Lawsuit accuses car rental firms of price-fixing and blames new law
In December 2006, the average daily rate for a mid-size rental car booked via the Internet at Los Angeles International Airport was about $60. A month later, the rate had climbed to $79, according to a study by a consumer group.
A class-action lawsuit filed by the group Wednesday alleged that the spike was the result of illegal price-fixing by rental-car companies -- enabled by a new state law that allows the companies to change the way they advertise rates at many airports.
The amended law, which was drafted at the urging of rental car companies, was rushed through the Legislature with three minutes of debate in a late-night session only hours before legislators adjourned last year.
Consumer advocates contend in the suit that the companies are using the law as cover for a coordinated price increase, and that car renters have lost tens of millions of dollars as a result.
“They are allowed to charge excessive rates because they changed the law,” said Gary Gramkow, 52, a plaintiff in the lawsuit that was filed by a group of five attorneys, including two with the Center for Public Interest Law in San Diego. Gramkow, who travels twice a month for his San Diego footwear business, said he noted the higher prices in January but initially blamed them on inflation.
The law allowed car rental firms to remove an 11% airport concession fee from their widely advertised base rental rate and bill it as a separate cost on each invoice. But rather than rates immediately dropping 11% when the fee was removed, they went up, the lawsuit alleges, and consumers were billed the 11% fee on top of a higher base rate.
That resulted in “a multimillion-dollar illegal windfall to the rental car industry,” said University of San Diego Law Professor Robert C. Fellmeth, an author of the lawsuit and a former prosecutor.
Car rental company representatives, including Hertz’s Richard D. Broome, denied Wednesday that they had fixed prices and said the legislation actually helped the consumer by separating out all costs that contributed to the final bill.
“Hertz sets rates based on market conditions, and California is a highly competitive market,” said Broome, a company vice president.
He said that prices rise and fall based on seasonal supply and demand, and that in recent months rates have fallen.
Although the Hertz website initially advertises the base rental rate for each car, before the payment is approved the consumer is given the total cost with a breakdown of fees and taxes.
“The law was passed to provide more pricing transparency for consumers so they can see the different factors that make up the rate,” Broome said.
That was one of the arguments made by legislators, including Assemblyman Mark Leno (D-San Francisco), the author of AB 2592 in 2006. The bill, which became law on Jan. 1, 2007, originally was drafted to promote tourism in California by imposing a surcharge on car rental firms totaling 2.5% to raise up to $50 million annually for the tourism commission.
The rental companies agreed to the surcharge but asked for changes in the way rates could be advertised -- changes that Leno believes help consumers.
“What we came up with was a bill that enhances the information consumers receive in order to make complete comparisons,” Leno said.
He said the law had not facilitated collusion and price-fixing.
An analysis by the Center for Public Interest Law found that the average daily base rate quoted on the Internet for seven car rental firms at LAX during the week of Dec. 21, 2006, was $59.56 for a mid-size car, including tax. That rate included the 11% airport concession fee.
For the week of Jan. 25, 2007, after the state law took effect, the average daily price excluding fees for the seven firms quoted on the Internet for the same car was $64.88, the study found. The 11% airport concession fee was an additional $7.21, and the new 2.5% California Trade and Tourism Fee added $1.62. Taxes brought the total to $79.
Eleven car rental firms operate at LAX, and last year they conducted about 2.55 million rental transactions, the second-largest number in the nation, said Paul Haney, an LAX spokesman.
Car rental rates at big-city airports in California are in the high range compared with other states. An economy car from Hertz at LAX that goes for $93 per day with all taxes and fees goes for $47.45 at Orlando, $82.39 at Chicago O’Hare and $117 at JFK Airport in New York.
Other states have paved the way for California in allowing separate billings of government fees, to show consumers that rates are not just controlled by rental companies, said Sean Busking, executive director of the American Car Rental Assn.
The lawsuit alleged that the price-fixing occurred at all California airports that levy an airport concession fee, including Oakland, San Diego, Sacramento and San Francisco.
The lawsuit was filed against seven firms, including Hertz Corp., Dollar Thrifty Automotive Group, Enterprise Rent-A-Car Inc. and Avis Budget Group Inc., as well as against the California Travel and Tourism Commission, which is accused by the litigation of violating open-meeting laws in facilitating price-fixing by the firms.
Some rental car users said the bottom line costs should not surprise consumers.
“You should know what a rental contract is about,” said Portland, Ore., resident Charlie Morales, who was in Los Angeles with his family on business. “People should read the contract.”
Karen Robertson of San Francisco said she understood all the extra fees. She travels across the country -- New York, New Jersey, Seattle, Los Angeles -- several times a year for her job in apparel sales.
The Internet, Robertson said, has empowered consumers to know what they are being charged for.
“It’s just so self-serve right now,” she said. “There’s a lot of information you can gather. There are no surprises.”
However, Michael Shames, another plaintiff in the lawsuit, said the problem was a sign of how the legislative process could be manipulated.
The rental car firms, he said, “pervert a law designed to provide improved notice to consumers by using it as justification for a 10 to 13% increase in car rental rates in California.”
jp.renaud@latimes.com
McGreevy reported from Sacramento, Renaud from Los Angeles. Times staff writer Evan Halper contributed to this report.
