It happens. Sometimes when you drop off your rental car its in a little worse shape than it was when you picked it up. Maybe there are a few scratches here, or a dent there. Whatever the damage, you know you are going to be billed for it, and then there are “loss of use” fees.
Loss of use fees are the charges that the rental car companies tack on to the repair bill for the vehicle, they represent the income that the vehicle could have earned had it not been in the shop getting fixed.
In the past, most rental car companies would write off the time a car spent in a garage as an expense. However, with today’s shrinking profits they are adding these fees to the repair bills. This allows them to recover the revenue they would have collected if the vehicle was available for rental.
“Car rental companies were leaving tens of millions of dollars on the table by not collecting loss of use charges,” says Neil Abrams, a car rental consultant. “I think there’s a recognition that there’s a legitimate responsibility of the renter that extends beyond the rental of the vehicle.”
Last year the Colorado Supreme Court ruled in favor of PurCo Fleet Services in its seven year battle to collect loss of use fees from a customer who damaged her rental car after hitting a deer with the Durango she was driving. The justices ruled that the company was “entitled to recover loss of use damages irrespective of its actual lost profits.” This ruling, however, only applies to car rentals in Colorado.
At least three other states, including New York, California and Wisconsin have laws that set limits on the amount car rental companies can recover from the loss of use on a damage claim to their vehicles.
In the rental car industry there is no clear cut way to decide how loss of use charges are to be calculated. At Enterprise, the largest car rental company, loss of use is based on the total number of labor hours from the repair estimate, divided by four, which the company says is a conservative estimate of labor hours that can be incorporated into each work day, that is then multiplied by the daily rental rate. PurCo Fleet Services, a risk management company that specializes in car rental loss prevention, calculates loss of use based on the number of days needed for repair and then multiplies that by the daily rate of the contract.
If a customer’s insurance company insists on only covering the actual damages, they will reject all or part of the claim for loss of use charge. That bill will then be passed on to the customer, who could pay the fees or ask the rental company to reduce them.
“Settling a damage claim is nothing but a simple negotiation,” says David Purinton, president of PurCo Fleet Services. “Rules for good-faith negotiations that apply in any type of negotiation apply here. The problem here is that most insurance companies and customers believe that, to be successful for them, a negotiation means they pay zero. Offering to pay zero for loss of use is not a negotiation.”
In a lot of cases the car rental companies end up threatening to take action including take customers to court, report them to a credit agency, add them to a “do not rent” list.