CFPB to Allow Consumers to Voice Complaints Publicly


untitled (19)Auto Dealer Monthly recently reported on the Consumer Financial Protection Bureau’s announcement that it is finalizing a policy to allow consumers to voice publicly their complaints about consumer financial products and services:

Now, when consumers submit a complaint to the CFPB, they have the option to share their account of what happened in the CFPB’s public-facing Consumer Complaint Database. The CFPB is also publishing a request for information seeking public input on ways to highlight positive consumer experiences, such as by receiving consumer compliments.

“Consumer narratives shed light on the full consumer perspective behind a complaint,” said CFPB Director Richard Cordray. “Narratives humanize the problems consumers face in the marketplace. Today’s policy will serve to empower consumers by helping them make informed decisions and helping track trends in the consumer financial market.”

The announcement didn’t sit well with American Financial Services Association, which issued a statement critical of the CFPB’s new policy to F&I and Showroom. “Because consumers are likely to assume a level of accuracy and validity in the complaints posted on a government website, the CFPB’s publicizing unsubstantiated consumer narratives that could mislead consumers,” stated Bill Himpler, the association’s executive vice president. “In additional, publishing unverified and unfiltered claims could pose significant brand and reputational risk to financial services companies.”

You can read the full article here:

CFPB to Allow Consumers to Voice Complaints Publicly.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2015.

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Auto Dealers & Regulatory Compliance: If the FTC Comes Knocking


images (8) Dealerships have become subject to increased regulation and enforcement, particularly in the areas of consumer advertising, consumer finance and consumer privacy. I recently posted an article to this blog entitled: Auto Dealer Arranged Financing: 51 Laws a Dealer Must Know. You can read the full article here.

Most dealers recognize that the legal landscape has changed. While consumer litigation and associated class actions persist (and the incidence of class action litigation has increased over the past few years), federal regulatory authorities are the new player in town and they are joining with the Department of Justice and local authorities to enforce compliance with federal and state laws. Indeed, on March 26th, the Federal Trade Commission (FTC) and 32 law enforcement partners announced the ongoing results of Operation Ruse Control, a nationwide and cross-border effort which has thus far resulted in over 250 enforcement actions (187 in the U.S.) as well as six new FTC cases. The FTC cases have included allegations of deceptive advertising, auto financing application fraud, odometer fraud and deceptive marketing of car title loans. In addition, and for the first time since receiving expanded authority over auto dealers under the Dodd-Frank Act, the FTC has taken two enforcement actions involving F&I product add-on charges. Examples of F&I product add-ons include service contracts and extended warranties, guaranteed automobile protection (commonly called GAP or GAP insurance), credit life and disability insurance, road service, theft protection, undercoating and payment programs. The six new FTC cases include more than $2.6 million in monetary judgments. The sweep follows on the heels of the FTC’s Operation Steer Clear campaign against 10 dealerships in 2014.

“The clear message is that across this country, and indeed internationally, law enforcement agencies are on the lookout for deceptive and illegal practices by auto dealers, and will take whatever action is necessary to protect consumers,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection.

The majority of dealers take their compliance obligations very seriously as non-compliance can result in consumer litigation, regulatory enforcement actions and lender repurchase claims as well as the payment of actual damages, statutory damages, monetary penalties and fines, injunctive relief and potentially punitive damages and criminal fines. Negative publicity is a virtual certainty as well. Those striving to comply with the myriad laws regulating the dealership industry are (1) appointing a Consumer Regulatory Compliance Officer; (2) integrating an Advertising, Sales and F&I Manual (with federal and state specific policies and procedures) into their Compliance Management System (CMS); (3) providing regular training to their staff on those policies and procedures; (4) auditing compliance with those policies and procedures; and (5) monitoring legal and regulatory changes. A well planned, implemented, and maintained compliance program will prevent or reduce regulatory violations, provide dealership cost efficiencies and is just sound business. If the FTC comes knocking on your dealership door, you should not only be able to tell them what you are doing, but also show them what you are doing to comply with the laws. If your CMS does not specifically address the 51 laws and regulations cited in my article as well as the practices which have historically produced the greatest amount of consumer litigation and regulatory actions (call me and I’ll tell you what they are – I’ve defended dealerships in litigation alleging each one), your compliance program is not a true CMS – it is inadequate.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2015.

