Budget Rent a Car System, Inc

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IN THE MATTER OF BUDGET RENT A CAR SYSTEMS, INC.

CONSENT ORDER, ETC., INREGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3674. Complaint, June 17, 1996--Decision, June 17, 1996 This consent order prohibits, among other things, an Illinois-based corporation from failing to disclose, clearly and prominently, any representation relating to the renter's liability for loss of or damage to a rental vehicle, and from failing to post at each Budget rental location a sign, clearly and prominently, containing the disclosure statement. In addition, the consent order prohibits the respondent from misrepresenting: the obligation of the renter to make any payment as a result of loss of or damage to a rental vehicle; and the value of a vehicle that has been lost or damaged.

Appearances For the Commission: Randall Brook, Charles Harwood and Robert Schroeder.

For the respondent: Robert Aprati, in-house counsel, Lisle, IL. and Lisa Jose Fales, Collier, Shannon, Rill & Scott, Washington, D.C.

COMPLAINT The Federal Trade Commission, having reason to believe that Budget Rent A Car Systems, Inc., a corporation ("respondent"), has violated the provisions of The Federal Trade Commission Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, alleges: PARAGRAPH 1. Respondent Budget Rent a Car Systems, Inc., is a Delaware corporation with its principal office and place of business located at 4225 Naperville Road, Lisle, Illinois. PAR. 2. Respondent has advertised, offered for rent, and rented, directly and through franchisees, vehicles to consumers. PAR. 3. The acts and practices of respondent alleged in this complaint have been in or affecting commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act. Complaint 121 F.T.C.

PAR. 4. In connection with the renting of vehicles, respondent has disseminated or caused to be disseminated promotional and informational material through advertisements, an 800-number that contains recorded messages, respondent's own telephone reservation system, third-party computerized reservation systems operated by airline and travel agency employees, and point of sale disclosures. PAR. 5. Some of respondent's promotional and informational material including, but not limited to, the vehicle rental contract, brochure, and telephone script attached as Exhibits A - C, describe the renter's liability for loss of or damage to vehicles under various circumstances.

PAR. 6. In connection with the renting of vehicles, respondent has offered renters in most states a choice of either accepting or declining an option called the loss damage waiver ("LDW'"). If a renter accepted LDW, respondent would add an additional fee to the total rental charge. In 1993 respondent typically charged renters approximately $13 per day for LDW. LDW is not insurance but instead waives respondent's claim against the renters for damages in the event the vehicle is damaged or stolen during the pendency of the rental agreement.

PAR. 7. The renter's own vehicle insurance company or credit card issuer will often pay for loss of or damage to rental vehicles when a renter declines to purchase LDW. Respondent's informational materials, referred to in paragraph five, and numerous public sources of information, have made this fact known to potential renters. PAR. 8. In numerous instances respondent has sought and obtained from renters who declined LDW and who have been involved in accidents as much as $4,500 more than the vehicle's repair cost or market value. This charge is called "loss of turnback". "Turnback" is a sales incentive some manufacturers offer Budget. It occurs when the manufacturer, using a pre-negotiated formula, agrees to repurchase a used vehicle from Budget. The formula's repurchase price can be much higher than the car's market value. Respondent did not inform the renter about this potential extra charge for loss of turnback until respondent made a claim against the renter for loss or damage. Insurance companies and credit card issuers usually refuse to pay respondent's claim for loss of turnback because it exceeds the vehicle's cost of repairs or its fair market value. PAR. 9. In the informational materials referred to in paragraph five, respondent has represented that renters were liable for loss of or BUDGET RENT A CAR SYSTEMS, INC. 893 891 Complaint damage to the rental vehicle if they did not purchase LDW. Respondent failed to disclose that it might include, in a damage or loss claim against renters who decline LDW, as much as $4,500 for loss of turnback. This fact would have been material to consumers’ decisions to rent a vehicle from respondent and to purchase LDW. The failure to disclose this material fact, in light of the representations made, was, and is, a deceptive act or practice. PAR. 10. In the informational materials referred to in paragraph five, respondent has represented that only two charges related to damages, a loss of use fee and the insurance policy deductible, might not be covered by the renter's vehicle insurance. Respondent failed to disclose that the renter's vehicle insurance would likely not cover a loss of turnback charge. This fact would have been material to consumers’ decisions to rent a vehicle from respondent and to purchase LDW. The failure to disclose this material fact, in light of the representations made, was, and is, a deceptive act or practice. PAR. 11. In numerous instances where vehicles were damaged, respondent has sent, or caused to be sent, written communications to renters who declined LDW demanding that they reimburse respondent for "loss of turnback."

