Model Law Would Ban Fees for Damages on Rental Cars
The nation’s insurance regulators moved Monday toward banning car rental companies from charging customers an extra fee to cover possible collision damage.
The National Assn. of Insurance Commissioners, meeting in New York, put the final touches on a model law that the group will urge state legislatures to adopt.
The measure would forbid car rental firms from holding customers responsible for damage to the car, except under such specified cases of extreme negligence as racing or drunken driving, said William H. McCartney, Nebraska’s director of insurance and head of the task force that authored the recommendation.
McCartney said he expects the commissioners to ratify the model law later this week with only minor technical changes. Task force member Richard D. Rogers of Illinois forecast “a strong aye vote.”
The aim of the model law, McCartney and Rogers said, is to prevent car rental firms from advertising a low “daily rate” then adding a hefty extra fee--typically $10 a day and sometimes much higher--for a “collision damage waiver.” The industry has maintained that the waiver, or CDW, is not a form of insurance and therefore is not subject to state regulation.
Because the rental companies depend on this extra revenue, McCartney said, advertised “daily rates” can be misleading and confusing if not fraudulent.
“The thrust (of the model law) is to prohibit car rental companies from charging for CDWs and make them bear it as a cost of doing business,” McCartney said.
While daily rates would likely increase to cover the lost revenue, McCartney and Rogers acknowledged, the new fees would likely be significantly lower than current charges plus the waiver. The change also is expected to improve competition by making comparison shopping easier, they said.
“We’re sending an awfully strong message,” said Rogers. “We’re telling the rental car companies that they should be more up front with their renters.”
The model law resembles legislation that the California Assembly passed earlier this year on a 55-2 vote, except that the California measure would leave renters liable for the first $200 of damages, effective July 1, 1990. If enacted, a temporary $9-a-day limit would be placed on collision damage waivers.
Should Improve Competition
The measure, supported by Atty. Gen. John Van de Kamp and introduced by Assemblyman Lloyd G. Connelly (D-Sacramento), awaits action in the Senate. It has the support of the nation’s four largest rental car firms--Hertz, Avis, National and Budget--according to Duane L. Peterson II, a spokesman for the attorney general. He said a vote could come this week.
“As a result of this bill,” according to an analysis by Van de Kamp’s office, “consumers will know what they will be paying for car rentals, and rental companies will be better able to compete on the basis of accurate prices. Rental companies, however, will likely seek to spread the risk of loss which the bill requires them to bear. As a result, rates would increase by several percent, but rates will have to remain competitive.
“Rental companies never competed on the pricing of damage waivers but have often competed on rental rates,” the analysis said. “We expect competition to moderate any increases in rental rates.”
McCartney said the commissioners rejected the concept of a deductible in order to place responsibility for damages entirely on the rental companies.
Iowa a Leader
“This is the one action that we could take that would enable us to tell consumers without any qualifications that they are covered,” Rogers explained. “The message we wanted to tell renters is: You are covered.”
State regulators have been wrestling with regulation of rental car fees for more than three years. In 1986, they adopted model legislation that declared collision damage waivers to be insurance and thus subject to their regulation--a move that the rental firms strongly opposed. It also required full disclosure of what the waivers offer and an assurance that they were not required in order to rent a car.
So far, however, only Iowa, which has been a leader in the move toward regulation or elimination of the fees, has adopted that model law. But about one-third of the states are considering legislation ranging from regulation to requiring private auto insurance policies to provide rental car coverage, according to a survey by the insurance commissioners.