Posted in Auto Dealer, Consumer Leasing Act, Errors & Omissions, Indirect Financing, Regulatory Compliance, TIL Disclosures, Truth in Lending Act | Tagged , , , | Leave a comment

Auto Dealer Arranged Financing: 51 Laws Dealers Must Know


Compliance PICIt’s no secret that auto dealerships have become subject to increased regulation over the past several years, primarily in the areas of consumer advertising, consumer finance and consumer privacy. Although the recession of 2007-2009 was primarily related to mortgage financing, regulatory agencies such as the Consumer Financial Protection Bureau (CFPB) (created by the Dodd-Frank Act in 2010), Department of Justice (DOJ), Federal Trade Commission (FTC) and state attorney’s general are focusing on auto dealership financing as well. While the CFPB does not have regulatory authority over auto dealerships, they are exercising indirect authority through their authority over lenders that buy retail installment contracts from dealers. In addition, the CFPB has collected a great deal of information on the dealership industry that they, in turn, share with other government agencies that do have regulatory authority over dealers.

At present, the CFPB is attacking the dealer reserve, where dealerships typically add one percentage point or two to a lender’s wholesale interest rate as compensation for facilitating the indirect financing. The CFPB contends the dealer reserve system has led to unintended lending discrimination and wants to impose a flat fee system. Next up, the CFPB will probably attempt to regulate the pricing of ancillary F&I products sold by dealerships. The CFPB has been collecting data and will likely claim that charges for certain products by some dealerships exceed their value and will attempt, through enforcement actions, to impose retail price caps.

Meanwhile, dealerships must comply with all existing federal, state and local laws and regulations that pertain to the sale and financing of motor vehicles and the non-public, personally identifiable information provided to the dealership by its customers. This is an absurdly large and exceptionally complex task, even for large auto dealerships who employ in-house legal counsel. Below is a list of my top 51 laws and regulations that auto dealerships must thoroughly understand (and should incorporate into their Compliance Management System (CMS)) to avoid liability, whether in the form of consumer litigation or regulatory enforcement actions. Keep in mind that this list is not all-encompassing (it’s only my top 51) and each law or regulation cited has many sub-sections (i.e., even more laws and regulations):

