Is this car’s value really “diminished” – or is this a money grab?

By | March 16th, 2016

Peggy Smith admits she was involved in an “accident” with her Budget rental in Salt Lake City last year.

“The car had only cosmetic damage,” she says.“I self-reported it to the police because, since I used American Express to pay for the rental, I was under the impression that American Express would pay for the damage.”

It didn’t cover the damage. American Express only took care of the deductible. The rest was up to her.

“I do not want to make a claim with my own insurance,” she says. (More to the point, she probably can’t — the accident happened almost six months ago.)

But if she had an accident, so did Budget. Its slip-up was charging more for the repairs than it should have, says Smith.

She recently received a bill for $3,392. Here’s how it breaks down:

  • $1,692 for damages
  • $139 for “loss of use”
  • $135 for in administrative fees
  • $377 for “add on”
  • $1,047 for diminished value

“My major issue is the diminished value,” she says. “Once a car is fixed, it’s fixed, particularly if the damage is cosmetic. It’s absurd. It should be zero.”

These junk fees, including the mysterious “add on,” the administrative fees, and the “diminished value” are common car rental industry charges. Now, no one is saying a rental car company doesn’t have expenses, but these fees really look like a money grab.

I mean, a bill like this begs several questions:

  • How, exactly, do you measure “loss of use”? Do you have evidence the car would have been rented if it hadn’t been in the garage?
  • What are administrative fees? Can you show you me a bill for them?
  • And an “add on”? Add on to what? For what purpose?
  • Can Budget prove that the car was devalued by $1,047?
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“It’s unfair,” says Smith.

I agree. The diminished value charge is particularly troublesome because there’s no follow up when the vehicle is liquidated. I mean, is there someone who, at auction says, “Hang on – this car would be worth $17,000 if had not been in an accident, and we got $16,850. We need to send Smith a refund for the difference!”

No, that doesn’t happen. The car rental company just pockets the difference.

I’d like to assist Smith, and I certainly could by contacting Budget on her behalf and asking it to, at the very least, explain these fees to her. I think she deserves an answer.

But how do we help others who have suffered this fate? That’s hard because car rental companies are regulated at the state level. In those legislatures, there are no consumer advocates to stand in the way of “business-friendly” regulation that allows car rental companies to charge whatever they want. (Diminished value isn’t recognized by all states — yet.)

I put the words “business-friendly” in quotes because I think laws that let car rental companies impose junk fees hurt businesses in the end. Customers end up hating them, and that actually harms car rental companies in the long term. They should be careful what they ask for.

Anyway, with car rental companies effectively able to pass whatever laws they want in many state legislatures, it’s virtually impossible for advocates to help consumers like Smith. The only hope we have of fixing this? Regulating car rental practices at the federal level. If that happened, we’d have a real chance of ending these shenanigans once and for all.

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  • Pat

    In Georgia, when insurance pays out a claim, they also have to send you a check for diminished value. The claim gets reported to Carfax and because of the claim, the car is worth less money when you trade it in or sell it. There is a formula insurance companies use that is used to calculate what it should be based on damage and value of the car. Years ago when I was t-boned, there was just over $7000 in damage and I received a check for around $800 for diminished value. A few years later when I traded in the car, the dealer pulled up the Carfax and they offered less because of the accident. The amount Budget charged looks high but if she was renting a high end vehicle, it might not be.

  • Jeff W.

    In looking at the various charges, some seem legit and others do not.

    $1,692 for damages – OK, if that is what it is.

    $139 for “loss of use” — Questionable, but yes the car was out of service and could not be rented. So there was a lost opportunity. And it is no longer applicable to say if there were no cars on the lot and they lost business. It could be the class of car and someone had to rent in a different class or even the exact car now that people can actually choose specific cars in some vendors.

    $135 for in administrative fees – Reasonable. When a car is in an accident, there are additional resources required to deal with it. Back Office operations, tow truck drivers, etc. — lots of additional paperwork. That cost should be born by the person in an accident, not by everyone. And if you want a breakdown of everything, that number goes up, as that is more administration.

    $377 for “add on” – I would certainly question this.

    $1,047 for diminished value – Could this number be different? Certainly. But if Budget sells the car two years later, it is not going to have much luck collecting the difference from the renter at that time. A car gets into an accident, however minor, it loses value. Anyone who buys a car can look at a CarFax report and see that. And would offer a price accordingly. The number may be as simple as looking at the Kelly Blue Book and the difference between Good and Fair.

  • Byron Cooper

    This is why people have car insurance, and a $3000 claim is certainly large enough to get insurance involved. 6 months delay does not cancel the insurance. I called my own insurance company GEICO and asked them hypothetically if a claim like this would be covered and the answer was an emphatic yes. This is not just a GEICO policy. 6 months is well within the statue of limitations in any jurisdiction. The insurance company would be in a much better position to argue about the amount of the claim and associated costs. By the way there are cards that offer Primary car rental coverage, including American Express, but there is a $25 per rental fee for this enhanced coverage. Chase offers primary coverage on some of their cards too. Well worth it.

  • Brian Lesko

    I’d reduce the bill by $877: $500 for the deductible AmEx should have taken care of plus the ridiculous $377 in add-on fees.

