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Rental car companies and deceptive marketing tactics

In this week’s travel law article, we examine several rental car cases involving deceptive and unfair marketing practices of which consumers should be aware. The recent decision of the 11th Circuit Court of Appeals in Venerus v. Avis Budget Car Rental, LLC, No. 16-16993 (January 25, 2018) reminds me once again, after 40 years of writing about travel law that the worst, by far, violators of consumer rights in the travel industry are some U.S. rental car companies.

In the Venerus case, involving a class of foreign rental car insurance purchasers alleging, inter alia, breach of contract and violation of Florida Deceptive and Unfair Trade Practices Act, the 11th Circuit reversed the District Court’s denial of class certification and stated that “The case arises out of… Avis/Budget(‘s) business practice of selling Supplemental Liability Insurance or Additional Liability Insurance (SLI/ALI) to rental customers from countries outside the United States. Heather Venerus alleges…that Avis/Budget promised SLI/ALI coverage as a policy provided through Ace American Insurance Company (ACE) an insurer authorized to provide such coverage in Florida. Venerus alleges that despite Avis/Budget’s contractual obligation to do so, neither an ACE policy nor any other SLI/ALI insurance policy was ever purchased for, or provided to, the foreign renters who purchased the optional coverage. Instead, Avis/Budget, which is not an insurance company, purported to insure the foreign renters itself with contractual liability coverage that had no policy or written terms. Lacking the authority to transact such insurance in Florida, Avis/Budget allegedly left the renters without the legally valid insurance coverage they were promised and had purchased”. In addition, the Court noted that “Avis/Budget does not dispute that it did not obtain SLA/ALI insurance policies from ACE”.

Undisclosed E-Tolls: The Mendez Case

In Mendez v. Avis Budget Group, Inc., Civil Action No. 11-6537 (JLL) (D.N.J. November 17, 2017), a class action on behalf of consumers of rental car services whose rental cars “were equipped with and charged for use of, an electronic system to pay tolls known as ‘e-Toll’”, the Court certified a nationwide class and noted that “Plaintiff alleges that before, during and after his rental…he was not advised that the vehicle: 1) could be equipped with an e-Toll device; and 2) was indeed pre-enrolled and activated for e-Toll (and further) that he was not informed that (his rental vehicle) was equipped with an e-Toll device, that he would be obligated to pay more than the actual toll charge incurred”. During plaintiff’s trip in Florida he was, unbeknownst to him, charged by his rental vehicle’s e-Toll device $15.75 which included the $.75 toll and a “convenience fee” of $15.00 “even though he was told…when he returned the vehicle that he had incurred no additional charges”. See also: Olivas v. The Hertz Corporation, Case No. 17-cv-01083-BAS-NLS (S.D. Cal. March 18, 2018)(customers challenge administrative fees charged in connection with use of toll roads; mandatory arbitration clause enforced).

Unfair Currency Conversions: The Margulis Case

In Margulis v. The Hertz Corporation, Civil Action No. 14-1209 (JMV) (D.N.J. February 28, 2017), a class action on behalf of customers who rent vehicles abroad, the Court in resolving a discovery dispute noted that “Plaintiff…commenced this putative class action…alleging that Hertz is conducting a broad-ranging currency conversion scheme, labeled ‘dynamic currency conversion’ (DCC) to defraud its customers who rent vehicles abroad. Plaintiff alleges that Hertz quotes customer rates for vehicle rentals without including any currency conversion fee, charges the fee directly to customer’s credit card and then falsely claims the customer specifically chose the currency conversion and subsequent overcharge. Plaintiff claims the he was the victim of Hertz’s DCC practices in connection with car rentals (in the United Kingdom and Italy) and alleges breach of contract, unjust enrichment, fraud and violations of New Jersey Consumer Fraud Act.

Undisclosed Frequent Flyer Fees: The Schwartz Case

In Schwartz v. Avis Rent A Car System, LLC, Civil Action Nos. 11-4052 (JLL), 12-7300 (JLL)(D.N.J. June 21, 2016) granted final approval of a proposed settlement [choice of cash or a 10 percent discount on future vehicle rentals] of a class action earlier certified [Schwartz v. Avis Rent A Car System, LLC, Civil Action No. 11-4052 (JLL)(D.N.J. August 28, 2014)] on behalf of a class of Avis customers [alleging breach of contract, breach of covenant of good faith and fair dealing and violation of New Jersey Consumer Fraud Act] who were charged a $0.75 surcharge for earning frequent-flyer miles and other rewards by participating in Avis’s Travel Partner Program. In granting class certification the Court noted that “Plaintiff argues that Defendants engaged in two different types of unlawful conduct: intentional omissions and unconscionable commercial practices…(by) knowingly omitt(ing) the fact that Avis charged $0.75 a day for participating in its Program ‘by both failing to include [this fact] in a place where Plaintiff and other reasonable renters would expect to see them and by instead (to the extent that any disclosure was made at all) hiding these facts in obscure places with the intention that neither Plaintiff nor other reasonable renters ever see the,’ The unconscionable commercial practices alleged…are premised on this omission”.