  1. Federal Trade Commission Advertising Rules
  2. State Advertising Laws & Regulations
  3. CAN SPAM Act & FTC E-Mail Rules
  4. CAN SPAM Act & FCC Texting (Internet Domain)Rules
  5. Telephone Consumer Protection Act & FCC Regulations
  6. Federal Trade Commission Texting (Phone) Rules
  7. Federal Trade Commission Autodialer Rule
  8. Federal Trade Commission Do Not Call Rule
  9. Telemarketing and Consumer Fraud and Abuse Prevention Act
  10. Federal Trade Commission Telemarketing Sales Rule
  11. Deceptive Mail Prevention and Enforcement Act
  12. Junk Fax Prevention Act & FCC Regulations
  13. Gramm-Leach-Bliley Act (GLBA) & Regulations
  14. Federal Trade Commission Privacy (Notice) Rules
  15. Federal Trade Commission Privacy (Information Sharing) Rules
  16. Federal Trade Commission Information Safeguards Rule
  17. Federal Trade Commission Pretexting Provisions
  18. FACTA Red Flags Rule (Identity Theft Prevention Program)
  19. FACTA Information Disposal Rule
  20. Federal Trade Commission Section 5 UDAP Prohibitions
  21. Computer Fraud and Abuse Act (CFAA)
  22. Electronic Communications Privacy Act (ECPA
  23. Driver’s Privacy Protection Act (DPPA)
  24. Truth & Lending Act & Regulation Z
  25. Consumer Leasing Act & Regulation M
  26. State Retail Installment Sales Acts-Disclosure
  27. State Retail Installment Sales Acts-Usury
  28. Equal Credit Opportunity Act-Discrimination
  29. Equal Credit Opportunity Act-Adverse Action
  30. Fair Credit Reporting Act-General Provisions
  31. Fair Credit Reporting Act-Adverse Action
  32. Federal Trade Commission Credit Practices Rules
  33. Federal Trade Commission Risk-Based Pricing Rule
  34. State Insurance Statutes & Regulations
  35. State Service Contract Statutes & Regulations
  36. Electronic Funds Transfer Act & Regulation E
  37. IRS Form 8300 Cash Reporting Rule
  38. USA PATRIOT Act and OFAC Requirements
  39. Servicemembers Civil Relief Act
  40. Fair Debt Collection Practices Act
  41. Uniform Commercial Code (Repossession)
  42. State Consumer Fraud Prevention Acts
  43. State Unfair & Deceptive Trade Practices Acts
  44. Federal Network Security and Data Privacy Laws
  45. State Network Security and Data Privacy Laws
  46. Federal and State Odometer Acts
  47. State Title Branding Laws
  48. Federal Trade Commission Used-Car Rule
  49. Magnuson-Moss Warranty Act
  50. State New Vehicle Lemon Laws
  51. State Dealership Licensing Laws & Regulations

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2015.

Posted in Auto Dealer, Dealer Reserve, Errors & Omissions, Indirect Financing, Regulatory Compliance, TIL Disclosures, Truth in Lending Act | Tagged , , , | 3 Comments

Hey Dealer, Can I Get a Loaner?


MADA Loaner Vehicle

I recently wrote an article for the Minnesota Automobile Dealer Association’s MN Dealer Outlook Magazine (Winter 2015).  If your Minnesota dealership provides dealer-owned loaner vehicles to customers while the customer’s vehicle is being repaired, you’ll want to read on.

Minnesota is one of just twelve states where vehicle owners can be held liable for damages and personal injuries involving their vehicle.  This type of liability is called “vicarious liability” and is created by a Minnesota statute which provides that a vehicle owner is liable for all injuries and damages caused by a permissive driver.

So, when you flip a customer the keys to a loaner vehicle and he collides with another car causing injuries and damages, you can be on the hook too – not because you’ve done anything wrong but because you happen to own the vehicle.

While the customer will hopefully have a personal auto policy (you’ll want to verify insurance before issuing a loaner) and that policy will be primary, it will often be insufficient to cover all injuries and damages, leaving the dealer liable to the injured parties for the balance.

There’s a Federal law called the “Graves Amendment” which some commentators have suggested will protect the dealer against vicarious liability in the loaner context.  That’s probably not true.  While the Graves Amendment protects those “engaged in the trade or business of renting or leasing vehicles,” it likely does not apply to dealers providing loaner vehicles.  The problem is “loan” versus “rent.”  At least two courts have refused to extend the protections of the Graves Amendment where no rental payments were made.

But all is not lost. A dealer can limit its vicarious liability for loaner vehicles.  Minnesota Statutes cap a dealer’s vicarious liability for loaner vehicles if the dealer maintains insurance covering itself against losses up to at least the amount of the caps.  For calendar year 2015 the caps are: $155,000 per person/$465,000 per accident for bodily injury and $75,000 for property damage.  Make sure your garage liability insurance affords coverage for loaner vehicles in at least these amounts and that the terms of your written loaner agreement are entirely consistent with your policy and the statute.

