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 AB 675 (Alejo) Page 2 of ? 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 AB 675 (Alejo) Page 3 of ? 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. AB 675 (Alejo) Page 4 of ? 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. AB 675 (Alejo) Page 5 of ? 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 AB 675 (Alejo) Page 6 of ? 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 AB 675 (Alejo) Page 7 of ? 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. AB 675 (Alejo) Page 8 of ? 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 AB 675 (Alejo) Page 9 of ? 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. AB 675 (Alejo) Page 10 of ? 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) **************