FTC Staff Comment to the National Association of Attorneys General Concerning Guidelines on Rental Car Practices

o,.,.,cE O~ THE SItCRItTARY
FEDERAL TRADE COMMISSION
WASHINGTON. D. C. 	20580
V890027
COMMISSION AUTHORIZED
February 	24, 	1989
The 	Honorable 	Robert 	T. 	Stephan
Attorney 	General 	of 	Kansas
Kansas 	Judicial 	Center
301 	West 	lOth 	Street
Topeka, 	Kansas 	66612-1597
Dear General 	Stephan:
During 	its 	winter meeting 	the 	National 	Association 	of
Attorneys 	General 	("NAAG") 	preliminarily 	approved 	guidelines 	on
car 	rental 	industry 	practices. 1 	By 	letter 	of 	January 	19, 	1989 	to
Federal 	Trade 	Commission 	("Commission") 	Chairman 	Daniel 	Oliver,
you 	indicated 	that 	the 	Attorneys 	General 	would 	appreciate
Commission 	comment 	on 	the 	Final 	Guidelines. 	In 	reply, 	the
Commission 	is 	pleased to 	provide 	these 	remarks, 	which 	supplement
earlier Commission 	comments 2 	regarding 	a 	prior draft 	of 	the
Guidelines 	("Prior 	Draft"). 	The 	Commission 	believes 	that 	several
of 	the 	revisions 	embraced 	in 	the 	Final 	Draft 	are 	salutary 	but
that 	some 	aspects 	of 	the 	Final 	Guidelines 	could 	discourage 	or
prevent 	non-deceptive, 	fair, 	and 	competitive 	conduct, 	thereby
injuring 	consumers.
Revisions 	to 	Prior 	Draft
The 	Final 	Guidelines 	reflect 	an 	effort 	to 	clarify 	and 	modify
the 	Prior 	Draft 	so 	as 	to 	enhance 	the 	Guidelines' 	workability.
For 	example, 	the 	Prior 	Draft 	appeared 	to 	imply 	that 	car 	rental
companies 	were 	restricted 	to 	the 	use 	of 	specified 	type 	sizes 	and
advertising 	formats. 	The 	Final 	Guidelines, 	however, 	expressly
state 	that 	use 	of 	suggested 	type 	sizes 	and 	formats 	is 	not
required: 	rather, 	their 	use 	is 	said 	to 	be 	only 	one 	of 	the 	methods
of 	providing 	"clear and 	conspicuous 	notice 	of 	limitation 	and
extra 	charges," 	as 	specified 	in 	the 	Final 	Guidelines. 3
Similarly, 	the 	Final 	Guidelines 	delete 	the 	Prior 	Draft's 	broad
proscription 	of 	entry 	of 	credit 	card 	charges 	after 	a 	consumer 	has
1 	National 	Association 	of Attorneys 	General, 	Final
Guidelines 	of 	the 	Task 	Force 	on 	Car Rental 	Industry 	Advertising
and 	Practices 	(1988) (hereinafter 	cited 	as 	"Final 	Guidelines").
2 	Itetter 	from 	Federal 	Trade 	Commission 	to 	Kansas 	Deputy
Attorney 	General 	Art 	Weiss 	(November 	4, 	1988), 	Commissioner
strenio 	not 	joining 	(hereinafter 	referred 	to 	as 	"Prior Comment").
3 	See 	Final 	Guidelines, 	Appendix 	B, 	Para. 	4.
1