Verifying a customer’s insurance is important for another reason.  Your loaner may be damaged, totaled or stolen while in the customer’s possession.  In this regard, Minnesota law is quite favorable.  It provides that the property damage coverage of the customer’s policy is automatically rewritten to afford at least $35,000 of coverage for damage to, or loss of, a loaner (or rental) vehicle. Depending on the terms of your loaner agreement, this coverage can be imposed regardless of whether the customer was negligent or otherwise at fault.  To take advantage of this law, you’ll want to make sure your loaner agreement clearly outlines the customer’s obligations, has the required consumer protection notices and otherwise fully complies with the statute.

Note that we’re talking about service loaner vehicles here.  In general, rental vehicles offer less exposure for the renting dealership.  However, loaner vehicles and demos offer more exposure for dealers.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2015.

 

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Speaking at Automotive Dealer Subprime Sales Success Workshop on April 7-8th in Atlanta, Georgia.


99281cd1-8fa6-4b14-8cf7-c1daff274a7e-medium (2)I will be a speaker at the Automotive Dealer Subprime Sales Success workshop on April 7-8th in Atlanta, Georgia. I will be speaking on two related topics.  First, about F&I compliance and class action litigation issues (spot delivery, acquisition fees, deferred down payments, credit discrimination, adverse action, recontracting-backdating, among others).  Second, I will be addressing auto dealer liability insurance coverage (or non-coverage) for consumer protection, consumer credit and consumer privacy litigation under the Truth in Lending Act (TILA) and Regulation Z, Consumer Leasing Act (CLA) and Regulation M, Equal Credit Opportunity Act (ECOA) and Regulation B, Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), Gramm-Leach-Bliley Act (“GLB”), Federal Trade Commission’s (FTC) Advertising, Privacy, Safeguards and Used-Vehicle Rules and similar state statutes and regulations as well as claims alleging consumer fraud and deceptive and unfair business practices.

The two-day workshop, being conducted by Becky Chernak of Chernak Consulting, will feature presentations by Dealertrack Technologies, Automotive Dealer Institute, Champion Strategies, Equifax, LoJack, Complí and Becky Chernak.

More information about the seminar can be found here:

www.autoremarketing.com/subprime/subprime-workshop-feature-chernek-dealertrack-equifax

Posted in ADCF Policy, Auto Dealer, Coverage, Indirect Financing, Regulatory Compliance, Truth in Lending Act, Truth in Lending Coverage | Tagged , , , , , , , , | Leave a comment

The Problem with Renting Fast Cars: A Special Report of the Auto Rental News


19dgb6cqxr9ywjpgI was recently interviewed in connection with a most interesting article by Chris Brown of the Auto Rental News:

“Enter the world of brokering, where fleet funding, commercial insurance and even car ownership are not necessities. As the name suggests, brokers connect owners of exotic cars with renters. Simple in its base form, there are many permutations to a brokered car rental transaction. 
In a common scenario, established companies that own the cars and carry fleet insurance regularly horse trade with similar rental companies to better service their customers. This transaction is backed by the contract and insurance of one of the companies. In the broker model, individuals will set up a company, often an LLC (limited liability company), and create a website with stock photos of cars they think they can procure. In a legitimate transaction, brokers connect a renter to an established rental company and take a cut for their service. They rely on the renter’s insurance as primary and the rental company’s commercial policy as secondary. Slipping into a gray area, brokers will rent vehicles from legitimate companies in their personal names and then re-rent the vehicles to personal clients without the rental companies’ knowledge.”

I was interviewed with respect to insurance issues and the non-applicability of the federal Graves Amendment and state caps on vicarious liability to the owner of brokered exotic car rentals. You can read the full article, and my comments, by clicking the link below:

Special Report: The Problem with Renting Fast Cars – Article – Auto Rental News.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2014.

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Minnesota Car Rental: Handling BI/PD, UM/UIM & Rental Vehicle Damage Claims


untitled (8)This article provides a brief overview of Minnesota rental car coverage law, from priority of payment for bodily injury and property damage liability claims to uninsured and underinsured motorist claims to no-fault claims to rental vehicle damage claims. A considerable portion of the article is devoted to Minnesota Statute § 65B.49, subd. 5a(1), a statute unique to only a handful of jurisdictions, which requires that all auto policies issued in the state of Minnesota provide coverage for damage to, and loss of, a rented vehicle under the policy’s property damage liability coverage.

