Budget Rent A Car Systems, Inc.; Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 922-3312]

Budget Rent A Car Systems, Inc.; Consent Agreement With Analysis

To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would require the Lisle, Illinois-based auto

rental company, if it resumes collecting ``loss of turnback'' fees, to

clearly disclose to customers who do not purchase a ``loss damage

waiver'' that they are liable for damage or loss in excess of the

actual cost of repairs to damaged vehicles. It will also require Budget

to pay $75,000 in consumer redress. The consent agreement settles

allegations that 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--from customers who had

not purchased ``loss damage waivers,'' without disclosing the

customers' purported liability for these charges in advance. Budget

also allegedly misrepresented that its rental contracts entitled the

company to make these ``loss of turnback'' collections.

DATES: Comments must be received on or before June 3, 1996.

ADDRESSES: Comments should be directed to FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Randy Brook, Seattle Regional Office, Federal Trade Commission, 915

Second Avenue, Suite 2806, Seattle, WA 98174. 206-220-6350. Robert

Schroeder, Seattle Regional Office, Federal Trade

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Commission, 915 Second Avenue, Suite 2806, Seattle, WA 98174. 206-220-

6350.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the following consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. Public comment is invited. Such

comments or views will be considered by the Commission and will be

available for inspection and copying at its principal office in

accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of

Practice (16 CFR 4.9(b)(6)(ii)).

Agreement Containing Consent Order To Cease and Desist

The Federal Trade Commission having initiated an investigation of

certain acts and practices of proposed respondent Budget Rent A Car

Systems, Inc., a corporation, and it now appearing that proposed

respondent is willing to enter into an agreement containing an order to

cease and desist from the acts and practices being investigated.

It is hereby agreed by and between Budget Rent A Car Systems, Inc.,

by its duly authorized officer and its attorney, and counsel for the

Federal Trade Commission that:

1. Proposed respondent is a Delaware corporation with its principal

office and place of business located at 4225 Naperville Road, Lisle,

Illinois 60532-3662.

2. Proposed respondent admits all the jurisdictional facts set

forth in the draft of complaint.

3. Proposed respondent waives:

a. Any further procedural steps;

b. The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law; and

c. All rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement.

4. This agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

agreement is accepted by the Commission, it, together with the draft

complaint, will be placed on the public record for a period of sixty

(60) days and information in respect thereto publicly released. The

Commission thereafter may either withdraw its acceptance of this

agreement and so notify the proposed respondent, in which event it will

take such action as it may consider appropriate, or issue and serve its

complaint (in such form as the circumstances may require) and decision,

in disposition of the proceeding.

5. This agreement is for settlement purposes only and does not

constitute an admission by proposed respondent of facts, other than

jurisdictional facts, or of violations of law as alleged in the draft

of complaint.

6. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

Rules, the Commission may, without further notice to proposed

respondent: (a) issue its complaint corresponding in form and substance

with the draft of complaint and its decision containing the following

order to cease and desist in disposition of the proceeding; and (b)

make information public in respect thereto. When so entered, the order

to cease and desist shall have the same force and effect and may be

altered, modified or set aside in the same manner and within the same

time provided by statute for other orders. The order shall become final

upon service. Delivery by the U.S. Postal Service of the complaint and

decision containing the agreed-to order to proposed respondent's

address as stated in this agreement shall constitute service. Proposed

respondent waives any right it may have to any other manner of service.

The complaint may be used in construing the terms of the order, and no

agreement, understanding, representation, or interpretation not

contained in the order or the agreement may be used to vary or

contradict the terms of the order.

7. Proposed respondent has read the draft complaint and the

following order. Proposed respondent understands that once the order

has been issued, it will be required to file one or more compliance

reports showing that it has fully complied with the order. Proposed

respondent further understands that it may be liable for civil

penalties in the amount provided by law for each violation of the order

after it becomes final.

Order

Definitions

For purposes of this order:

A. ``Turnback'' means any preset price, premium, bonus, or formula

that could result in respondent receiving more than the vehicle's fair

market value upon repurchase by the vehicle's original vendor,

financer, or their designee.

B. ``Fair market value'' means the vehicle's price as listed in an

industry-wide and generally accepted publication or directory of used

car values, or the resale price received in a commercially reasonable

sale.

