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The ACCC targets hire car operators for overcharging for damage repairs

July 16, 2013 Headline News, Travel Law No Comments Email Email

egtmedia59Last week, the ACCC (the Australian Competition and Consumer Commission) had the Federal Court of Australia fine the former Tasmanian Europcar hire car franchisee $200,000 for misleading and deceptive conduct by:

  • deliberately overcharging its customers for vehicle repairs, and
    • using two-tier invoicing to deceive its customers and others about the true cost of the repairs.

The Court also fined the managing director of the franchise, Brendon Ayers, $40,000 for masterminding these contraventions of the Australian Consumer Law.Cordato Partners-www.tourismlegal.com.au

Global Travel Media has already reported on the fines – Repair price gouging costs rental car outfit $200,000.

The ACCC media release states what the ACCC is targeting:

Hire car companies must behave honestly in relation to charges for vehicle repairs and ensure that they have adequate systems in place to refund any overcharged amounts.

This article delves a little deeper into what the ACCC is targeting.

The way the car hire industry approaches vehicle damage

In the hire car / rental car / car rental industry, vehicle damage requires careful management because the repair costs can quickly mount up and affect business profits.

For this reason, hire car contracts require the renter to pay a Damage Liability Fee if they return the vehicle damaged. This Fee is a fixed cost estimate calculated to cover the cost of the repairs and third party claims. It is charged by a pre-authorised debit to the renter’s credit card. If Collision Damage Waiver insurance is taken out, the Fee will be less.

Later, when the actual Repair Cost and other costs are known, the part not used is refunded.

The way the Tasmanian Europcar approached vehicle damage

The Tasmanian Europcar car rental franchise operator disregarded the hire car contract it used and the Europcar Website which contained statements that the unused part of the Damage Liability Fee would be refunded. Instead, it overcharged its customers in two ways –

The non-refund conduct created a ‘profit’ from repairs, in these ways –

  • The operator failed to process refunds where the Repair Cost was lower than the Damage Liability Fee by less than $400 – it waited until a customer enquired about whether a refund was payable.
  • The operator developed standard charges for items or types of vehicle damage, which it charged the customer, regardless of the actual Repair Cost (which was nearly always less than the standard charge).
  • The operator would wait until it had several instances of minor damage – dents and scrapes, before repairs were done, but did not pass on the savings as a refund.
  • The operator’s system for reviewing third party damage files was inadequate, and it held back the Damage Liability Fee even after it knew that the claim was resolved.

The two invoice practice was the method used by the rental car operator to conceal the fact that it paid less for the Repair Cost than it charged the customer for the same vehicle repair.

  • The operator arranged with its affiliated bodyworks repairers to issue a higher invoice with labour and retail prices for parts; and a lower invoice with a 10% discount for labour and wholesale prices for parts.
  • The higher invoice (the inflated invoice) was passed on to the customer and third party motorists (or their insurers) as the Repair Cost; and the lower invoice was the actual Repair Cost paid to the bodyworks repairers.

The Penalty

The conduct was misleading and deceptive or likely to mislead or deceive the car rental customers and was unconscionable in contravention of the Australian Consumer Law.

The penalty was imposed for conduct from April 2010 to February 2012.

The Court imposed a “mid-range” penalty, leaning towards the lower end. It found the significant contraventions and losses, which were deliberate, and designed to profit the business over the consumer.

The civil penalty was $200,000 for the car rental business operator; and $40,000 for its managing director. These were not criminal proceedings because the conduct is not a criminal offence. Therefore the Court did not need to consider whether imprisonment might be appropriate.

The Court made other orders, including accepting an undertaking by the car rental business operator to refund the 46 customers pre April 2010 the amounts overcharged; and it made a publication order, to advertise the refund. The Court ordered the operator pay the ACCC’s legal costs.

The termination of the franchise

At the time the ACCC commenced proceedings in November 2011, Tasmanian Europcar was a franchise, operated as an incorporated joint venture (with 50:50 ownership), as BAJV.

In late March 2013, two months before the hearing was due to commence on 27 May 2013, Europcar gave notice of intention to terminate the franchise agreement. The franchise (and the joint venture) was terminated on 15 May 2013, 7 years before its term expired. Mr Ayers became the sole controller of BAJV.

Europcar took over the fleet, and employed the staff. Europcar engaged Mr Ayers as a consultant for two years at $100,000 a year, and Mr Ayers agreed not to compete with Europcar for 5 years.

Europcar Australia has introduced a new charging model that customers are only charged for vehicle damage once an independent assessor has reported on the exact cost of the repairs.

Europcar (CLA Holdings) was not a party to the proceedings and no orders were made against it.

Written by: Tony Cordato

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