After Julie Thomason wrecked her rental car, she expected a repair bill. But she didn’t anticipate a $1,000 invoice for something called “loss of use.” No one ever does.
“Loss of use” is a car rental concept that, on the surface, seems reasonable. If you damage a car and it has to get repaired, you compensate the company for what it would have made as a rental if the vehicle had been available.
But under the hood, loss of use looks more like a junk fee.
A few weeks ago, when I wrote about the latest push to sell car rental insurance — companies are sometimes refusing to hand over the keys to their vehicles unless you buy their expensive loss-damage waivers — many of you told me I’d omitted an important detail. Some car rental coverage, particularly the kind offered on your credit card or through your car insurance policy, doesn’t cover loss of use.
Thomason, a research associate from Reading, Mass., said her car insurance company told her not to worry about her supposed loss of use. “They said that after lots of back and forth, the fees usually disappear,” she recalls.
Except when they don’t.
Loss of use has been upheld by some courts, notably in a 2012 Colorado case in which the state’s supreme court ruled car rental companies could collect damages even if they didn’t suffer any financial losses. But customers and consumer advocates believe loss of use is on shaky legal, if not also moral, ground.
Andrew Stoltmann, a Chicago attorney who specializes in fraud cases, says loss of use is “problematic” for several reasons. The car rental agreements are one-sided “adhesion” contracts that virtually no one reads.
“There are limits to what companies can put in a contract, and all contract terms must be reasonable,” he says. Also, car rental companies are lightly regulated, and loss of use is one of the areas where there’s virtually no consumer protection.
“The car rental industry has flown under the radar in recent years,” he adds. “But it is this sort of contract clause that may cause states, or even Congress, to add a layer of regulation to protect consumers.”
Although loss of use is a legitimate legal claim in some states, the claims are generally difficult to prove, according to Wayne Cohen, a professor at George Washington University law school. The problem? They can fall apart quickly when car rental customers, or more frequently insurance companies, challenge the value of the claim. Car rental companies calculate their loss of use according to a formula that often uses a theoretical rate. But to customers, it just looks made up.
“Renters can oftentimes argue that the clauses are unenforceable and violate public policy,” he adds.
But what’s the right thing to do? If you dent up a car and your insurance doesn’t cover loss of use, should you have to foot the bill? The request seems fair. A car no longer can be rented, so the business suffers as a result. You should compensate the car rental company, shouldn’t you?
Maybe, maybe not.
While loss of use might be allowed in some states, it sets a problematic precedent. Every time you pay it, you are effectively agreeing that a business has the right to charge you for what it might make if circumstances had been different. In other words, it is holding you responsible for more than the car rental bill and the repairs. It wants you to make up for its lost earnings.
Take a moment to ponder that. What if other businesses embraced this idea that you are responsible for a lost revenue opportunity? Would a restaurant charge you more for your meal if you lingered for an extra hour, depriving it of the ability to serve another guest? You would scoff if your menu price doubled because you took your time with dinner, wouldn’t you?
Because car rental companies’ expensive loss-damage waivers and collision-damage waivers cover this troublesome loss of use charge, some readers chided me for not recommending car rental coverage.
Yet I still can’t. Many insurance companies refuse to pay loss of use, and when it comes right down to it, the losses suffered by a car rental company should be thought of as a cost of doing business in the auto rental industry.
“I suspect that the sale of loss of use protection by rental car companies is an exceptionally profitable fee,” says Andrew Rose, founder and CEO of Compare.com, which helps insurance customers compare policies. “The frequency of loss of use actually occurring is quite low, and the ability of rental car companies to repair them quickly and cost-effectively is high.”
That’s the interesting thing about loss of use. Too often, car rental companies won’t bother to justify the lost use or to prove the car would have been rented, making it a junk fee in the true sense of the word.
Thomason’s case had a happy ending. It turns out her insurance company was correct. After months of fighting, and after I got involved, her loss of use charges vanished.
How to fight loss of use
• Ask your insurance company for help. Insurance companies take a no-nonsense approach to junk fees, including loss of use. The fight is usually over before you get involved.
• Ask for the documents. Car rental companies don’t always keep accurate records of the rental, and that’s not just true of repairs. Ask them to prove the car would have been rented and see what they say. Once the company refuses to justify the fee by failing to show you the paperwork, a successful credit card dispute may be a slam dunk.
• Threaten to sue. This is one of those rare times when the threat of a lawsuit may offer an escape. Unless you’re renting in Colorado or Texas (another state with loss of use precedents), the company will be reluctant to litigate for fear of setting a precedent for future loss of use cases.