PAR. 12. By demanding reimbursement for loss of turnback, respondent has represented, directly or by implication, that the signed rental contract entitled it to collect this charge. PAR. 13. In truth and in fact, the signed rental contract did not entitle respondent to collect loss of turnback. Therefore, the representation set forth in paragraph twelve was, and is, false and misleading.

PAR. 14. In numerous instances where vehicles were stolen or declared "totaled," respondent has charged renters who declined LDW for loss based on "Budget book value" or "net vehicle cost." PAR. 15. In charging a renter for loss based on the "Budget book value" or "net vehicle cost" when a vehicle was stolen or declared a total loss, respondent has represented, directly or by implication, that it was charging the fair market value of the vehicle. PAR. 16. In truth and in fact, respondent was not charging the fair market value of the vehicle. Instead, it was charging the value that included loss of turnback. Therefore, the representation set forth in paragraph fifteen was, and is, false and misleading. Complaint 121 F.T.C.

PAR. 17. The acts and practices of respondent as alleged in this complaint constitute unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.

BUDGET RENT A CAR SYSTEMS, INC. 895 891 Complaint EXHIBIT A CRED "DENT ECATION OR BLING NSTAUCTICNS . : . TRENT CARDAO'RECT Bilt SOP C NG IEXP DAE { REET I Bea TED vay GATE VE moc MEPS ZENER Jee ‘was | ' eve SEMBART _ .

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EXHIBIT A A. vandansm and tneft, aru expenses. to the Vehicle, regardless of fault except as c° acraph 7 “re rginer agrers ic aterm s Ses ape VEHICLE NC udes “es, ty Aur sre Diver puree weil & v THERES BILITY OR FT HESS FCA ; 5 sceeeutet ESS use resincion en Paragraan 3 Renter me a . ime FULL VALUE vor fesser amcunt inaicated 97 fess of of Camace (eccepl as eraviced ot MARS CONSeguEHtial OAMages. Cesis INE v.. MPLIED, 3: THe MERCH AN wir € SC VERED 8% Th:

E RETURN torte REPOSSES USE RESTRICTIONS: Renter and Authonz2e Servers agree ! . i? vail not be used or dperated by anyore a 2° an unauthorized driver’ cr 3. in. 3a wilful of wantcn manner: cr: .

c lé intoxicated or under the influence of crucs or other subsiarces The eb TS eee uid impe:r Saving 32! 1 INS'UO NG [ransromehon oo Brats oF 2 Fer any fon ng 19 carry persons of pogo, cage in a spread contest: < = tained by {rand of misrepreseniation: or G. Outside the continental United States: or i.

. O4 regularty maintained roadways: or To carry hazardous or explosive substances: or To transport weight in excess cf Venicles maxmum payloes capacity: or <. Where insufficient clearance of height or width ex:sts: or Who does not know how to operate a stick shift dnven vehicle: or ‘A, Improper toacirg, ct t Who leaves the Vehicle and fails 10 remove the keys or close an3 lock aH doors. windows and the trunk and tne Vehicle is stolen. 7 csveu ei CE TED ett a ‘ » MISCELLANEOUS.

TIUCF NATURE hae 7 ACCICENT AL FRE A 1. RESPONSIBILITY FOR LOSS OF OR DAMAGE TO THE VEHICLE: If Renter declines optional LOSS DAMAGE WAIVER ‘LOW:. Renter -s : responsible for the FULL VALUE for lesser amount mdicated cn reverse side: of any loss of 1 damage including toss or damage ra BUDGET RENT A CAR SYSTEMS, INC. 897 891 Complaint EXHIBIT B Exhibit B LOSS DAMAGE WAIVER (LD)

BUDGET RENT A CAR SYSTEMS, INC. 899 891 Complaint EXHIBIT C INTRODUCTION Thank you for calling 1-800-RENT SMART. If you are calling for brochures please write to: Budget Rent Smart 8700 W. Bradley Rd.

