Car Hire (Consumer Protection)

Ian Swales Excerpts

Tuesday 27th November 2012 Westminster Hall

[Ian Swales (Redcar) (LD)]

It is a great honour to serve under your chairmanship, Mr Davies. I must admit that this issue was first brought to my attention not by a constituent or by a debate, but by my own experience while returning unexpectedly from holiday this year. The issues I encountered led me to do more research, and I found that consumer protection for my constituents and other customers of hire car companies is severely lacking.

My experience involved picking up a car from a well known company, having it for no more than three hours as I drove from one UK airport to another, and then returning it. There were no incidents and I caused no damage to the vehicle. A fortnight later, I was looking over my credit card bill and noticed a charge for £666.68 from the hire car company, levied the day after the hire. That was obviously charged without any warning or notice to me. To my surprise, when I looked at the small print on my hire contract, there was £800 insurance excess on hiring the car, which was never mentioned at the time. Such excesses should be made crystal clear at the time of hire, and an option should be given to reduce it through an extra premium. Some cursory research that I have conducted shows that some of the biggest car hire companies have excesses ranging from £600 to £1,000, often with reduction options that are offered only when specifically asked for.

Such excesses should be capped and the options openly advertised, which would make price comparison and consumer choice much easier. Surprise charges of hundreds of pounds are not welcome to anyone and could cause real financial problems for some. Will the Minister tell me what safeguards are currently in place to stop those excesses being charged without warning? What rules, if any, are there on how much excess a company can charge? What are the rules surrounding how much evidence the company needs to produce to prove that damage was caused and the related costs?

In my case, I found it particularly difficult to dispute the damage report as no photographic evidence was provided. Time-stamped digital photographs would be a real technical possibility nowadays. Lack of evidence combined with picking up and dropping off the car in the dark meant that I was entirely at the mercy of the company; it was its word against mine.

I requested a copy of the invoice for repairs but did not receive one. Surely, total transparency should be required when charging people for damage. Even if I had damaged the car, and accepted that there would be repair costs, I would still have liked to see an invoice; otherwise, as a consumer, I would be at the mercy of the hire car company which could charge whatever it wanted.

There is also the question of best price in these cases. It seems reasonable for car hire companies to have agreements and relationships with garages and mechanics they trust, but what checks and safeguards are in place to ensure that they are getting a competitive price for repairs? Do they receive commission from garages when they allocate repairs? There is currently no onus on them to shop around for the best deal for minor repairs, as all costs get passed on to the customer.

In my case, I objected to the charges. My first objection brought a reduction of £291.68, accompanied by some amazing gobbledygook:

“At the location the estimated cost of repair was £658.34 including the damage administration fee of £41.67. As per our pricing schedule the cost of the repair is £366.67 therefore I have now amended your damage charge to reflect the actual cost of repair and the damage administration fee. Our pricing schedule is based on previous damage repair costs to ensure that the locally made estimate reflects the actual cost of repair irrespective of whether the damage is immediately repaired or not.”

[Dr William McCrea (South Antrim) (DUP)]

Did the company outline what damage was done to the car? The hon. Gentleman did not see an invoice, but did the company tell him what damage he had actually done?

[Ian Swales]

When I first complained, I was told over the phone that there was a dent and some scratches to the front of the car. There was no other evidence of what happened.

The starting figure in the explanation was different from what the company actually charged me. Even the refund did not quite balance with the explanation. Although I was refunded an exact amount, it left a suspiciously round figure of exactly £375 as my remaining charge. Again, that process could be a lot more transparent.

I am sure that colleagues will be pleased to hear that when I objected further I received a full refund. In a letter, a senior manager said:

“Having reviewed the vehicle condition report and the damage documents I am unable to uphold the charge.”

That obviously prompts the question: why did the company immediately charge more than £600 for damage in the first place if records were so poor? What is to stop companies charging consumers in the hope that it will not be noticed, not followed up, or that an initial refund of some of the money will suffice? Does that not imply that there may be a widespread scam going on whereby some hire car companies are simply seeing what they can get away with?

I have used my particular example to highlight the broader issues, but I know that my experiences will not be dissimilar to those of many other people. The British Vehicle Rental and Leasing Association saw a 54% increase in complaints against rental companies between 2010 and 2011. In looking at lessons learned, it says:

“Rental companies should take steps to help customers better understand their obligations under the rental agreement.”

It continues:

“Rental companies must ensure their staff follow the correct procedures and maintain accurate records so they can contest any disputes that may arise.”

In February 2010, the Office of Fair Trading published the results of an investigation into consumer contracts. It included research into five areas, one of which was car rentals. It highlighted various issues, including whether customers had adequate opportunity to read contracts and understand the implications of the contract; the visibility of additional charges; and whether customers understood the implications of waivers in the contract and pre-authorisations on their credit cards.

