Car trouble

Pub date January 23, 2008


A lawsuit alleging that seven major rental car companies have been illegally colluding to fix prices has become a campaign issue in the State Senate race between incumbent Carole Migden and Assemblymember Mark Leno.

The suit was filed by the University of San Diego School of Law’s Center for Public Interest Law and alleges that Hertz, Avis, Dollar, National, Thrifty, Alamo, and Enterprise took advantage of Assembly Bill 2592, sponsored by Leno, to charge consumers more and essentially blame the increase on the state.

The bill was created in the final days of the 2006 legislative session at the request of the rental car companies and the California Travel and Tourism Commission. It allowed the companies to list for consumers the 9 percent concession fee paid to airports (which they had been required to bundle into their listed rates) in exchange for paying $24 million annually, or about 2.5 percent of revenues, to the commission, replacing the state’s $6.7 million contribution to the organization that promotes tourism to the state.

But the lawsuit alleges the companies simply increased their rates by that 11.5 percent, pocketing the profits while indicating to customers that the money was going to the commission and to the airports. And the fact that they all did so is, the lawsuit charges, evidence of illegal collusion.

So this month Migden offered her own legislation to undo the change, highlighting the lawsuit and Leno’s legislation in the process. Senate Bill 1057 would also require rental car companies to provide a certified audit specifying how much extra money consumers were charged since AB 2592 went into effect.

"This law needs to be fixed before more consumers lose their hard-earned money to overcharging by unethical car rental firms," Migden said in a press release.

For his part, Leno notes that Migden and most legislators supported his bill, which he vetted through the Consumers Union, a group that was ultimately neutral on it. He said the bill provides greater transparency to consumers, so much so that it makes the apparent collusion obvious. "If [rental car companies] want to collude, they should do it without the 2592 on them," Leno said, adding, "If there’s any funny business going on, let’s crack the whip."

As for Midgen’s role in cleaning up the situation, Leno said, "If I weren’t running for the senate, this would be of no interest to her whatsoever. This is pure politics."

Leno concedes that it was representatives of some of the rental car companies, along with someone from the commission, who brought him the legislation, which he inserted into another bill at the end of the legislative session. According to Cal-Access, an online resource that documents campaign finances, Hertz Corp. contributed $3,000 each to Leno’s 2004 and 2006 campaigns. The Dollar Thrifty Automotive Group also made a contribution of $3,300 to Leno’s 2006 campaign.

But Leno said of his legislation, "It enhances the information that consumers receive when they rent a car…. I thought this was a win-win situation that would not have consumer opposition, that would generate $50 million [a figure that includes the ripple effect of tourism] to promote California and create hundreds of thousands of jobs."

In addition to helping boost tourism in the state, the Leno legislation requires rental car companies to disclose their total out-the-door prices on the phone or the Internet and requires all components of the total charge to be clearly itemized for consumers.

Robert Fellmeth, executive director of the Center for Public Interest Law, told us the alleged price fixing wasn’t surprising, given that the seven companies dominate the market and share a lobbyist and a trade association. But he said, "The more serious charge is that they went to a legislator and agreed to horizontal price colluding."

None of the companies returned Guardian calls or offered comments.

Megan Ma contributed to this report.