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How do car rental / hire car businesses overcharge for damage repairs?

Hire car businesses are tempted to overcharge customers for vehicle damage repairs, to make them a profit centre, as opposed to passing on the actual repair cost.

The ACCC (the Australian Competition and Consumer Commission) takes a dim view of hire car businesses which profit from repairs. It says that – 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.

In July 2013, the ACCC had the Federal Court of Australia fine the former Tasmanian Europcar hire car franchisee $200,000 for misleading and deceptive conduct because it overcharged by deliberately:

  • holding back refunds due to 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.

What should the car hire industry do when a vehicle is returned damaged?

In the car rental / hire car 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 to the renter.

What did Tasmanian Europcar do when the vehicle damage cost was less than the renter was charged?

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 by –
Not refunding unused money charged – four different ways were used -

  • The car rental business 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 car rental business 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 car rental business 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 car rental business’ 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.

Using two-tier invoicing where the car rental business could conceal the fact that it paid less for the Repair Cost than it charged the customer for the same vehicle repair. This is how it worked -

  • 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.

What happened in the Tasmanian Europcar case?

The ACCC alleged that the non-refund and the two-tier invoicing was conduct that 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 Federal Court found significant contraventions and losses under the Australian Consumer Law, which were deliberate and were 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 ACCC’s action effectively put Tasmanian Europcar out of business. Europcar terminated the franchise agreement early, took over the fleet, and employed the staff.

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 Australia was not a party to the proceedings and no orders were made against it.

For a more detailed analysis, google my article: The ACCC targets hire car companies for overcharging for damage repairs – the Federal Court orders a $200,000 civil penalty.

 


Law Case Alert!

A fall from a top bunk creates a $853,396 migraine!
 

The award On 26 June 2009, the Supreme Court of NSW awarded $853,396 to compensate a child for brain damage, medical expenses and future loss of earnings caused by falling from the top bunk of a bunk bed in a private home. The decision was reported as Thomas v Shaw [2009] NSWSC 510.

The facts On 23 April 2004, Cameron Thomas (aged 10) was staying at his friend’s house (the Shaws’ house). He was sitting in the top bunk, legs over the side. He decided to slide down, he put one foot on a chest of drawers, he slipped and landed face down on the floor, fracturing his skull. The floor was a carpeted concrete slab. When purchased in 1997 the bunk bed had a tubular steel ladder and a guardrail, but the parents had removed them both about a year after purchase ‘because the steel ladder was slippery and the bolts of the guardrail had stripped out of the framework’. Therefore Cameron had no safe way of getting out of the top bunk, because 2 points for hand and feet grip had been removed.

The law An occupier of premises is responsible for the safety of visitors and guests. This is known at law as a ‘duty of care to take precautions against a risk of harm’ and a breach results in a civil liability to pay compensation. In this case the absence of the ladder and guardrail meant that the bed did not comply with Australian/New Zealand Standard 4220, and therefore there was a breach of the duty of care. Fortunately the Shaws had public liability insurance, the insurer defended the claim and will pay the compensation awarded.

The lessons for backpacker operators

  1. Bunk beds must comply with safety standards (ladder and guardrail essential)
  2. Display a sign warning ‘Take Care when climbing in or out of top bunks’
  3. Use a soft underlay to carpets/ floor coverings in bed areas to cushion falls
  4. If an injury occurs, it will be covered by insurance. But a claim will mean that insurance premiums in the following years will increase with a ‘claims loading’, often of thousands of dollars
  5. If an injury occurs, take a written statement from each person who witnessed the accident, photographs, and a video. And ensure the injured person receives immediate medical treatment, for even the most minor injury. Keep this material in a safe place.

As published in the Backpackers Trade Magazine

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