BILL ANALYSIS                                                                                                                                                                                                    Ó





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          AB 675 (Alejo)
          Version: July 6, 2015
          Hearing Date: July 14, 2015
          Fiscal: No
          Urgency: No
          TH   


                                        SUBJECT
                                           
                      Rental Vehicles: Disclosures: Obligations

                                      DESCRIPTION  

          Existing law governs contracts between rental car companies and  
          their customers in connection with the rental of a passenger  
          vehicle.  Under existing law, a rental company may only quote a  
          rental rate that includes the entire amount, but may separately  
          state taxes, an increased vehicle license recovery fee, a  
          customer facility charge, if any, an airport concession fee, if  
          any, a tourism commission assessment, if any, and a mileage  
          charge, if any, that a renter must pay to hire or lease the  
          vehicle for the period of time to which the rental rate applies.

          This bill would authorize a rental company, when quoting a  
          rental rate, to separately state the rental rate, additional  
          mandatory charges, if any, and a mileage charge, if any, that a  
          renter must pay to hire or lease the vehicle for the period of  
          time to which the rental rate applies.  This bill would define  
          "additional mandatory charges" to mean any separately stated  
          charges that the rental car company requires the renter to pay  
          to hire or lease the vehicle for the period of time to which the  
          rental rate applies, which are imposed by a governmental entity  
          and specifically relate to the operation of a rental car  
          business, including, but not limited to, a customer facility  
          charge, airport concession fee, tourism commission assessment,  
          vehicle license recovery fee, or other government imposed taxes  
          or fees.

                                      BACKGROUND  








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          Section 1936 of the Civil Code governs the rental of passenger  
          vehicles to the public.  In general, existing law requires  
          rental car companies to bundle, or include in the rental rate,  
          all mandatory charges imposed by a governmental entity when  
          advertising or providing quotes to consumers, except for those  
          which the Legislature has specifically authorized to be  
          separately stated.  Under existing law, Section 1936 authorizes  
          rental companies to separately state taxes, customer facility  
          charges, if any, and mileage charges, if any, when quoting a  
          vehicle rental rate.  In 2006, the Legislature passed AB 2592  
          (Leno, Ch. 790, Stats. 2006), which authorized rental companies  
          to separately state airport concession fees and tourism  
          commission assessments in quotes provided to consumers.  After  
          the 2009 Budget Act temporarily increased the vehicle license  
          fee from the rate of 0.65 percent of the value of a vehicle to  
          1.15 percent, the Legislature passed SB 348 (Cogdill, Ch. 156,  
          Stats. 2009), which authorized rental companies to separately  
          state the "increased vehicle license fee," defined as that  
          portion of the vehicle license fee above 0.65 percent of the  
          value of a vehicle, prorated to the length of the rental period.  
           Thus, current law authorizes rental companies to separately  
          state taxes, increased vehicle license recovery fees, customer  
          facility charges, airport concession fees, tourism commission  
          assessments, and mileage charges alongside the rental rate when  
          quoting or charging for the rental of a passenger vehicle.

          This bill would remove the list of charges that may be  
          separately stated, and instead authorize rental companies to  
          separately state "additional mandatory charges," which are  
          charges imposed by a governmental entity that specifically  
          relate to the operation of a rental car business, including, but  
          not limited to, a customer facility charge, airport concession  
          fee, tourism commission assessment, vehicle license recovery  
          fee, and other government imposed taxes or fees.  This bill  
          would repeal sections of the Civil Code governing the charges  
          that may be separately stated by a rental car company, and  
          consolidate those provisions in Civil Code Section 1936.  This  
          bill would also require rental rate advertisements to  
          conspicuously disclose that "additional mandatory charges" may  
          be imposed, and would eliminate a sunset on rental car service  
          of process requirements for foreign renters.

                                CHANGES TO EXISTING LAW
           







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           1.Existing law  provides that a rental company shall only  
            advertise, quote, and charge a rental rate that includes the  
            entire amount except taxes, a customer facility charge, if  
            any, and a mileage charge, if any, that a renter must pay to  
            hire or lease the vehicle for the period of time to which the  
            rental rate applies.  (Civ. Code Sec. 1936(m).)

             Existing law  provides that a rental company shall not charge  
            in addition to the rental rate, taxes, a customer facility  
            charge, if any, and a mileage charge, if any, any fee that is  
            required to be paid by the renter as a condition of hiring or  
            leasing the vehicle, including, but not limited to, required  
            fuel or airport surcharges other than customer facility  
            charges, nor a fee for transporting the renter to the location  
            where the rented vehicle will be delivered to the renter.  
            (Civ. Code Sec. 1936(m).)