One key point was that people were put off by small font sizes and poor quality paper. People also had an understandable belief—a touching faith, in fact—that staff would highlight important points. No one could recall the detail of any extra charges for which they might be liable, and the OFT was critical of the way in which information was made available to help customers with their buying decision.

When Which?Money examined car rental terms and prices for a week’s hire, it found that costs for operational extras, high excesses and hidden shortfalls in cover were “commonplace”. It also said:

“While most car rental firms offer excess waiver policies, to reduce or eliminate the cost if you have an accident in your hire car, we found numerous underlying restrictions in the small print that could make you assume you’re insured when you’re not.”

That really compounds the felony. If I had been unhappy about my high excess and paid a premium to lower or take away the excess, Which? found that even that premium may not have actually bought me the cover that I expected. It also found that third-party excess reimbursement insurance policies suffered from the same shortcomings—that is, buying policies not from the hire car company.

There are many consumer protection issues here that the Minister should address. Key features of a rental agreement should be clearly summarised and not left buried in the small print. Car hire companies should clearly display the insurance excess included in their contracts in their advertising and at the point of hire. Customers should be given options to bring the excess down to levels they can afford, with policies that actually work. These extra premium options should also be clearly advertised in advance. Car hire companies should not be allowed to make charges for damages without notifying the hirer.

With digital photography and video now being ubiquitous, consideration should be given to having time-stamped photographic evidence to support damage claims. The hirer who is expected to pay for damage should receive a copy of the repair invoice, and consideration should be given to how hirers can benefit from the most competitive repair costs.

I thank the Minister for listening to my speech today, and I look forward to hearing her feedback and information about what plans the Department may have in place to ensure that there is more protection for consumers in the future.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

It is, as ever, a delight to serve under your chairmanship, Mr Davies.

I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing this debate. He perhaps did himself a disservice when he said that this issue was not brought to his attention by a constituent, because I am sure that he is able to be an excellent representative for himself. We are all constituents even if we are our own MPs.

My hon. Friend explains, through the account of his experience, problems that are perhaps widespread within the car hire industry. Of course, not everybody who faces the problems that he has experienced would necessarily be able to get redress in the same way that he has. First, his ability to get redress relied on his noticing the extra charge on his credit card bill. Although most people would notice an extra £600 on their bill when they were already expecting a charge to come through from a car hire company, they might not always check the exact amount. Indeed, if the charge for any damage was lower than that and perhaps not so different from the overall hire amount that is the kind of charge that could be missed, which obviously opens up the potential for abuse by unscrupulous companies.

My hon. Friend detailed in his speech how he got the charge waived, by various efforts and by going back to the company on more than one occasion. Of course, we know that not every constituent will necessarily have the ability or the time to make that kind of challenge. So, although options for redress are available, and I will certainly outline the provisions that are in place, it is worth bearing it in mind that I am quite sure there are some people out there who have been the victim of this kind of practice by car hire companies who perhaps have not had the redress to which they are entitled. Consequently, I welcome the fact that my hon. Friend has brought this issue to the attention of the House and indeed that he has given it wider publicity. I hope that car hire companies will be following this debate closely, and that they see that the Government are aware of this issue and determined to ensure that consumer detriment in this area is not allowed to happen unchecked.

There are ways in which this issue can be addressed. My hon. Friend might be aware that Radio 4’s “You and Yours” programme took up this issue a little while ago and that it reported action being taken by trading standards officers in Leicestershire against a national rental company. That suggests not only that there is action that can be taken but that there is a problem, at least in some instances. I will not go into the details of that specific case, but it shows that the legislation that exists can have teeth when it comes to tackling offences in this area. Indeed, it also shows that the enforcement authorities have the power to act when cases are brought to their attention and when there are potential breaches of the law or unfair trading practices. The current regulations can provide protection, but it is fair to say that there are significant concerns about the experiences that have been highlighted by my hon. Friend.

Indeed, it is not only my hon. Friend who has highlighted such experiences. It is worth bringing it to the attention of the House that this is a subject on which, as the Minister with responsibility for consumer affairs, I have received a variety of correspondence from hon. Members. In the last few months alone, I have had correspondence about it from six hon. Members, both Government and Opposition. That shows that my hon. Friend’s case is not an isolated occurrence. Of course, not everybody who has such an experience will necessarily go to their MP, which may suggest that this is widespread; if so, it is certainly a cause for concern. There is certainly room for improvement in this area, so I will also set out how we intend to ensure that we can develop and enhance the existing consumer protection regime.