Statutorily Mandatory Auto Coverages

Like other compulsory automobile insurance systems, the Minnesota No-Fault Automobile Insurance Act, Minn. Stat. § 65B.41 et seq., (Minnesota “No-Fault Act”), distinguishes between mandatory coverages and optional coverages. The title of the Act is a misnomer inasmuch as the Act addresses bodily injury (BI) liability coverage, property damage (PD) liability coverage, uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage in addition to basic economic loss (a/k/a no-fault) coverages. The Minnesota No-Fault Act requires that every policy issued in the state provide certain levels of BI, PD, UM, UIM and basic economic loss coverages. A personal auto policy must afford a minimum of $30,000 per person/$60,000 per accident in   BI coverage, $10,000 in PD coverage, $25,000 per person/$50,000 per accident in UM and UIM coverages and $20,000/$20,000 in medical expense and income loss no-fault coverage. Minn. Stat. §65B.44; 65B.49, subd. 2, 3, 3a.

Generally, the mandatory coverages afforded under a Minnesota-issued personal auto policy will also apply when the insured is operating a “rented” vehicle. First, Minn. Stat. § 65B.49, subd. 3(2) requires that an auto insurance policy extend coverage to the insured for all sums the insured may be legally obligated to pay as damages arising out of the use of “any motor vehicle, including a motor vehicle permissively operated by an insured,” which would include a rented vehicle. Second, Minnesota Statute § 65B.49, subd. 5a(a), states that a personal auto policy must extend “basic economic loss benefits, residual liability insurance (i.e., BI/PD liability coverage), and uninsured and underinsured motorist coverages to the operation or use of the rented motor vehicle.”

Under the No-Fault Act, a vehicle is “rented” if: “(1) if the rate for the use of the vehicle is determined on a monthly, weekly, or daily basis; or (2) during the time that a vehicle is loaned as a replacement for a vehicle being serviced or repaired regardless of whether the customer is charged a fee for the use of the vehicle.” Minn. Stat. § 65B.49, subd. 5a(b). Conversely, a “vehicle is not rented if the rate for the vehicle’s use is determined on a period longer than one month or if the term of the rental agreement is longer than one month.” Id.

Since 2007, the BI/PD liability coverage of a personal auto policy must afford primary coverage to the insured while operating a rented vehicle. Minn. Stat. § 65B.49, subd. 5a(j) (“The plan of reparation security covering the owner of a rented motor vehicle is excess of any residual liability coverage insuring an operator of a rented motor vehicle”). The 2007 amendment reversed the priority of payment of BI/PD coverage which had previously existed for rental (as opposed to loaner) vehicles. See, Agency Rent-A-Car, Inc. v. Am. Family Mut. Auto. Ins. Co., 519 N.W.2d 483 (Minn. Ct. App. 1994) (like other vehicle owners, rental car company had obligation to afford primary BI/PD coverage to renter for injuries caused by renter while operating rented vehicle, but rental car company could limit primary omnibus coverage to statutory minimum while retaining greater protection for itself).  (I’ve previously posted several articles addressing the Agency Rent-A-Car case and the impact of the federal Graves Amendment on a rental car company’s vicarious liability.  A couple articles can be found here and here).

Under Minn. Stat. § 65B.49, subd. 3a(5), the No-Fault Act’s UM/UIM priority statute, the UM/UIM coverage available on the rented vehicle will afford primary coverage, but the renter’s personal UM/UIM coverage will be available on an excess basis if the UM/UIM limits of the renter’s policy exceed the UM/UIM limits of the policy insuring the occupied rented vehicle. The “excess insurance protection is limited to the extent of covered damages sustained, and further is available only to the extent by which the limit of liability for like coverage applicable to any one motor vehicle listed on the automobile insurance policy of which the injured person is an insured exceeds the limit of liability of the coverage available to the injured person from the occupied motor vehicle.” Id. See, Johnson G., The Minnesota Automobile Insurance Manual, UM/UIM Chapters (1991, 1994, 2001, 2004).

