Losing it over car rental “loss of use”

By | October 20th, 2013

After Ben Harris dropped off his Mazda 3 rental at the airport in Maui last December, a Hertz agent pointed to some scuffed paint on the underside of the front bumper. Although the employee asked Harris to fill out an incident report, he assured Harris that it was just a formality and that he wouldn’t get a bill for the damage.

But six months later, Harris received a repair bill for $570. Among the charges was a $62 fee for “loss of use” – a fee that Harris, a physician from Chicago, considers “unreasonable.”

Some drivers agree. Rental companies used to write off the time a car spent in a garage as an expense. But shrinking profits forced them to add a loss-of-use charge to their repair bills, which allows them to recover the revenue they would have collected if the vehicle had been rented.

“Car rental companies were leaving tens of millions of dollars on the table by not collecting loss-of-use charges,” says Neil Abrams, a car rental consultant. “I think there’s a recognition that there’s a legitimate responsibility of the renter that extends beyond the rental of the vehicle.”

Although these fees have been around in one form or another for years, they were routinely dismissed when customers challenged them in the past. Not anymore.

There’s a limited legal precedent for collecting loss-of-use charges.

The Colorado Supreme Court last year sided with PurCo Fleet Services in its seven-year battle to obtain loss-of-use fees from a customer who damaged her rental after colliding with a deer in Durango. The justices ruled that the company was “entitled to recover loss of use damages irrespective of its actual lost profits.” The ruling applies only to car rentals in Colorado.

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But the issue is far from settled. At least three states – New York, California and Wisconsin – have laws that set limits on the amount that car rental companies can recover from loss of use on a damage claim.

Avoiding a claim is the best way to steer clear of a loss-of-use charge, of course. In Harris’s case, perhaps some damage was inevitable, because driving conditions on Maui are notoriously iffy. When you rent a car at the airport, you’re given a stern warning to avoid driving on the island’s unpaved roads. Car rental employees tend to be particularly vigilant about scratches and dings.

If your car is damaged, you’ll want to do what Harris did: He took snapshots of the scratches for his own records. You should also take pictures of your rental before you leave the lot to document the condition of your vehicle. If an employee assures you that you won’t have to pay for the damage, it also helps to get the name of the agent, if not also a written statement to that effect.

Even in the car rental industry, there’s no consensus as to how a loss-of-use charge is calculated. At Enterprise, the largest car rental company, loss of use is based on the total number of labor hours from the repair estimate, divided by four, which the company says is a conservative estimate of labor hours that can be incorporated into each work day, and then multiplied by the daily rental rate. PurCo Fleet Services, a risk management company specializing in car rental loss prevention, calculates loss of use based on the number of days needed for repair, times the daily rate on the contract.

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One issue that the car rental companies seem to agree on is the documentation needed to substantiate a claim: It’s the actual number of days the vehicle was out of service or a good-faith estimate of the days needed for repair. Car rental companies believe that they aren’t obliged to show evidence that the car would have been rented during that time.

Appeals are difficult. While some rental companies have an informal review process, here’s what usually happens: A customer’s insurance company, insisting that it covers only actual damages, will reject part or all of the loss-of-use charge. The bill is then passed along to the customer, who may pay the fees or ask the company to reduce them.

“Settling a damage claim is nothing but a simple negotiation,” says David Purinton, president of PurCo Fleet Services. “Rules for good-faith negotiations that apply in any type of negotiation apply here. The problem here is that most insurance companies and customers believe that, to be successful for them, a negotiation means they pay zero. Offering to pay zero for loss of use is not a negotiation.”

Of all the car rental fees, loss of use may prove to be the most problematic of all. That’s because if the charges start to stick – if drivers accept that they should pay for a lost revenue opportunity – then it could open a Pandora’s box. Not a day seems to go by when I’m not asked why, for example, an airline can’t compensate a passenger for a missed vacation day following a flight delay. If courts begin to agree with the car rental industry that customers are liable for missed potential rental days on a vehicle, then what’s to stop a professional from billing a car rental company an hourly rate when there’s a protracted wait time for a rental car?

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Harris never had a chance to get the answer to these questions. I contacted Hertz on his behalf, and separately he also asked Visa whether it would consider his claim, even though the deadline to file one had passed. Visa agreed to process his claim and paid $535, which covered part of Hertz’s loss of use. “It’s a happy resolution,” he says.

Unfortunately, too many of these cases end with a car rental company threatening to haul customers into court, report them to a credit agency, add them to a “do not rent” list – or all three.

Are "loss of use" charges fair to car rental customers?

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