The Supply of Goods and Services Act 1982 requires traders to carry out services with reasonable care and skill, and where charges are not agreed it requires that the consumer will pay a reasonable charge. If the trader fails to comply with the requirements of the Act, the law treats the matter as a breach of contract. So, if consumers believe that there might have been a breach of the Act, in the first instance they can get help by contacting Citizens Advice.

Another key piece of legislation affecting car hire companies is the snappily titled Consumer Protection from Unfair Trading Regulations 2008, which require the material information that a consumer needs to make an informed decision to be expressed clearly. That helps to deal with my hon. Friend’s point about the importance of ensuring that, when they hire a car, customers can have that clear information, which includes information about their liability to pay for damage in the event of an accident or for other reasons. As I say, we think that that could well be material information, so it should be disclosed at the outset, although obviously that would ultimately be for the courts to decide.

[Ian Swales]

I thank the Minister for giving way, and for her very fluent and helpful speech so far. She mentioned the need to display information clearly and to make it clear to customers. Does she have any view about whether such words apply to contracts that have, for example, extremely small print on the reverse, which most reasonable consumers would have no time to read, particularly if they were standing in a queue of other potential car-hirers?

[Jo Swinson]

I thank my hon. Friend for that intervention. As I say, it is ultimately for the courts, in ascertaining whether the law has been broken in a specific instance, to decide whether information is material. I think that we would all recognise that it is not necessarily practical for a business to provide an explanation of all its conditions of trade to each individual consumer, in a very large font and with the conditions highlighted. That would almost be too much information. It is about striking the right balance and ensuring that the information that is material—as the regulations point out—is expressed clearly. Being overly prescriptive about that would not be helpful because in different industries different types of information would be the key information that the consumer needed to make a decision.

Nevertheless, my hon. Friend makes a really important point. Like other people, I have hired a car in the past and I cannot necessarily put hand on heart and say that I read every single bit of the six-point text on the back of the rental agreement. In fact, if we did a straw poll of people in Westminster Hall at the moment, I suspect that I would not be alone in that. We need to ensure that we have companies acting in a way that is reasonable and that the contracts that people are signing up to would not be deemed to be unreasonable.

Pressure of time is a factor. My hon. Friend mentioned the scenario in which someone is in a queue, with other people behind them who are also trying to hire a car, and very often—as in my hon. Friend’s case—a car is being hired to go from one airport to another to catch a flight, so there is time pressure. There are a whole host of reasons why every last letter of a contract may not be read in detail, which is why it is important that the key information is displayed clearly.

The contract should also set out clearly whether the person hiring the car has to pay an amount to replace petrol. If the contract does not spell that out, the consumer is entitled to challenge any demand for payment, and if the contract does clearly spell it out, the consumer of course has the choice either to pay the charge for petrol that would be imposed by the car hire company or to shop elsewhere. I suspect that it is often in a consumer’s best interests to shop elsewhere and return with a full tank of petrol, but obviously that is a decision that they can make for themselves.

This issue is partly about the terms of a contract being explained clearly and, where they are material, printed in a sufficiently large font, in advertising, publicity material and leaflets as well as the contract. It is also about the conversation that the customer has with a member of staff, who can explain exactly what the customer can expect. It is reasonable for subjects such as a customer’s liability for potential damage to be clearly spelled out. For many people, the charge that my hon. Friend faced—one of £600—would be a huge amount more than the actual cost of hiring a car, and a really significant charge to be hit with. It is important to ensure that people are aware of any charges and, if necessary, that there are alternatives in terms of lowering any excess.

That said, this is not the type of transaction that people do every day. If someone needed to use a car that often, they would consider buying one. Because people will typically undertake such a transaction only once or twice a year, there is a bigger challenge here for consumer information. We cannot rely on the same pressures that repeat purchasing gives, where if someone gets bad service they take their next bit of custom elsewhere. The information gap is an important issue, and there is a role for consumer websites on which providers’ performance is rated and information is given about their reputation, so that people know which of them to trust. Such signals can help consumers to make good decisions.

The Consumer Protection from Unfair Trading Regulations are enforced by local authority trading standards and the Office of Fair Trading when there are practices that have wider effects on consumers. As my hon. Friend mentioned, this area was looked into a little while ago. There is also the Unfair Contract Terms Act 1977. Consumer law protections are available, but my hon. Friend has raised issues of genuine concern. If a consumer pays a headline price to book a rental car, they should not then find out when they collect the car that to reduce their insurance excess it costs them twice as much as they thought it would, or that there are other surprise high charges, such as for returning the car with an empty fuel tank or for repairs. Sometimes, a driver under the age of 25 finds out that there are extra charges because of their age, or a parent who needs a car seat for their small child has to pay more for a week’s rental of the facility than it would cost to buy such a seat. The Law Commission is considering whether the current unfair terms legislation adequately protects consumers from such hidden charges, and will make recommendations about whether tougher legislation is needed.

