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Suit Challenges Rental Car Payouts - 8/18/2003

By Kevin Brass


It began two years ago when an irate client confronted Cecilia Pedroza with a car rental bill for $100 more than she said the car would cost.

Unaware of the fees the rental car agency had tacked on to the bill after she booked the reservation, at first Pedroza, owner of Pedroza Travel in Los Angeles, said she “felt like a total idiot.” Then she got mad.

Pedroza’s anger and similar scenes with other agents led to the filing this June of a groundbreaking class-action suit against the major car rental companies, which could have broad implications for the industry.

The suit, which includes the Outside Sales Support Network (OSSN) as a lead plaintiff, challenges the increasingly popular practice of “unbundling” fees when calculating commissions.

By excluding concession fees, drop fees, insurance and other charges from the commissionable total, rental car companies routinely underpay commissions by 20 percent to 40 percent, the suit alleges.

Six companies are named as defendants in the suit: Avis, Budget, Dollar, Enterprise, Hertz and Thrifty. Alamo and National, which were operating under bankruptcy protection when the suit was prepared, will likely be added at a later date, according to Alexander Anolik, one of the lead attorneys on the case.

In essence, the suit asks the court to define what constitutes revenue. The rental car companies, much like the cruise and hotel industries, argue they are simply passing along their fees directly to the consumer.

“We immediately have to remit the fee to some government body,” said Richard Broome, vice president of corporate affairs, Hertz Corp. “Why should agents get a piece of something we’re not making money on?”

But the suit alleges the practice is moving beyond taxes and specific government fees, and is now used to cover costs that are simply part of the rental companies’ cost of doing business.

For example, the rental companies’ concession recovery fees — the fee rental car companies pay in addition to rent for the rights to operate at an airport, often 10 percent of revenue — are simply “part of their rental cost for operating at lucrative airport locations,” the suit says.

By excluding the concession recovery fee from revenue, the companies are simply billing a portion of their overhead directly to consumers as a way to “keep their quoted rates artificially low,” the suit says.

“We want to have a precedent for what ‘revenue’ is in the future,” Anolik said. In addition to questioning the fee compensation, the lawsuit charges the rental companies with routinely failing to pay higher commissions when customers upgrade at the counter.

But the rental car industry historically has taken the position that sales made at the counter do not involve the travel agent.

If a customer buys additional items at the counter, “the travel agent is not doing anything that warrants commission,” said Jim Shapiro, president of the Association for Car and Truck Rental Independents and Franchisees (ACTIF). “They weren’t engaged in the selling process.”

The argument strikes to the core of the agent relationship with hotels, airlines and cruises, as well as the car companies.

Should travel agents get a cut for drinks and movies on airlines? asked Neil Abrams of Abrams Consulting Group, which often works with rental car companies. “Where does it end?”

Anolik says the suit is seeking restitution for past bookings, but he is primarily interested in developing a more equitable commission system for the future.

Lawyers are scheduling depositions and beginning the suit’s discovery phase.