BILL ANALYSIS �
AB 1981
Page 1
ASSEMBLY THIRD READING
AB 1981 (Brown)
As Amended May 13, 2014
Majority vote
JUDICIARY 10-0
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|Ayes:|Wieckowski, Wagner, | | |
| |Alejo, Chau, Dickinson, | | |
| |Garcia, Gorell, | | |
| |Maienschein, Muratsuchi, | | |
| |Stone | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Increases consumer fees for rental car damage waivers.
Specifically, this bill :
1)Increases the damage waiver fee for the two smallest classes of
rental cars from $9 to $11 each day.
2)Increases the damage waiver fee for intermediate, standard and
full-size cars from $15 to $17 per day.
3)Imposes no limits on the price of damage waivers for all cars in
body-size categories above full-size, regardless of the
manufacturer suggested retail price (MSRP), in place of existing
law that allows an unlimited fee for damage waivers only when the
vehicle as an MSRP of at least $47,000.
FISCAL EFFECT : None
COMMENTS : The author sets forth the reason for the bill as follows,
"It has been 26 years since the rate caps have been established and
13 years since they have been adjusted. As vehicles become more
technologically sophisticated, they also become more costly to fix
when a collision or other damage occurs. California is one of the
few states that cap the rate. In fact, there are 47 states that
allow damage waiver to be offered, but do not cap the rate.
Maintaining a rate cap does not incentivize rental companies from
offering competitive rates. AB 1981 will maintain the cap but
increase [it] ? to more closely reflect the market."
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As the sponsors note, California and a handful of other states
including New York and Illinois currently limit the price car rental
companies may charge for damage waivers. The current cap in New
York ($9 and $12 each day, based on the price of the car) is lower
than the current rate in California ($9 and $15 per day based on car
price, with no cap for expensive cars - i.e., those starting at an
MSRP of approximately $47,000). (See New York General Business Law
Section 396-z(2)(a).) The current rate in Illinois is a flat $13.50
per day for all cars, following an increase from $12.50 at the
request of the industry last year. Thus, this bill would increase
that price protection differential between California and New York,
as well as between California and Illinois.
These fee caps reflect a history of legislative concern about the
sale of this product. The car rental industry generally argues that
this history is long in the past and should no longer concern
current policymakers. Nevertheless, controversy about the price and
practices involved in the sale of this product continue. Just last
year, for example, Hertz paid $3 million to settle a class action
lawsuit alleging that its damage waiver was unconscionable in that
it provided illusory coverage for a premium price. In addition, a
number of lawsuits have recently been filed against car rental
companies alleging that customers were unwittingly signed up for
damage waivers even though they had verbally declined it.
Indeed many consumer advocates do not recommend purchasing damage
waivers at all - particularly because the renter's credit card and
personal automobile insurance policy typically cover damage to
rental vehicles already. In addition, car rental companies now face
new third-party competition from companies offering car rental
insurance for $7.99 per day including all car rental company fees.
(See us.protectyourbubble.com.)
Perhaps for the reasons cited above, Enterprise Holdings notes that
the number of consumers who purchase damage waivers has fallen over
the years, to the point where most of those who purchase the product
are a segment of business travelers on expense accounts. It may be
that the dwindling number of consumers who purchase damage waivers
may diminish the total profit car rental companies earn from this
product. However, the car rental companies have not claimed that
they are making less money, and they have declined to respond to the
Assembly Judiciary Committee's questions about profits they derive
from the sale of damage waivers, asserting they would be exposed to
liability for illegal price-fixing if they did, despite the fact
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that the price of this product is set by the Legislature, not the
companies.
The rationale offered for the bill is that the rate has not
increased since 2001, and that other consumer costs as well as the
cost of car repair have increased since that time. The
profitability of this product, however, would appear to be based not
on the price of consumer products generally, or even the price of
car repair, but rather on the loss rate - that is, the frequency and
extent of damages incurred by customers who purchase the damage
waiver. In any event, it appears that profits from the sale of
damage waivers may indeed be increasing rather than decreasing,
regardless of any general increase in consumer prices. At least one
company recently reported earning 5% of its total profit from this
product alone in 2013, reportedly up from 4% in 2011. Although this
figure is not known for the privately-held Enterprise Holdings, the
largest car rental company, the company reported record profits in
2012 for the third year in a row. Avis likewise recently announced
significantly higher profits in 2013. (See Avis Budget Group
Profits Up in Q3 2013, Auto Rental News, November 1 2013.) Under
this bill, the rate consumers can be charged for damage waivers will
increase by 22% (from $9 to $11 each day) for some vehicles, and 13%
($15 to $17 per day) for others. In addition, there will be no
limit on the price consumers will potentially pay for vehicles in
the body size categories above full-size, regardless of the price of
the vehicle. Currently, rental companies can impose unlimited
damage waiver fees only when the vehicle has an MSRP of at least
$47,000. Under this bill, the damage waiver fee will be unlimited
for many more vehicles than under current law. For example, the
suggested industry model for the "premium" car classification that
would have an unlimited damage waiver fee is a Buick Lucerne. When
that vehicle was discontinued in 2011 it had an MSRP of less than
$30,000. Thus, rental companies would be allowed to charge
unlimited damage waiver fees for a car costing less than $30,000
under this bill, rather than cars priced at more $47,000 under
existing law. The bill does not currently provide any concomitant
consumer protections.
There is no known opposition to the bill.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
AB 1981
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FN:
0003529