C. ``LDW'' means any option that respondent offers that limits or

eliminates a renter's liability to respondent for loss of or damage to

the respondent's vehicle during the pendency of the rental agreement.

D. ``Insurance'' means the renter's own standard vehicle insurance,

and any alternative, supplemental, or secondary coverage the renter

possesses that provides coverage for rented vehicles including, but not

limited to, the coverage currently furnished by many credit card

companies.

I

It is ordered that respondent, its successors and assigns, and its

officers, agents, representatives, and employees, directly or through

any partnership, corporation, subsidiary, division, or other device, in

connection with the promoting, offering for rental, or rental of any

vehicle, in or for any rental location where it seeks loss of turnback

or turnback value in any form for vehicles rented in that location, in

or affecting commerce, as ``commerce'' is defined in the Federal Trade

Commission Act, does forthwith cease and desist from:

A. Failing to disclosure, clearly and prominently, in connection

with any representation relating to the renter's liability for loss of

or damage to a rental vehicle, including any representation about LDW,

that in the event of loss of or damage to a vehicle for which LDW was

declined, respondent may charge the renter between $x and $y [specify

range of dollar amounts Budget may seek] more than the cost of repairs

or the fair market value of the vehicle, that many insurance companies

will not pay this charge, and that the renter will have to pay it. This

paragraph applies specifically to, but is not limited to, Budget's

rental contracts and to any representation relating to the price or

terms of LDW made through respondent's inputs in the ``company-specific

location'' part of third-party, computerized reservation systems, such

as ``Apollo,'' ``PARS,'' ``Sabre,'' or ``System One.''

Provided, however, that if respondent uses a ``short-form'' rental

contract or other document or electronic form of agreement that makes

it impractical to place the required disclosure within the

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document or form, respondent shall devise other means to ensure that

each renter receives the substance of the disclosure before entering

into the rental agreement. The other means could include, but are not

limited to, a separate disclosure document to be signed or initialed by

the renter.

B. Failing to post at each Budget rental location a sign or placard

clearly and prominently containing the following language:

If you decline LDW and the rental car is damaged or stolen, we

may charge you between $x and $y [specify 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 sign or placard shall be of a size, and posted in a manner,

reasonably calculated to elicit prospective renters' attention.

C. Failing to disclose, in a clear and prominent manner in any

communication seeking payment of any charge for loss of or damage to a

rental vehicle, any part of the charge that is attributable to loss of

turnback including, but not limited to, instances where the vehicle is

totaled or stolen and respondent is seeking compensation based in whole

or part on any turnback amount. This disclosure shall include an

explanation of what loss is turnback means and how it was calculated.

II

It is further ordered that respondent, its successors and assigns,

and its officers, agents, representatives, and employees, directly or

through any partnership, corporation, subsidiary, division, or other

device, in connection with the promoting, offering for rental, or

rental of any vehicle, in or for any rental location where it seeks

loss of turnback or turnback value in any form for vehicles rented in

that location, in or affecting commerce, as ``commerce'' is defined in

the Federal Trade Commission Act, does forthwith cease and desist from

misrepresenting, in any manner, directly or by implication:

(1) the obligation of the renter to make any payment as the result

of the loss of or damage to a rental vehicle; and

(2) the value of a vehicle that has been lost or damaged.

III

It is further ordered that no provision of this order is intended

to preempt any state law, regulation, or administrative interpretation

that may limit or prevent respondent from collecting loss of turnback

from a renter.

IV

It is further ordered that respondent shall pay into an inter-

bearing escrow account designated by the Commission, under the control

of the Commission's designated agent, the sum of $75,000 on or before

five days from the date of service of this order. This shall fully

satisfy all monetary claims asserted by the Commission in the complaint

filed herein against this respondent and shall be used to provide

redress to consumers who made a payment to respondent and to pay any

attendant expenses of administration. If the Commission determines, in

its sole discretion, that redress to consumers is wholly or partially

impracticable, any funds not so used shall be deposited into the United

States Treasury. No portion of respondent's payment shall be deemed a

payment of any fine, penalty, or punitive assessment. Respondent shall

be notified as to how funds are disbursed but shall have no right to

contest the manner of distribution chosen by the Commission.

