The former Tasmanian Europcar hire car franchisee has admitted to deliberately overcharging its customers for repairs to damaged rental cars; and in an innovative twist to the two-tier pricing scam, has admitted to using two-tier invoicing to deceive the customers about the true cost of the damage repairs.
In the Federal Court of Australia decision in Australian Competition and Consumer Commission v BAJV Pty Ltd  FCA 666 handed down on 8 July 2013, Justice Marshall considered the appropriate civil pecuniary penalties to impose on the rental car operator for this contravention of the Australian Consumer Law.
Treatment of vehicle damage in hire car contracts
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.
How Tasmanian Europcar overcharged
The Tasmanian Europcar hire car 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 hire 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 contraventions of the Australian Consumer Law
The conduct was misleading and deceptive or likely to mislead or deceive the hire car customers in contravention of section 18 of the Australian Consumer Law (and section 52 of the former Trade Practices Act).
The conduct was unconscionable in contravention of section 21 of the Australian Consumer Law (and section 51AB of the former Trade Practices Act).
The ACCC accepted that the conduct was not fraudulent.
The considerations for the appropriate penalty
Adopting the relevant principles for assessment of monetary penalties as most recently authoritatively stated in Singtel Optus Pty Ltd v ACCC (2012) 287 ALR 249 at  – , the Court gave weight to these factors:
- The nature and extent of the contraventions and the ensuing loss and damage - was significant. There were 13 customers misled in the relevant contravention period (from April 2010). There were two separate contraventions, one the non-refund conduct, the other the two invoice practice. The maximum penalties were therefore 2 x $1.1 million for the corporation and 2 x $220,000 for the individual.
- The circumstance in which the contravening conduct occurred – was unconscionable. The business systems which allowed this conduct were ‘designed to increase the profitability of the operator at the expense of customers who were unlikely to be aware that they were being overcharged’.
- The size of the contraveners – the operator was a corporate entity for a small to medium family business, not a large profitable company.
- The deliberateness of the contraventions and the period over which they extended – was significant.
- Whether the contravener has a corporate culture conducive to compliance with trade practices law – the operator had taken steps to ensure future compliance with the trade practices law by appointing a customer service officer, updating the rental terms and conducting an annual review of third party claims.
- Cooperation with the ACCC – the Court complimented the operator for their cooperation with the ACCC by inviting discussions, implementing changes to its business practices and agreeing to a Statement of Agreed Facts and Admissions (which avoided a lengthy trial).
- Deliberateness of the contravening conduct – the vast bulk of the conduct was deliberate rather than inadvertent, even though some of it may have flowed from poor management systems.
- Deterrence – the penalty must be sufficiently high to deter repetition of the conduct, and not be considered as ‘merely the price of doing business’.
The Court imposed a ‘mid-range’ penalty, leaning towards the lower end. The civil fine was $200,000 for the hire car business operator (BAJV); and $40,000 for Mr Brendon Ayers, its managing director, for being knowingly concerned in the conduct.
The Court made ancillary orders consisting of: declarations as to each form of contravening conduct; it accepted an undertaking by BAJV 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 business, operated as an incorporated joint venture (with 50:50 ownership), as BAJV.
In late March 2013, two months before the hearing commenced 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.
The ACCC warning to car hire companies
The final word goes to the ACCC in its media release of 8 July 2013 –
“The ACCC has serious concerns about hire car companies’ lack of open and accountable procedures when charging customers for vehicle damage.
Many consumers are likely to have a limited knowledge of the cost of vehicle repairs and are therefore in a vulnerable situation when a hire car company charges for vehicle repair costs. Hire car companies must behave honestly in relation to these charges and ensure that they have adequate systems in place to refund any overcharged amounts,” Ms Rickard said.