             Existing law  provides, notwithstanding the above, that when  
            providing a quote, or imposing charges for a rental, a rental  
            company may separately state an airport concession fee, if  
            any, and a tourism commission assessment, if any, that a  
            renter must pay to hire or lease the vehicle for the period of  
            time to which the rental rate applies.  (Civ. Code Sec.  
            1936.01(a).)
             Existing law  provides, notwithstanding the above, that when  
            providing a quote, or imposing charges for a rental, a rental  
            company may separately state an increased vehicle license  
            recovery fee, as defined, that a renter must pay to hire or  
            lease the vehicle for the period of time to which the rental  
            rate applies.  (Civ. Code Sec. 1936.015(b).)

             Existing law  provides that at the time a quote is given, a  
            rental company must provide the person receiving the quote  
            with a good faith estimate of the rental rate and all  
            additional charges, as well as the total charges for the  
            entire rental.  The total charges, if provided on an Internet  
            Web site page, must be displayed in a typeface at least as  
            large as any rental rate disclosed on that page and must be  
            provided on a page that the person receiving the quote may  
            reach by following links through no more than two Internet Web  
            site pages, including the page on which the rental rate is  
            first provided.  The good faith estimate may exclude mileage  
            charges and charges for optional items that cannot be  
            determined prior to completing the reservation based upon the  
            information provided by the person.  (Civ. Code Secs.  







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            1936.01(b), 1936.015(b).)

             Existing law  states that when a rental rate is stated in an  
            advertisement, quotation, or reservation in connection with a  
            car rental at an airport where a customer facility charge is  
            imposed, the rental company shall disclose clearly the  
            existence and amount of the customer facility charge.   
            Existing law provides that all rate advertisements that  
            include car rentals at airport destinations shall clearly and  
            conspicuously include a toll-free telephone number whereby a  
            customer can be told the specific amount of the customer  
            facility charge to which the customer will be obligated.   
            (Civ. Code Sec. 1936(m).)

             This bill  would state that when providing a quote, or imposing  
            charges for a rental, the rental company may separately state  
            the rental rate, additional mandatory charges, if any, and a  
            mileage charge, if any, that a renter must pay to hire or  
            lease the vehicle for the period of time to which the rental  
            rate applies.  A rental company may not charge any other fee  
            that is required to be paid by the renter as a condition of  
            hiring or leasing the vehicle aside from the rental rate,  
            taxes, additional mandatory charges, if any, and a mileage  
            charge, if any.

             This bill  would provide that all rate advertisements shall  
            include the following disclaimer, which shall be prominently  
            displayed: "Additional mandatory charges may be imposed,  
            including, but not limited to, a customer facility charge,  
            airport concession fee, tourism commission assessment, vehicle  
            license recovery fee, or other government imposed taxes or  
            fees.  For more information, including an estimate of your  
            total rental cost, visit our Internet Web site at  
            [www.____.com]."

             This bill  would define "additional mandatory charges" to mean  
            any separately stated charges that the rental car company  
            requires the renter to pay to hire or lease the vehicle for  
            the period of time to which the rental rate applies, which are  
            imposed by a governmental entity and specifically relate to  
            the operation of a rental car business, including, but not  
            limited to, a customer facility charge, airport concession  
            fee, tourism commission assessment, vehicle license recovery  
            fee, or other government imposed taxes or fees.








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             This bill  would define "vehicle license fee" to mean the tax  
            imposed pursuant to the Vehicle License Fee Law (Part 5  
            (commencing with Section 10701) of Division 2 of the Revenue  
            and Taxation Code).

             This bill  would define "vehicle license recovery fee" to mean  
            a charge that seeks to recover the amount of any vehicle  
            license fee and vehicle registration fee paid by a rental  
            company for the particular class of vehicle being rented.

             This bill  would define "vehicle registration fee" to mean any  
            fee imposed pursuant to any provision of Chapter 6 (commencing  
            with Section 9101) of Division 3 of the Vehicle Code.

             This bill  would make other technical and conforming changes.