Under Minnesota law, no-fault coverage generally follows the insured person. Pursuant to the No-Fault Act’s priority statute for no-fault benefits, Minn. Stat. § 65B.47, the renter’s personal auto insurer is obligated to provide primary, and generally exclusive, no-fault coverage.

Optional Physical Damage Coverage

In contrast to these mandatory coverages, the Minnesota No-Fault Act does not mandate that the owner of a motor vehicle purchase physical damage (collision and comprehensive) coverage insuring the owner against damage to, or theft of, the insured vehicle. Collision coverage, as its name suggests, is primarily designed to pay the insured for the cost to repair a vehicle when damaged in a vehicle collision (or the cash value or replacement value of the vehicle if it is not repairable or totaled). Comprehensive coverage is intended to pay the insured for the cost to repair a vehicle when damaged by non-vehicle collisions such as vandalism, fire, weather, or impacts with animals (or the cash value or replacement value of the vehicle if it is stolen). While a lending institution may require the vehicle owner to maintain such coverage if the vehicle owner financed the purchase or lease of the vehicle, the No-Fault Act does not require that physical damage coverage be purchased or that a personal auto policy afford it.

If a renter has purchased physical damage insurance under his or her personal auto policy, the coverage (like the mandatory coverages described above) will usually also apply to a rented vehicle. When a rented vehicle is damaged while in the renter’s possession under the rental car agreement, the renter is obligated to pay the costs necessary to repair the vehicle (or, if totaled, the difference between the car’s fair market value before it was damaged and the sale or salvage proceeds). If the rented vehicle is totaled, the renter is generally liable for the difference between the vehicle’s fair market value before it was damaged and the sale (or salvage). And, if the rented vehicle is stolen and not recovered, the renter is usually obligated to pay the rental car company for the rental car’s fair market value. In addition, the renter may also be legally liable to the rental car company for a variety of other damages, such as damages for “diminution in value,” “loss of use” and incidental losses such as towing, storage and administrative fees.

Diminution in value damages arise when a rented vehicle cannot be restored to its pre-accident condition by repairs. Many states (including Minnesota) recognize that the owner of a commercial vehicle (which would include the owner of a rental vehicle) is entitled to recover the monetary difference between the value of the rented vehicle at the time of rental and its value after it was damaged and repaired. Loss of use damages represent the income the rental car company loses when it cannot rent a damaged, totaled or stolen car. Many states (including Minnesota) recognize that the owner of a commercial vehicle is entitled to recover damages based on the loss of use of the vehicle while it is undergoing repairs or until it can be replaced. (I will be discussing diminution in value and loss of use damages in detail in subsequent articles on this blog).

Most rental car companies will offer loss damage waiver (LDW) (a/k/a Physical Damage Waiver (PDW) or Collision Damage Waiver (CDW)) to renters. For a fee, the car rental company will enter into a contract with the renter to waive all or part of its damage claim against the renter if the rented vehicle is damaged or stolen (provided the car was not driven by an unauthorized driver or in violation of a geographic or use limitation specified in the rental contract). Purchase of LDW may not be necessary if the renter has purchased physical damage coverage in connection with his or her personal auto policy. Accordingly, many states have enacted statutes which require rental car companies provide notice to automobile renters advising that purchase of a LDW may not be necessary if they have purchased physical damage coverage under their personal auto policy. See, Colo. Rev. Stat. Ann. § 6–1–203(1)(e); Kan. Stat. Ann. § 50–657(e); La. Rev. Stat. Ann. § 2091.5 B(5); Mass. G.L. c. 90, § 32E 1/2; Or. Rev. Stat. § 646.859(2); Va. Code Ann. § 59.1–207.31 B.