V

It is further ordered that respondent shall, for three years from

the date of service upon it of this order, distribute, or cause to be

distributed, a copy of this order to all present and future division,

regional, branch, and subrogation managers who have management

responsibilities relating to the collection of collision or theft

damages from renters.

VI

It is further ordered that respondent shall, for three years from

the date of service of this order, maintain and upon request make

available to the Federal Trade Commission for inspection and copying

all documents relating to compliance with this order.

VII

It is further ordered that respondent shall, for 10 years from the

date of service of this order, notify the FTC in writing at least 30

days prior to the effective date of any proposed change in its

corporate structure, such as dissolution, assignment, or sale resulting

in the emergence of successor corporations, the creation or dissolution

of subsidiaries, or any other changes in the corporation that may

affect compliance obligations arising out of this order.

VIII

It is further ordered that respondent shall, within 60 days from

the date of service of this order, file with the Commission a report,

in writing, setting forth in detail the manner and form in which it has

complied with this order.

IX

It is further ordered that this order will terminate twenty years

from the date of its issuance, or twenty years from the most recent

date that the United States or the Federal Trade Commission files a

complaint (with or without an accompanying consent decree) in federal

court alleging any violation of the order, whichever comes later;

provided, however, that the filing of such a complaint will not affect

the duration of:

A. Any paragraph in this order that terminates in less than twenty

years; and

B. This order if the complaint is filed after the order has

terminated pursuant to this paragraph.

Provided further, that if the complaint is dismissed or a federal

court rules that the respondent did not violate any provision of the

order, and the dismissal or ruling is either not appealed or upheld on

appeal, then the order will terminate according to this paragraph as

though the complaint was never filed, except that the order will not

terminate between the date the complaint is filed and the later of the

deadline for appealing the dismissal or ruling and the date the

dismissal or ruling is upheld on appeal.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from Budget Rent A Car Corporation (``Budget'').

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

This matter concerns claims for loss or damages that Budget makes

against renters who declined to pay extra for loss damage waiver (LDW)

when they rented a vehicle. LDW is also called collision damage waiver

(CDW).

The Commission's complaint charges Budget with unfair and deceptive

practices in connection with making loss or damage claims. According to

the complaint, Budget failed to disclose to the renters that if there

was more than superficial damage to the rented vehicle, Budget might

assess charges (called ``loss of turnback'') as much as several

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thousand dollars more than the actual cost of repairs; that if the car

was lost or stolen, Budget might seek reimbursement for an amount

greater than the vehicle's fair market value; that the renter's own

insurance company would likely not cover the added charge or above

market value premium; and that the renter would have to pay the excess

charge.

The complaint also alleges that Budget deceived consumers when it

tried to collect for loss of turnback by misrepresenting that its

rental contracts entitled it to make that collection.

The consent order contains provisions designed to remedy the

violations charged and to prevent Budget from engaging in similar

deceptive and unfair acts and practices in the future.

Part I of the order requires that Budget make clear disclosures to

potential renters about liability for damage or loss in excess of the

actual cost of repairs or fair market value. The disclosures must

appear in promotional materials, on signs in Budget rental locations,

and in any communications seeking these excess charges. The disclosure

requirements only apply to Budget locations where Budget seeks these

excess charges.

Part II of the order prohibits misrepresentations about the

obligation of a renter to make any payment as a result of the loss of

or damage to a rental vehicle or about its value after damage or loss.

Part III of the order makes clear that the order does not preempt

any more restrictive provision of state or local law regarding

collecting excess charges.

Part IV of the order requires Budget to pay $75,000 in consumer

redress.

Part of the order requires Budget to distribute copies of the order

to relevant officers and employees, and Part VI imposes various record

keeping requirements.

Part VII of the order requires Budget to notify the Commission of

any changes in corporate structure that might affect compliance with

the order. Part VIII requires that Budget file with the Commission a

compliance report detailing the manner in which it complied with the

order.

Part IX of the order terminates the order twenty years from the

date of its issuance, or twenty years from the date a complaint is

filed in federal court alleging any violation of the order, whichever

comes later.

The purpose of this analysis is to facilitate public comment on the

proposed order. It is not intended to constitute an official

interpretation of the agreement and proposed order, or to modify any of

their terms.

Donald S. Clark,

Secretary.

[FR Doc. 96-8331 Filed 4-3-96; 8:45 am]

BILLING CODE 6750-01-M