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Budget Rent A Car Systems, Inc., based in Lisle, Illinois, has agreed to settle Federal Trade Commission allegations that the company engaged in deceptive practices when it failed to disclose potential charges of as much as several thousand dollars more than the cost of repairs it imposed on customers who had not purchased a “loss damage waiver” (LDW) when they returned their cars with significant damage. Many auto rental customers choose not to purchase an LDW -- costing as much as $13 per day -- because their own auto insurance policy or their credit card issuer normally will cover damage to rented vehicles. According to the FTC, Budget sought to collect “loss of turnback” fees -- the amount Budget lost because damaged vehicles could not be resold to the manufacturer at a price higher than retail. The FTC alleged that Budget should have disclosed consumers’ purported liability for these excess charges, and that the company misrepresented that its rental contracts entitled Budget to make that collection.

The proposed settlement to the charges would require Budget, if it intends to charge consumers for “loss of turnback” again, to clearly disclose to rental customers their liability for damage or loss in excess of the actual cost of repairs to damaged vehicles, and to pay $75,000 in redress to consumers.

“Consumers clearly should have been informed that, in declining the LDW, they were ?self-insuring’ in the amount of several thousand dollars,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “It is our understanding that Budget has ended the practice of seeking ?loss of turnback’ fees, and that the practice was limited in the industry. But a failure to disclose such critical consumer information will be treated very seriously by the Commission.”

“Turnback” is a sales incentive that most auto manufacturers offer to fleet purchasers. Under a fleet purchase contract, manufacturers agree to buy back a rental car at a “turnback” price significantly higher than what a fleet purchaser could get by selling the auto at auction or a retail outlet. If an automobile has more than minor damage, however, the fleet purchaser loses the turnback right.

Budget informed its rental customers only that they would be liable for damages to the vehicle if they did not purchase an LDW, according to the FTC’s complaint detailing the charges in this case. In numerous instances, however, Budget added the “loss of turnback” amount to the cost of repairs when trying to collect from its rental customers. The FTC said that Budget should have disclosed:

  • that it may seek “loss of turnback” if a renter declined to purchase an LDW and returned a damaged vehicle; and
  • that the added “loss of turnback” charges likely would not be covered by insurance.

The FTC’s complaint states that these facts were material to a consumer’s decision to rent a vehicle from Budget and whether to purchase an LDW, and that the failure to disclose these facts was deceptive.

In addition, when demanding reimbursement for “loss of turnback,” Budget in numerous instances represented that the signed rental contract entitled it to collect that charge. That was not the case, according to the FTC.

Further, in numerous instances where a vehicle was stolen or “totaled,” Budget based the charges for losses it imposed on renters who had declined an LDW on the “Budget book value” or “net vehicle cost,” representing that it was charging the fair market value of the vehicle. According to the complaint, however, Budget was charging the turnback price set by the auto manufacturer’s fleet purchase contract.

The proposed settlement to these charges, which will be placed on the public record for comment before the Commission determines whether to make it final and binding, would require that Budget pay $75,000 to be used for consumer redress.

Further, if Budget intends to collect loss of turnback, it would be required to clearly and prominently disclose to its rental customers their liability, including a range of dollar amounts, for damage or loss in excess of the actual cost of repairs to the vehicle. This disclosure would be required in rental contracts and in travel agents’ and other computerized reservation systems, in connection with any reference about the renter’s liability for loss or damage.

Additionally, Budget would be required to post, at each of its rental locations where it collects loss of turnback, the following notice:

If you decline LDW and the rental car is damaged or stolen, we may charge you between $x and $y [range of dollar amounts Budget may seek] more than the cost of repairs or the fair market value of the vehicle. Many insurance companies will not pay this. If yours doesn’t, you will have to pay it.

The proposed settlement also would require Budget, in any communication seeking payment for loss of or damage to a rental vehicle, to clearly and prominently disclose any part of the charge that is attributable to loss of turnback. This disclosure would include an explanation of loss of turnback and how it was calculated.

Finally, the proposed settlement would prohibit Budget from misrepresenting:

  • the obligation of the renter to make any payment as a result of the loss of or damage to a rental vehicle; and
  • the value of the vehicle that has been lost or damaged.

The FTC’s Seattle Regional Office handled the investigation. It was initiated by a complaint forwarded by the Washington State Attorney General’s Office.

The proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Commission vote accept the agreement for comment was 5-0.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint, the proposed consent agreement and an analysis of the agreement to aid in public comment are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. 922 3312)

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