The Massachusetts statute obligates rental car companies to provide the following notice to rental customers:

NOTICE: This contract offers, for an additional charge, a Collision Damage Waiver to cover your financial responsibility for damage to the rental vehicle. Your personal automobile insurance may already cover you for damage to a rental car. The purchase of a Collision Damage Waiver is optional and may be declined. For Massachusetts residents: If you have an automobile policy on your personal vehicle with coverage for collision, your policy will cover collision damage to the rental vehicle, less the deductible on your policy. If you have comprehensive coverage on your vehicle, your policy will cover loss on the rental vehicle caused by fire, theft or vandalism, less the deductible on your policy. Drivers who hold policies in other states should check with their insurance agents to determine whether their policies extend to rental vehicles.

Statutorily Imposed Physical Damage Coverage for Rented Vehicles

Minnesota is one of a few states which have gone one step further. In recognition of the fact that may people do not purchase physical damage coverage in connection with their personal auto policies, Minnesota enacted a statute in 1987 which imposes physical damage coverage on personal auto policies when the insured is operating a rented vehicle.

Under Minnesota law, personal auto policies insuring private passenger vehicles and pickup trucks and vans, wherever issued, must provide coverage for rented private passenger vehicles, pickup trucks, vans and trucks with a registered gross vehicle weight of 26,000 pounds or less. Minn. Stat. § 65B.49, subd. 5a(a)(1). The personal auto policy must insure the rented vehicle against “damage and loss of use” under the compulsory “property damage liability” coverage of the policy. Minn. Stat. § 65B.49, subd. 5a(a)(1).

Under the statute, a personal auto policy must extend this coverage to its insured regardless of fault or negligence on the part of the insured in causing the damages. Although Minnesota law only requires that personal auto policies afford $10,000 of property damage liability coverage (see, Minn. Stat. § 65B.49, subd. 3a), the statute mandates that $35,000 of coverage be provided for damage and loss of use of rented vehicles. Id.

Minnesota Statute § 65B.49, subd. 5a(f), provides that when a motor vehicle is rented in Minnesota, the rental car company must attach to the rental contract a separate notice stating:

Under Minnesota law, a personal automobile insurance policy must: (1) cover the rental of this motor vehicle against damage to the vehicle and against loss of use of the vehicle; and (2) extend the policy’s basic economic loss benefits, residual liability insurance, and uninsured and underinsured motorist coverages to the operation or use of a rented motor vehicle. Therefore, purchase of any collision damage waiver or similar insurance affected in this rental contract is not necessary. In addition, purchase of any additional liability insurance is not necessary if your policy was issued in Minnesota unless you wish to have coverage for liability that exceeds the amount specified in your personal automobile insurance policy.

Further, “[n]o collision damage waiver or other insurance offered as part of or in conjunction with a rental of a motor vehicle may be sold unless the person renting the vehicle provides a written acknowledgment that the above consumer protection notice has been read and understood.” Id.

The statute’s reference to “damage and loss of use,” could lead one to conclude that Minn. Stat. § 65B.49, subd. 5a only imposes coverage for purposes of losses typically covered by collision coverage and not losses typically covered under comprehensive coverage, such as theft. However, Minn. Stat. § 72A.125, subd. 3 defines “collision damage waiver” to mean “a discharge of the responsibility of the renter or lessee to return the motor vehicle in the same condition as when it was first rented. The waiver is a full and complete discharge of the responsibility to return the vehicle in the same condition as when it was first rented.” Presumably, the legislature intended Minn. Stat. § 65B.49, subd. 5a to embrace all losses which relate to damage to, or theft of, a rented vehicle. Otherwise, the statement that “purchase of any collision damage waiver or similar insurance affected in this rental contract is not necessary,” would not be entirely true.