Unlawful Fees And Charges: Arizona AG

In State of Arizona v. Dennis N. Saban, Case No: CV2014-005556 (Arizona Super. February 14, 2018) J. Contes rendered a $1.85 million verdict after a five week trial finding that Phoenix Car Rental and Saban’s Rent-A-Car violated Arizona’s Consumer Fraud Act (A.R.S. 44-1522 et seq) by imposing unlawful charges and fees on at least 48,000 consumers to include “$3.00 for PKG, $11.99 for service and cleaning, $2.50 for s/c”, mandatory taxes, charges for drivers under a specific age, charges for paying with cash or debit cards, charges for lack of proof of valid insurance, charges for additional drivers, charges for out-of-state travel, charges for international driver’s licenses, charges for after-hours drop off and charges for shuttle, taxi and other transportation charges.

But That’s Not All

Over the last 25 years or so rental car customers have alleged a variety of deceptive and unfair business practices by some rental car companies to include:

(1) excessive charges for collision damage waivers (CDW) [Weinberg v. The Hertz Corp., supra ($1,000 deductible on insurance which consumer could circumvent by paying $6.00 per day for CDW which extrapolated over year amounted to $2,190 for $1,000 worth of collision damage insurance allegedly unconscionable); Truta v. Avis Rent A Car System, Inc., 193 Cal. App. 3d 802 (Cal. App. 1989)($6.00 per day CDW charge that on an annualized basis, the rates charged were more than double amount of “insurance” provided and allegedly were unreasonably high)] and failing to disclose that CDW may duplicate the renter’s own insurance [Super Glue Corp. v. Avis Rent A Car System, Inc., 132 A.D. 2d 604 (2d Dept. 1987)].

(2) overcharging in providing replacement gasoline after rental vehicle is returned [Roman v. Budget Rent-A-Car System, Inc., 2007 WL 604795 (D.N.J. 2007)($5.99 per gallon); Oden v. Vanguard Car Rental USA, Inc., 2008 WL 901325 (E.D. Tex. 2008)($4.95 per gallon)].

(3) excessive charges for personal accident insurance (PAI)[Weinberg v. The Hertz Corp., supra (allegation that a daily charge of $2.25 for PAI was allegedly excessive and unconscionable since the daily rate equaled an annualized rate of $821.24)].

(4) excessive charges for the late return of a vehicle [Boyle v. U-Haul International, Inc., 2004 WL 2979755 (Pa. Com. Pl 2004)(“There is a common pattern and practice of charging for an extra ‘rental period’ despite the absolute failure of an contractual terms to define the rental period, the clear implication in extensive advertising that the vehicle can be rented for a set rate for an entire day and the failure of contract document to establish any rate for ‘coverage’ due to failure to return the equipment at the designated time”)].

(5) adhesion contracts [Votto v. American Car Rentals, Inc., 2003 WL 1477029 (Conn. Super. 2003)(car rental company cannot limit vehicle damage waiver with clause on reverse side of contract; ‘The agreement in this case is a classic example of a contract of adhesion (which ‘involve[s] contractual provisions drafted and imposed by a party enjoying superior bargaining strength-provisions which unexpectedly and often unconscionably limit the obligations and liability of the party drafting the contract’”)].

(6) imposition of improper surcharges [Cotchett v. Avis-A-Car System, 56 F.R.D. 549 (S.D.N.Y. 1972)(consumers challenge the legality of one-dollar surcharge imposed on all rental vehicles to cover parking violations for which rental car companies were being held responsible under recently enacted city ordinance)].

(7) overcharging for the cost of actually repairing damaged vehicles [People v. Dollar Rent-A-Car Systems, Inc. 211 Cal. App. 3d 119 (Cal. App. 1989)(lessor charged retail prices for wholesale costs of doing repairs to damaged vehicles by using false invoices)].

(8) illegal sale of insurance [People v. Dollar, supra (rental car company liable for false and misleading business practice; $100,000 civil penalty assessed); Truta, supra (CDW is not insurance)].

(9) unconscionable penalty and lease provisions [Hertz Corp. v. Dynatron, 427 A. 2d 872 (Conn. 1980).

(10) unconscionable disclaimer of warranty liability [Hertz v. Transportation Corp., 59 Misc. 2d 226 (N.Y. Civ. 1969)].

(11)  undisclosed out-of-state drop off charges [Garcia v. L&R Realty, Inc., 347 N.J. Super. 481 (2002)(customer not required to pay $600 fee imposed after rental car returned to out of state location; attorneys’ fees and costs awarded)].

(12) imposition of phony taxes [Commercial Union Ins. Co. v. Auto Europe, 2002 U.S. Dist LEXIS 3319 (N.D. Ill. 2002)(customers alleged that they were forced to pay ‘a foreign ‘sales tax’ or ‘value added tax’…when no such tax was actually due and (car rental company) retained ‘tax’)].

(13) improper CDW coverage exclusions [Danvers Motor Company, Inc. v. Looney, 78 Mass. App. Ct. 1123 (2011)(exclusion not enforced)].