           2.Existing law  requires, until January 1, 2020, a rental company  
            or its registered agent to accept service of a summons and  
            complaint and any other required documents against a renter  
            who resides out of this country for an accident or collision  
            resulting from the operation of the rental vehicle in this  
            state, if the rental company provides liability insurance  
            coverage as part of, or associated with, the rental agreement.  
            Existing law requires any plaintiff who elects to serve the  
            foreign renter by delivering the summons and complaint and any  
            other required documents to the rental company pursuant to  
            these provisions to agree to limit his or her recovery against  
            the foreign renter and rental company to the limits of the  
            protection of the liability insurance. (Civ. Code Sec. 1936.)

             This bill  would remove the sunset and extend this provision  
            indefinitely.
          
                                       COMMENT
           
           1.Stated need for the bill  

          The author writes:

            The purpose of the bill is to modernize the relevant code  
            sections regulating the rental car industry by [making] them  
            more consistent with practices in other states, and to promote  
            transparency in pricing for consumers.

            Specifically, AB 675 promotes transparency in rental car  







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            pricing by clearly delineating private charges imposed by the  
            rental car business, from the many public exactions associated  
            with this industry, including tourism fees, airport concession  
            fees, airport facility fees, vehicle license fees, and other  
            similar charges.  However, the bill preserves the requirement  
            that the customer be given a "quote," which must match the  
            charges ultimately imposed by the contract, to continue to  
            protect consumer expectations.
                     
            Other states do not manage the billing practices of the rental  
            care industry as California currently does.  The basis for the  
            California law's extraordinary detail is no longer wholly  
            needed.  The basic and fundamentally important consumer  
            protections in relevant code, relating to provision of a  
            "quote" upon which the customer may rely, are preserved.
            . . .
            Section 1936 was originally enacted 25 years ago, to combat  
            misleading pricing practices wherein the advertised rate could  
            be appreciably less than the actual amount of the charge by  
            the time the customer left the counter.   Since 2007, rental  
            car companies have been authorized to separately state  
            specific mandatory charges (airport facility fees, concession  
            fees, tourism assessments, and when the vehicle license fee  
            was increased, a vehicle license recovery fee), provided the  
            customer was provided a "bundled" out-the-door quote at the  
            time the car was reserved.  AB 675 does not change the  
            disclosure requirements worked out in 2007 - but does allow  
            companies to separately state additional mandatory,  
            government-imposed charges - beyond those specifically  
            authorized 9 years ago.  This will align California disclosure  
            practices with other states, and provide the industry needed  
            protection as new government fees . . . are imposed. 

            As more fees are contemplated . . . the law needs to be  
            revised to promote more accurate display of pricing so  
            consumers know which charges are private and which are public.  
             The requirement to "rebundle" or provide a reliable quote is  
            maintained.

           2.Unbundling government charges  

          With the exception of sales tax, most businesses in California  
          appear to absorb taxes, fees, and other government-imposed  
          charges into their overhead, rather than pass them directly on  
          to consumers.  Typically, businesses that are required to pay  







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          specific government charges absorb those costs into their  
          pricing models, and then compete with one another on essentially  
          a level playing field (at least as far as government charges are  
          concerned).  There are exceptions, notably in the utility sector  
          where rate structures often times separately state different  
          taxes and fees, but on the whole it appears that the marketplace  
          prefers the simplicity of pricing goods and services with  
          government imposed charges "bundled" within the price quoted to  
          consumers.

          Existing law governing rental car pricing permits these  
          companies to separately state a number of specific government  
          fees and charges.  Some of these fees, like airport consumer  
          facility charges, are only collected in specific rental  
          situations.  Others, like increased vehicle license fees, are  
          collected on all rental contracts.  This bill would enlarge the  
          scope of government-imposed fees that could be separately stated  
          when quoting or billing for car rentals to include any charge  
          imposed by a governmental entity that specifically relates to  
          the operation of a rental car business.  Thus, should this bill  
          become law, rental car companies in California would be  
          authorized to separately charge consumers for their share of a  
          vehicle's annual registration and licensing fees, as well as any  
          future vehicle-specific fees the Legislature might impose, such  
          as an assessment on the number of miles travelled by a vehicle.   
          This bill would not authorize rental car companies to separately  
          state other government-imposed charges levied generally against  
          other businesses, like real property taxes or unemployment  
          insurance for company employees.

