet. In addition to
increasing the costs on many consumers who purchase this
product, this would appear to also be inconsistent with the
intended structure of AB 491 which was to preserve the lower
damage waiver charge for a significant number of rental cars.
Instead, a significant number of rental cars would likely be
subject to the higher cap.
In addition, while this bill would reduce the $9 per day cap to
$8, that additional consumer benefit would apply to very few
cars in the sponsor's rental fleet (only 10 percent). As a
result, the main effect of this bill would be to increase the
cost of purchasing a damage waiver on a large portion of the
sponsor's fleet while reducing the cost for a potentially small
number of rental car consumers. The Committee should consider
whether such an increase is appropriate without sufficient
public policy rationale for the proposed increase.
As outlined in Comment 7, other rental car companies (Avis
Budget Group and Hertz Corporation), in opposition, note that
the proposed increases are tailored to the composition of the
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sponsor's rental car fleet and contend that this provision will
harm companies with a different fleet composition. Given those
concerns, the Committee should also consider whether it is
appropriate to enact legislation that could confer a benefit to
one rental company while disadvantaging its competitors and thus
whether the August 20th amendments conferring such a benefit
should be stricken.
SHOULD THE AUGUST 20, 2010 AMENDMENTS MODIFYING THE DAMAGE
WAIVER SCHEME BE STRICKEN?
Because this bill is being heard by the Committee pursuant to
Senate Rule 29.10, staff notes that should the Committee decide
to strike the August 20th amendments, those amendments must be
taken on the Senate Floor.
5. Existing damage waiver scheme
When this Committee heard AB 1731 (Tran), which would have
addressed the issue of damage waiver caps by removing the MSRP
entirely and instead linking the caps to the class of vehicle
rented, the sponsor of that bill, Enterprise Holdings (which is
co-sponsoring this bill), asserted that the existing damage
waiver scheme is "economically untenable." Committee staff
notes that rental car companies are not required to offer the
damage waiver product to consumers, and that the offering of
that product arguably demonstrates that the current structure
does produce some financial benefit for the company. If, as
asserted by Enterprise, this bill would have the effect of
moving 40 percent of Enterprise's rental cars from the existing
$9 per day cap to the proposed $14 per day cap, this bill would
further increase that financial benefit. The Committee should
consider whether, absent a compelling public policy rationale,
it is appropriate to provide that benefit to the sponsor in
these tough economic times.
6. Additional impact on consumers of damage waiver changes
In addition to potentially paying more for a damage waiver under
this bill than under existing law, as described above in Comment
2, this bill would arguably result in giving a rental car
company a greater incentive to encourage consumers to purchase
this particular product. Because of concern about the coercive
sales tactics used by rental car companies to push damage
waivers in the late 1980s, AB 3006 included language prohibiting
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a rental car company from requiring that a consumer purchase a
damage waiver and also prohibited rental car companies from
engaging in unfair, deceptive, or coercive conduct to induce a
consumer to purchase a damage waiver.
Despite these protections, however, because the bill would
significantly increase the number of rental cars subject to the
higher cap, it could have the result of further incentivizing
rental car companies to promote damage waivers and aggressively
persuade consumers to purchase them.
7. Arguments in opposition
Avis Budget Group and Hertz Corporation oppose this bill,
including the most recent amendments. With respect to those
amendments, the companies write:
The new amendments restructure price caps on Collision Damage
Waivers (CDW) in a way that benefits one rental company to the
disadvantage of its competitors. The new language raises the
CDW price cap on some categories of cars while lowering it on
others. Rental companies have differing fleet compositions,
so the effect of this provision - which was drafted by one
company - is to hurt the revenue of companies with a more
diverse fleet. AB 2059 is discriminatory and unfair. It
requires one category of business to accept service of process
while leaving other sellers of insurance untouched and it
produces an economic advantage for one major rental company at
the expense of others.
Those same companies oppose this bill's service of process
provisions, stating "[n]o other business which provides
insurance is obligated to accept service of process for its
customers . . . Existing law already provides two means by
which foreign rental car drivers can be served. AB 2059 shifts
the serving of process costs from the plaintiff's attorney to
rental companies and their customers."
Support : One individual
Opposition : Avis Budget Group; California Defense Counsel;
Hertz Corporation
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HISTORY
Source : Consumer Attorneys of California; Enterprise Holdings
Related Pending Legislation : AB 1731 (Tran), which would have
deleted the MSRP amounts and instead tied the collision damage
waiver cap to the class of vehicle rented, failed passage in
this committee by a vote of 1-3.
SB 1192 (Oropeza) would permit an airport operator to impose a
customer facility charge (CFC) on a rental car customer using an
alternative method for calculating the charge based on the
number of days a vehicle is rented, up to a maximum of five
days, rather than a flat rate per contract, if the airport
demonstrates the need to do so. The airport may impose the
following CFC charges: beginning January 1, 2011, up to $6 per
day; beginning January 1, 2014, up to $7.50 per day; and
beginning January 1, 2017, up to $9 per day. This bill is
pending in the Assembly.
Prior Legislation : See Background.
Prior Vote :
Senate Judiciary Committee (Ayes 4, Noes 0)
Assembly Floor (Ayes 48, Noes 28)
Assembly Judiciary Committee (Ayes 7, Noes 3)
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