The statute has always addressed loss of use damages. As originally enacted, Minn. Stat. § 65B.49, subd. 5a(h) provided that in order “[t]o be compensated for the loss of use of a damaged rented motor vehicle, the car rental company must prove: (1) that had the vehicle been available, it would have been rented; and (2) that no other vehicle was available for rental in place of the damaged vehicle.” Further, “[a] car rental company may be compensated for loss of use of a damaged rental motor vehicle only for the period when the damaged car actually would have been rented.” Id. However, Minn. Stat. § 65B.49, subd. 5a(h) was subsequently amended to eliminate the “proof” requirements in favor of a provision which simply states that “[c]ompensation for the loss of use of a damaged rented motor vehicle is limited to a period no longer than 14 days.”

Some additional takeaways from the Minnesota rental vehicle statute include the following:

  • Some Personal Auto Policies Excluded

The imposed coverage required by Minnesota Statute § 65B.49, subd. 5a does not apply to all types of personal auto policies. By its express terms, the statute does not apply to policies which only insure collector vehicles as described in Minnesota Statute 168.10, subds. 1a, 1b, 1c and 1d or recreational vehicles as defined by section 168.002.

  • Imposed Coverage not Limited to Named Insured

The imposed coverage required by Minnesota Statute § 65B.49, subd. 5a is not limited to the “named insured” under a personal auto policy. The statute uses the term “insured,” which is, in turn, defined in Minn. Stat. § 65B.43, subd. 5 to include the named insured and the spouse and relatives of the named insured who reside with the named insured and are not identified as a named insured under their own personal auto policy. “A person resides in the same household with the named insured if that person’s home is usually in the same family unit, even though temporarily living elsewhere.” Id.

  • Imposed Coverage not Limited to Policies Issued in Minnesota

The imposed coverage required by Minnesota Statute § 65B.49, subd. 5a is not limited to personal auto policies issued in Minnesota. By its express terms, the statute applies to “every plan of reparation security, wherever issued ….” In addition, Minnesota Statute § 65B.48, subd. 1 provides that the personal auto policy of a nonresident owner of a motor vehicle “shall include coverage for property damage to a motor vehicle rented or leased within this state by a nonresident.” Thus, if a vehicle is rented in Minnesota by an individual who is insured under a personal auto policy issued outside of Minnesota, that policy will likewise be reformed to provide the rented vehicle coverage required by Minn. Stat. § 65B.49, subd. 5a.

  • Imposed Coverage under Two or More Personal Auto Policies

If the renter is insured under two or more personal automobile insurance policies providing the rented motor vehicle coverage required under the statute, the renter can select the personal auto policy that will apply to the rental car company’s damages (the selected insurer is entitled to a pro rata contribution from the other insurer(s) based upon the property damage limits of liability of the policies). Minn. Stat. § 65B.49, subd. 5a(d).

  • Imposed Coverage under Commercial Auto Policies

Minnesota law requires commercial insurance policies contain coverage for rented vehicles. Minn. Stat. § 60A.08, subd. 12, provides that “[a]ll commercial automobile liability policies must provide coverage for rented vehicles as required in chapter 65B.” Because a commercial policy must cover rented vehicles to the same extent as a personal auto policy, the commercial policy will likewise be reformed to provide the rented vehicle coverage required by Minn. Stat. § 65B.49, subd. 5a.

  • Priority for Imposed Coverage: Commercial and Personal Auto Policies

Minnesota Statute § 65B.49, subd. 5a(d) provides that if the renter is covered by a commercial policy issued to his or her employer, the employer’s policy bears primary responsibility to pay claims arising from use of the rented vehicle. In such cases, the renter’s personal auto policy, if any, would provide excess coverage if necessary.

  • Purchased Physical Damage Insurance

The statute does not limit the contractual responsibility a personal auto insurer may have to its insured under the terms of any physical damage coverage the insured may have purchased. Presumably, any physical damage coverage the insured purchased would, subject to its terms and limitations, apply on an excess basis if necessary.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2014.

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