          It is unclear whether this change in the law would result in  
          additional government-imposed charges being shifted to rental  
          car customers.  Ostensibly, consumers already pay for these  
          charges as part of the "bundled" rental rate for renting a  
          vehicle.  Further, a rental car company could not use the  
          ability to "unbundle" government-imposed charges in order to  
          attract consumers with deceptively stated rental rates.  Under  
          existing law, rental car companies must state not only the  
          rental rate but also the total charges for each rental when  
          providing a quote to a potential customer.  Existing law also  
          prohibits rental car companies from misleading consumers by  
          quoting a lower rental rate and then increasing the total  
          charges due on a rental with the imposition of separately stated  
          fees and charges after an initial quote was generated.








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          At most, the changes proposed in this bill would allow rental  
          car companies to separately disclose the amounts attributable to  
          government fees and charges when quoting a rental car rate to a  
          consumer.  As stated by the sponsors, Avis Budget Group,  
          Enterprise, and Hertz, this bill "represents a modest  
          modernization of California law by enhancing transparency in  
          advertising and pricing" by "allowing rental car companies to  
          disclose the multitude of government exactions associated with  
          rental car transactions and, after disclosure, rebundling all  
          fees and charges in one price for the consumer."  Given that all  
          rental car companies in California would, absent collusion, be  
          subject to market forces and would continue to compete on rental  
          rates quoted to consumers, it is unclear whether this bill would  
          have any net effect on vehicle rental rates in the state.

           3.Eliminating sunset regarding rental car accident service of  
            process
           
          Existing law, until January 1, 2020, requires a rental car  
          company that enters into a vehicle rental agreement with a  
          renter who is not a resident of this country to do the following  
          when that renter purchases liability insurance as part of the  
          agreement: (1) accept service of process of any summons and  
          complaint against the renter for any accident resulting from the  
          operation of the rental car within California; and (2) mail a  
          copy of the summons and complaint to the renter.  Existing law  
          specifies how process must be served on a rental car company and  
          requires that a plaintiff agree to limit his or her recovery to  
          the limits of protection provided by the insurance.

          Prior to the enactment of this provision, Californians faced  
          difficulties when a foreign driver using a rental car recklessly  
          injured or killed a California resident.  The foreign driver  
          would leave the country and return home, and the California  
          resident would be tasked with trying to locate and serve the  
          foreign resident with a civil complaint.  This provision was  
          originally enacted with a five-year sunset by AB 621 (Calderon,  
          Ch. 531, Stats. 2011), and was extended to January 1, 2020, by  
          AB 2747 (Committee on Judiciary, Ch. 913, Stats. 2014).  This  
          bill would eliminate that sunset date and extend this provision  
          indefinitely.

           4.Technical Amendment  

          The author offers the following technical amendments to delete  







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          an extraneous word that was retained during the last set of  
          amendments to this bill, and to correct the placement of the  
          word "and" in a sentence.

             Author's Amendment  :

            On page 40, line 18, strike "taxes"

            On page 40, line 25, strike "if any, a mileage charge, if any,  
            and" and insert "if any, and a mileage charge, if any,"


           Support  :  None Known

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  Avis Budget Group; Enterprise; Hertz

           Related Pending Legislation  :  None Known

           Prior Legislation  :

          AB 1981 (Brown, Ch. 417, Stats. 2014) removed the manufacturer's  
          suggested retail price as one of the criteria for determining  
          the rate of a damage waiver sold by a rental company, and  
          instead set the rate of damage waivers according to the  
          vehicle's classification using criteria set by the 2014  
          Association of Car Rental Industry Systems Standards for North  
          America.  This bill increased the maximum rate of the damage  
          waiver to $11 per rental day for vehicles designated as an  
          "economy car," "compact car," or another term denoting the two  
          smallest categories of vehicles described by the standards.   
          This bill increased the maximum rate of the damage waiver to $17  
          per rental day for vehicles in the next 3 body-size categories  
          of vehicles designated in the standards, except as specified.

          AB 2747 (Committee on Judiciary, Ch. 913, Stats. 2014), the  
          Assembly Committee on Judiciary's Omnibus Bill, extended until  
          January 1, 2020, a sunset provision pertaining to a requirement  
          for rental companies to accept service of a summons and  
          complaint against a renter who resides out of this country for  
          an accident or collision resulting from the operation of the  
          rental vehicle in this state, as provided.







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          SB 348 (Cogdill, Ch. 156, Stats. 2009) See Background.

          AB 2592 (Leno, Ch. 790, Stats. 2006) See Background.

           Prior Vote  :

          Assembly Floor (Ayes 77, Noes 1)
          Assembly Judiciary Committee (Ayes 10, Noes 0)

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