As soon as the airlines started charging baggage fees, our car rental clients began asking if they could start charging a Cost Recovery Fee of $5 per day, or an Energy Surcharge of $3.95 per day?
The short answer is yes, but there are rules. The rules have to do with disclosure of the fees—when, how and where—and the names of the fees.
Mandatory Fee Disclosure
Mandatory Fees (fees that every renter has to pay as a condition of the rental) must be disclosed in three places: at the time of reservation, in advertisements in many states and on the face of the rental agreement always. These fees can be disclosed to walkups simply via the rental agreement.
In addition, mandatory fees have to be included in the computation of the total rental charges on rental company Web sites and on third party reservation sites. So if your new fee is mandatory, disclose it.
Clearly Disclosed Fee Ruled Legal
In Budget v. Berry, a 2007 Florida Federal District Court case, two renters filed a class action suit against Budget alleging that the imposition of a Cost Recovery Fee (CRF) by Budget was fraudulent.
According to the the complaint, Budget automatically assessed a CRF of $3 per day in addition to the daily rental charge. The renters claimed that this CRF was a “hidden profit center” for Budget, rather than a legitimate means of recouping the cost of licensing and registering its fleet of rental vehicles. This was because the amount of the fee grossly exceeded the actual cost of vehicle registration and licensing, and those costs were already included in the daily rental rates.
The court noted that the simple fact of the CRF and its itemization as a separate charge was neither unfair nor deceptive under Florida law because it was clearly disclosed at the time of rental. The court also noted cases from California and Washington where courts affirmed that the simple itemization of a fee in addition to the base rental rate and disclosed to customers was not a violation of the consumer protection statutes of those states. The court dismissed the action.
As a general rule generic fees do not have to be connected to specific costs, provided that they are disclosed as early in the transaction as possible and they are stated on the rental agreement.
Avoid Misleading Fee Names
The name of the fee is important. “Energy surcharge” and “cost recovery” are generic names and need not be collected for the sole purpose of recovering energy costs or any other cost of operations.
Is “airport fee” legitimate? That name implies collecting a fee to remit to an airport authority. If you are not, the fee name is misleading. Business practices that mislead the public are probably unlawful under your state’s consumer protection laws.
Refueling Fees Are Lawful
Refueling fees are not only lawful, but many car rental companies are not charging enough. A traditional practice has been to simply charge a per-gallon fuel fee that is higher than local retail.
That practice ties the refueling fee to the amount of fuel needed to fill the tank. But the rental company incurs nearly the same costs no matter how much fuel is pumped. An employee has to drive the vehicle to the pump, take the time to refill, and then do the paperwork for one or five gallons.
A better practice (except in Hawaii, where state law prohibits refueling charges in excess of 1.5 times the prevailing rate) might be to charge a fixed refueling fee to cover the cost of taking the time to refuel, plus a per-gallon fee that is close to local retail prices.
A civil code in California permits rental companies to charge for items that the renter could have avoided by choosing not to obtain the service. The additional fees permitted by the statute include “charges for refueling the vehicle at the conclusion of the rental transaction in the event the renter did not return the vehicle with as much fuel as was in the tank at the beginning of the rental.”
My conclusion is that rental companies can break the refueling fee into a fixed fee plus a per-gallon charge for fuel. But remember to disclose the fee and the price per gallon on the face of the rental agreement.
Per-Gallon Fees Can Incite Ire
If the refueling fee is quoted only as a fee per-gallon, the resulting per-gallon price can be so high as to incite lawsuits.
In 2000 two renters sued Budget alleging that Budget’s per-gallon refueling fee was so high that it constituted fraud. A California appellate court in Schvarts v. Budget confirmed that the amount of the per-gallon refueling fee was not unlawful as long it was disclosed in the rental agreement and did not “shock the conscience.”
In Maryland, refueling fees of $7.99 per gallon caught the eye of the state Attorney General, Doug Gansler. In June 2008 he exacted an agreement from eight car rental companies that limits per-gallon fuel charges to 1.35 times the local market price of full-service fuel. Gansler stated that Maryland refueling costs are now the lowest in the nation. Do you agree?
Refueling fees do not have to be disclosed on Web sites or at time of reservation, because they are not mandatory.
Late Return Fees
Late return fees are at issue in Oklahoma. In Steinbeck v. Dollar Thrifty, a 2008 Federal District Court case, a renter brought a class action suit against Dollar Thrifty Automotive Group (DTAG) on grounds that a $10.99 per-day late fee was deceptive.
The renter alleged that she had phoned DTAG during the rental and asked for an extension of the due-back date. According to the Complaint, DTAG granted the extension but charged the late return fee anyway. Parts of the case have been dismissed, but the Court allowed some of the case to proceed on the question of whether or not DTAG was unjustly enriched by the practice.
This type of fee is not required to be disclosed at time of reservation, nor included in the total cost computation, but it should be disclosed on the rental agreement—as DTAG did. The question of whether or not to charge the fee after extending the return date is another, as yet unresolved, question.
Vehicle Licensing Fees
Vehicle licensing fees are recoverable in many states—each state having its own rules as to how much can be recovered. The most recent is a law in North Carolina that went into effect Aug. 1, 2008.
A North Carolina statute permits rental companies to recover costs of licensing, titling, inspection and registration. The fee must be separately stated on the agreement, and the company must make a good faith effort not to collect more than its actual costs.
Check Your Statutes
So, follow a few rules and you can lawfully add extra fees.
Disclose on the rental agreement at the time of rental in every case. Disclose on your Web site and in the total cost of rental disclosure if the fee is mandatory. If it is a refueling fee or other fee that can be avoided by the renter, advance disclosure is not required.
Disclaimer: Check your state’s laws regarding the imposition of new fees. California, New York, Missouri and others have car rental–specific statutes regarding added fees. Not all statutes prohibit added fees, but know the law before proceeding.
Finally, examine your airport concession agreement. That contract may limit your refueling fee to “reasonable” amounts.
Michael LaPlaca, Esq., is a key member of LaPlaca, PC, a Washington, DC area law firm whose practice concentrates on vehicle rental matters. Contact him at Michael@LaPlacalaw.com.
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