(14) failure to reveal avoidable charges [Schnall v. Hertz Corp., 78 Cal. App. 4th 114 (Cal. App. 2000) (“Authorization of avoidable charges for optional services hardly amounts to permission to mislead customers about such charges”)].

(15) failure to disclose license and facility fees [Rosenberg v. Avis Rent A Car Systems, Inc., 2007 WL 2213642 (E.D. Pa. 2007) (customers allege that Avis ‘engaged in a pattern and practice of deceiving customers by charging a $.54 per day vehicle license fee and a $3.95 per day customer facility fee charge’ without disclosing the charges”)].

(16) unfair claims procedures [Ressler v. Enterprise Rent-A-Car Company. 2007 WL 2071655 W.D. Pa.  2007)(alleged improper handling of a claim under a PAI policy)].

Hotwire Not So Hot

Implicit in many of these allegedly deceptive business practices are claims of misrepresentations of material facts. For example, in a 2013 case, Shabar v. Hotwire, Inc. and Expedia, Inc., 2013 WL 3877785 (N.D. Cal. 2013), a rental car customer alleged that he “used Hotwire’s website to rent a car from a car rental agency at the Ben Gurion airport in Tel Aviv, Israel. Shabar alleges that his contract with Hotwire set out among other terms, a daily rental rate ($14), a rental term (5 days), a list of the estimated taxes and fees ($0) and an estimated trip total amount ($70), Shabar alleges that when he picked up the car, the rental agency required him to pay the $70.00 estimated price Hotwire had stated, plus an additional $60.00 for mandatory third-party liability insurance and $20.82 in taxes. In total Shabar alleges he “paid $150.91, rather than $70.00 estimated by Hotwire”. In refusing to dismiss the Shabar complaint the Court ruled that ‘Shabar sufficiently alleges that Hotwire’s affirmative statement pertaining to the total estimated price was false or misleading to a reasonable person. First, the estimate was false because Hotwire intentionally omitted significant and mandatory additional charges readily available and which it knew Shabar would have to pay to rent the car. Second, the price quoted for estimated taxes and fees was false because Hotwire knew that these costs would not be $0.00″.

Cozy Relationship

An interesting example of the alleged cooperation between some state governments and the rental car industry to the detriment of rental car customers is set forth in the California case of Shames v. Hertz Corporation, 2012 WL 5392159 (S.D. Cal. 2012) and its Nevada analogues Sobel v. The Hertz Corporation, 291 F.R.D. 525 (D. Nev. 2013) and Lee v. Enterprise Leasing Company, 2012 WL 3996848 (D. Nev. 2012).

The California Case

As noted in Shames, supra “In 2006, the passenger rental car industry (RCD) proposed changes to California law which were subsequently enacted…In exchange for this increased funding (payments to California Travel and Tourism Commission (the Commission)) the RCD were allowed to ‘unbundle’ fees charged to customers ad itemize such fees separately from the base rental rate. Significantly, the adopted changes allowed the companies to ‘pass on some or all of the assessments to customers’. Plaintiffs allege this led to the imposition of two specific fees on leisure rental car customers…a 2.5% tourism assessment fee was added to the cost of a car rental which, in turn, helped fund the Commission. Plaintiffs allege that the Commission then colluded with RCDs fixing rental car prices by passing on the 2.5% tourism assessment fee to customers. Second, the RCDs ‘unbundled’ the already-existing airport concession fee charged to customers to pay the airport for the right to conduct business on airport premises…9% of the rental price…renters (allege they) paid a higher total price for the rental of a car at California airports than they would have otherwise”.

The Nevada Cases

While the California Shames class action was settled the Nevada class action [Sobel v. Hertz Corporation, supra] involving the pass along of “airport concession recovery fees” went to trial on, inter alia, whether this pass along practice violated Nev. Rev. Stat. (NRS) Section 482.31575 and Nevada Deceptive Trade Practices Act (NDTPA) with “Over $42…million at stake’. In certifying the class and finding statutory violations the Court noted that “The rental car industry of the late eighties was embroiled in an intense price war, a war in which’[car rental] companies ha[d] been springing traps of additional charges on unsuspecting renters and have used various advertising media to do so’”. The Court provided for an award of restitution and prejudgment interest at the statutory rate.

Conclusion  

The U.S. rental car industry has a negative attitude about its responsibility to consumers. If its services can be avoided or replaced, consumers are well advised to do so. Try Uber or Lyft next time.

Patricia and Tom Dickerson

Patricia and Tom Dickerson

The author, Thomas A. Dickerson, passed away on July 26, 2018 at the age of 74. Through the graciousness of his family, eTurboNews is being allowed to share his articles that we have on file which he sent to us for future weekly publication.

The Hon. Dickerson retired as an Associate Justice of the Appellate Division, Second Department of the New York State Supreme Court and wrote about Travel Law for 42 years including his annually-updated law books, Travel Law, Law Journal Press (2018), Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2018), Class Actions: The Law of 50 States, Law Journal Press (2018), and over 500 legal articles many of which are available here. For additional travel law news and developments, especially in the member states of the EU, click here.

Read many of Justice Dickerson’s articles here.

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Hon. Thomas A. Dickerson