Milwaukee, WI 53224 This toll-free service has been developed by Budget Rent a Car to help you make smart rental decisions, save money, and add value to your vacation or business trip. If you are calling from a touch-tone phone, please press "1" now. If you are calling from a rotary phone, please wait and Budget service representative will be happy to take your call.

1-800 RENT SMART INTRODUCTION:

Thank you for calling 1 - 800 - RENT SMART. This toll-free service has been developed by Budget Rent a Car to help you make smart rental decisions, save money, and add value to your vacation or business trip. If you are calling from a touch-tone phone, please press "1" now. If you are calling from a rotary phone, please wait and a Budget service representative will be happy to take your call.

MENU:

- For information on LOSS DAMAGE WAIVER, press "1" - For information on PERSONAL ACCIDENT INSURANCE or PERSONAL EFFECTS COVERAGE, press "2".

- For information on SUPPLEMENTAL LIABILITY INSURANCE, press "3". - For information on REFUELING SERVICE OPTIONS, press "4". - For information on RETURN POLICIES, press "5". - For information on METHODS OF PAYMENT, press "6". - For information on CAR RENTAL PRICING, press "7". - For information on AGE RESTRICTIONS, press "8". - For information on the BUDGET GUARANTEE, press "9". - For more information or to make a reservation, consult your travel agent or press "0" now.

LOSS DAMAGE WAIVER The optional Loss Damage Waiver (LDW) offered by car rental companies is not insurance. It's an option car rental companies offer renters to waive their financial responsibility in the event the car is damaged or stolen while on rent. Budget recommends that you decide whether or not you need LDW before you pick up your car and, if you don't need it, don't buy it. Here's some basic information you need to know in order to make the smart choice. Complaint 121 F.T.C.

If you're renting for business, you probably don't need LDW. Check with your corporate travel arranger and follow their guidelines and recommendations. If you're renting for personal reasons, check your own automobile insurance policy. Many policies do cover rental cars, but - if you decline - the LDW and rely on your own insurance, you would probably still be responsible for paying your usual deductible. Also, "loss of use" fees are not normally covered by personal auto insurance policies. Loss of use means reimbursing the car rental company for the revenue it's lost by having the car out of service while repairs are being made. Some credit cards offer protection if you use their card to pay for your rental. If your credit card offers coverage, check to see if it offers primary coverage, which initially pays for loss or damage up to set limits, or secondary coverage, which pays only after the primary coverage - such as your auto policy - pays. At most Budget locations, the cost of LDW is $12.99 a day. If you accept the LDW, $12.99 will be added to your total rental cost for each rental day. To continue to hear more about LDW, press "1" now. If you accept LDW, and comply with the terms of the rental agreement, you're relieved of all financial responsibility for loss or damage to the car, including collision, theft and vandalism during the rental. If you decline LDW, you may be responsible for up to the full value of the car if it is damaged, vandalized or stolen during the rental. You may also be responsible for paying “loss of use” charges.

LDW is not available in all states and certain restrictions may apply in some states. Specific information on availability of the optional LDW can be obtained when making a reservation.

Remember to check out your options in advance, and - if you don't need LDW don't buy it.

For more information or to make a reservation, consult your travel agent or press "0" now.

BUDGET RENT A CAR SYSTEMS, INC. 901 891 Decision and Order DECISION. AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondent named in the caption hereof, and the respondent having been furnished thereafter with a copy of a draft of complaint which the Seattle Regional Office proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violation of the Federal Trade Commission Act; and The respondent, its general counsel, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondent of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint, or that the facts as alleged in such complaint, other than jurisdictional facts, are true and waivers and other provisions as required by the Commission's Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondent has violated the said Act, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

1. Respondent Budget Rent A Car Systems, Inc., is a Delaware corporation with its principal office and place of business located at 4225 Naperville Road, Lisle, Illinois.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER DEFINITIONS For purposes of this order:

Decision and Order 121 F.T.C.

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.

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 disclose, 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 BUDGET RENT A CAR SYSTEMS, INC. 903 891 Decision and Order 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 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 of 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: Decision and Order 121 F.T.C.

(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 ofa vehicle that has been lost or damaged. WI.

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 interestbearing 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.

BUDGET RENT A CAR SYSTEMS, INC. 905 891 Decision and Order 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. VII.

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 on June 17, 2016, 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 Decision and Order 121 F.T.C.

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.

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