  • Nathan Witt

    Check your credit card coverages, folks. Many of them are described as secondary coverage, which means it’ll pay whatever your primary insurance coverage (i.e., the policy you have on your car) won’t pay. AmEx does offer “premium” rental coverage, which costs between $15 and $30 per rental (not per day) and makes the coverage primary, though there are other 3rd-party products that may do this for less, and they’re all cheaper than the $25/day cost from the rental company.

  • Alan Gore

    This was Smith’s real problem. Did she think that she had real insurance through the credit card, or that her own auto policy would cover it? If it did, any insurance company would have the junk fees tossed out as an element of standard procedure. It’s in the same way that your medical policy is not really paying $25 for that hospital aspirin; what it pays for each procedure is prearranged, and printed hospital bills are strictly for chumps who don’t know any better.

  • Éamon deValera

    She damaged the car, didn’t file an insurance claim and is complaining because she has to pay money out of her own pocket.

    Why does she even have insurance if she is not going to use it?

  • KennyG

    I guess I am one of the few that answered NO to the poll. While I agree that there needs to be a better explanation of the charges, and that they may in fact be unconscionable, the poll question was whether car rental companies should be federally regulated. IMHO, whenever the Washington folks get involved in things like this, the law of unintended consequences takes over, and almost always, the cost associated with what it is regulated goes up. Just one example of many, people recently on the blog have complained about American Airlines 24 hour ticket policy, well, thank Washington for responding to consumer complaints and the law of unintended consequences. Usually when Washington gets involved it means more profits for big companies, not less.

  • MarkKelling

    One person’s cosmetic damage is another’s totaled vehicle.

    We don’t know exactly what the damage was. We don’t know why she doesn’t want to get her insurance company involved. If she doesn’t want to involve them then she is on the hook for the damage repair cost.

    I would definitely argue about the “add on” charge. The rest is what it is. And yes, a vehicle that is reported as being in an accident does have diminish value.

  • taxed2themax

    I agree! The only one that leaves me unsure is that $377. I may be legit, but with a nebulous description of “add on”, I think it leaves them open for customer questioning. Again, it MAY be legit.. maybe.. but with a vague title, I’d have to ask for more or better details before I’d agree to it.
    The $135, I can see that too.
    The $1,047.. I can see that one.. but I’d like a little better demonstration or accounting of how that figure came to be. I DO think there is a diminished value. It was undamaged before – now it is.. From an emotional basis, I think most consumers will see the value of something like a car (relative to it’s condition) and will perceive one with repaired damage as being “less” than a comparable one, but without such repaired damage… even if there is no visual evidence of prior damage or not

  • cscasi

    The article did not state which American Express card Peggy Smith used when she rented the vehicle. I use my American Express Starwood/ Gold Reward card when I rent a car and I have the AMEX insurance tied to those cards so that the insurance comes into force at the time of rental and the charge appears on my credit card bill (and it is about $25 per rental period). Did Ms. Smith not know that she needed to turn on that feature from American Express or did she just assume that it would cover her whenever she rented? Her card may have covered her as second payer; meaning that she had to file a claim with her insurance company that insures her personal vehicle.

  • cscasi

    Wonder if why she might not want to get her insurance company involved is because this was “an at fault” accident and if she reported it to her insurance company, it could cancel her, raise her premiums for two or three years or? Perhaps she had a previous accident on her record; who knows.
    The $25 American Express car rental coverage would certainly have helped her out (or as someone else mentioned, some of the Chase credit cards provide primary coverage (so you do not have to claim it with your insurance company) to the card holder and it comes as a benefit of having one of those cards.
    Make sure you know what coverage you truly have before you rent a vehicle.

  • Carrie

    How scary is this? You almost have to have an attorney on retainer if you want to rent a car.
    Damage to a rental car is the gift that keeps on giving….

  • Nathan Witt

    I have the same card you describe, and it offers secondary coverage on rental cars paid for with the card, and that’s included with no additional charge as a cardmember benefit. If you want AmEx to provide primary insurance, then yes, you have to contact them and opt in to their pay-per-rental product. AmEx advertises its rental car coverage when you select the card, but you have to read the fine print to learn that it’s secondary coverage. I can see how this might confuse some people about what they’re getting.

  • LFH0

    Contract enforcement is generally a matter of state law. Mr. Elliott may not like the laws of some states. But that, by itself, cannot grant power to the federal government to pass laws to Mr. Elliott’s liking, and to infringe on the rights of states to exercise its plenary power to regulate (true, Congress has abused the Commerce Clause many times to legislate, but that practice should be discouraged, not encouraged). Doing so would overturn the legislative choice made by the elected representatives of the people of the state. The correct answer to the survey question, “Should car rental companies be regulated at the federal level?” in a strong NO. The correct solution to pursue is to legislation at the state level, and accept the legislative choices made by the elected representatives of the people of the state . . . or elect new representatives.

  • LonnieC

    My problem with “diminished value” is that no one buying a car from a rental company expects a pristine vehicle. It’s not as if they would have otherwise bought a “perfect” used car. If the damage has been properly repaired, that damaged part of the car may be the best part of the vehicle (!). $1,047? I think I’d question it. Let the rental company demonstrate how “cosmetic damage” (according to the OP), would cause that level of diminished value when the car’s sold after use for some time (years?) as a rental.

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