My hon. Friend raised the issue of the rules on damage, and whether robust evidence must be provided. He talked about time-stamped photographs, and with technology these days that would be an innovative solution for a company that wanted to make it clear that it was not ripping off its customers. That is generally a contractual issue but, importantly, the British Vehicle Rental and Leasing Association, the members of which are responsible for 80% to 85% of car rentals, is signed up to a code that is clear about ensuring that damage is recorded and that consumers agree it at the time. It also has a conciliation service to which consumers can take complaints, and by which the traders have to abide. There is, therefore, some protection in place, but it is not an entire solution because it does not cover 15% to 20% of the market.

[Ian Swales]

The Minister rightly draws attention to the code of practice. Is she aware of what the industry does about companies that do not follow it? In the case I highlighted, there was clearly no communication at all—no attempt to make contact—about even the fact of damage, let alone the content, before the charge was levied. Does the Minister agree that that company was operating outside the industry’s code of practice?

[Jo Swinson]

My hon. Friend tempts me to make a decision on that specific case and I hope he will understand that I am not able to. What I will say is that if members do not comply with the code of practice, they could certainly be considered to be carrying out a misleading action under the consumer protection regulations and that could properly be taken further with trading standards, which might be able to look into it. Although my hon. Friend’s case has been resolved, I am sure he has a wider concern, in that he would not wish the same experience to happen to others, and so an investigation by the local trading standards department could perhaps ascertain the facts of the case.

My hon. Friend mentioned insurance, which I have already touched on. It is important that contract terms are clear, so that consumers understand whether they are buying an insurance product and therefore getting the advantage of any regulatory protection. When car hire firms offer consumers the opportunity to purchase an excess waiver, that is often not the same as buying an insurance policy, and is therefore not covered by financial services regulation. When consumers are sold an insurance policy, the policy has to be provided by an insurance company, and in the UK the regulation of such companies is designed to ensure that they treat customers fairly. One option open to consumers, therefore, is to buy their own insurance policy, separately from the car hire contract, to cover the excess, but they would need to negotiate that with the car hire firm, to ensure that it was okay with it. For a one-off purchase, that would be a convoluted way of getting protection but, ultimately, buying from an insurance company means that consumers have the protection of the Financial Service Authority’s rules, and free dispute resolution from the Financial Ombudsman Service.

In heading towards a conclusion, I want to ensure that I have covered all the issues that my hon. Friend raised. He asked for the rental agreement to be clear, and although there are regulations that say that material information needs to be there, he makes a good point about whether in practice that happens as clearly as it should, particularly regarding displaying the excess that can be charged, because that is a key figure. An excess of £850, as he mentioned, would make many consumers think twice and at least ask the question, or be careful when they returned the car to ensure that they had a discussion, saying “And I hope you will see that there is no damage there.” I have just described the options for reducing the excess, either through insurance or an excess waiver fee, and the issue of damage notification is partially dealt with by the code of conduct, which is something that my hon. Friend can take further with his local trading standards.

My hon. Friend raised an important point about ensuring that if it is stated that a repair has been undertaken there is evidence that it has happened. Often, the repair service is being purchased by someone other than the person who is paying for it, so it is important to ensure that good value is achieved, and perhaps consumers could benefit from cheaper repair costs than those at whatever local garage the company seems to have a deal with. The company might not always be encouraged to get the best possible price because the customer who is paying is not standing there when they take the car in for repair. As there is not generally a repeat purchase, there is not necessarily always the time for the consumer to read every single bit of the small print, partly due to time pressures and partly because we know that that does not always happen in any event. Often when a car is dropped off late at night and the office is not open, the customer leaves the key somewhere and there is no opportunity to have a discussion, look at the car and agree that there is no damage. When it is not practical to have such a conversation, there is a particular challenge, and time-stamped photographs could certainly be part of the solution.

In conclusion, from the correspondence I have received I am concerned that in some cases there is a degree of sharp practice in the industry. I hope that car hire companies will carefully consider practices throughout their chains, and that if they uncover any evidence of this kind of practice they ensure it is stopped. We need, however, stronger consumer regulation, not just in car hire but across the board, and that is why we are introducing a consumer bill of rights, which will make regulation simpler and much more effective, ensuring a clear framework of rights that is easier for consumers and businesses alike to understand and use. We will carefully consider what the Law Commission comes back with from its review of what might need to change to give further protection to consumers in this area and, as there is legislation coming forward, I encourage any Members who have suggestions about how the regulation in this particular area could be improved to bring such proposals to my attention. We would, of course, be happy to consider what could be done to strengthen the hand of consumers in this and all other markets.

With that, I conclude by thanking my hon. Friend for raising this important issue. He is doing an excellent job on behalf of his constituents, and also for the wonderful charity Movember.