returned 	the 	rental 	car. 	Apparently 	recognizing 	that 	so 	broad 	a
proscription may 	impair 	unnecessarily 	the 	ability 	of 	rental 	car
companies 	to 	obtain 	payment 	for 	a 	variety 	of 	"non-damage"
charges, 	such 	as 	traffic 	tickets, 	the 	proscription 	in 	the 	Final
Guideline 	is 	limited 	to 	credit 	card 	charges 	for 	car damage. 4 	The
Prior 	Draft 	also 	asserted 	that 	"[a]ny 	advertised 	price 	must 	be
available 	in 	sufficient 	quantity 	to meet 	reasonably 	expected
public 	demand 	for 	the 	rental 	cars 	advertised 	.... ,,5 	The 	Final
Guidelines 	have 	been 	revised 	to 	provide 	that 	"[p]rices 	can 	be
advertised 	although 	less 	cars 	are 	available 	than 	would 	be
required 	to 	meet 	the 	expected 	demand, 	as 	long 	as 	this 	limitation
is 	clearly 	and 	conspicuously 	set 	forth 	in 	the 	advertisement 	and 	a
reasonable 	number 	of 	cars 	are made 	available 	at 	the 	advertised
price.,,6
Insofar 	as 	these 	revisions 	affirm 	the 	propriety 	of 	non-
deceptive 	and 	fair 	marketing 	practices, 	they 	are 	likely 	to 	foster
the 	continuation 	and 	development 	of 	competitive 	strategies 	that
convey 	significant 	benefits 	to 	consumers. 	Accordingly, 	the
Commission 	believes 	that 	these 	revisions, 	and 	others 	of 	similar
import, 	are 	useful. 	Nevertheless, 	the 	Commission 	remains 	con-
cerned 	that 	the 	adoption 	of 	these 	guidelines 	could, 	in 	some
important 	respects, 	deprive 	consumers 	of 	the 	benefits 	of 	some
non-deceptive, 	fair, 	and 	competitive 	rental 	car 	company 	conduct.
Legal 	Foundation
The 	Final 	Guidelines 	assert, 	as 	did 	the 	Prior 	Draft, 	that
prohibited 	practices 	are 	limited 	to 	those 	that 	contravene 	state
consumer 	protection 	statutes. 7 	However, 	the 	Final 	Guidelines
cite 	neither 	specific 	statutes 	nor 	decisional 	law 	finding
practices 	similar 	to 	the 	proscribed 	car 	rental 	industry 	practices
to 	be 	deceptive 	or unfair, 	and 	the 	guidelines 	might 	be 	enhanced
by 	the 	addition 	of 	a 	section 	discussing 	some 	of 	the 	relevant
4 	See 	Final 	Guidelines, 	Appendix 	B, 	Para. 	16.
5 	Prior 	Draft, 	Guideline 	2.4.
6 	Final 	Guideline 	2.4. 	The 	Final 	Guideline 	does 	not 	define
what 	constitutes 	"a 	reasonable 	number" 	of 	cars, 	but we 	understand
the 	quoted 	language 	to 	suggest 	that 	the 	meaning 	of 	"reasonable
number" 	depends 	on 	the 	context 	in which 	the 	advertising 	message
appears. 	For 	example, 	the 	availability 	of 	just 	a 	few 	of 	a
company's 	cars 	at 	an 	advertised deep 	discount 	rate 	might 	satisfy
the 	condition 	of 	"reasonable 	number" 	if 	the·advertisements
expressly 	and 	conspicuously 	noted 	that 	only 	a 	few 	of 	a 	company's
cars 	were 	available 	at 	the 	advertised 	rate.
7 	See. 	e.g., 	Final 	Guidelines, 	"Introduction, 	3. 	Scope 	of
the 	Guidelines."
2

,',
statutes, 	regulations 	and 	cases, 	including 	Federal 	Trade
Commission 	decisions. 	Such 	a 	discussion may 	be 	relevant 	because
most 	state 	laws 	prohibiting 	unfair 	or deceptive 	conduct 	provide
that 	their 	interpreters 	give 	weight 	to 	the 	precedents 	established
by 	the 	Federal 	Trade 	Commission 	under Section 	5 	of 	the 	FTC Act. 8
Some 	of 	the 	practices 	cited 	as 	the 	sUbjects 	of 	frequent 	consumer
complaints 	in 	the 	abstract 	appear 	similar 	to 	those 	the 	Commission
has 	found 	unfair 	or deceptive. 9 	For 	example, 	falsely 	stating
that 	COW 	is 	required 	or 	switching 	cars 	aRd 	charging more 	than 	the
price 	promised 	in 	the 	reservation,10 	would 	contravene 	the 	law
against 	deceptive 	practices. 	other 	practices 	addressed 	seem 	less,
likely 	to 	do 	so.ll
8 	Many 	state 	statutes 	specifically 	reference 	§ 	5(a) 	of 	the
FTC Act 	and 	the 	Commission's 	interpretations 	as 	guidance 	for
construction 	of 	state 	law. 	For 	example, 	the 	Texas 	statute, 	in
relevant 	part, 	states:
(c) (1) 	It 	is 	the 	intent 	of 	the 	legislature
that 	in 	construing 	Subsection 	(a) 	of 	this
section 	in 	suits 	brought 	under 	Section 	17.47
of 	this 	SUbchapter 	the 	courts 	to 	the 	extent
possible 	will 	be 	guided 	by 	Subsection 	(b) 	of
this 	section 	and 	the 	interpretations 	given 	by
the 	Federal 	Trade 	Commission 	and 	federal
courts 	to 	Section 	5(a) (1) 	of 	the 	Federal
Trade 	Commission Act 	[15 	U.S.C.A. 	45(a) (1)].
Tex. 	Bus. 	& Com. 	Code 	Ann. 	§ 	17.46 	(Vernon 	1987).
9 	See 	International 	Harvester 	Co., 	104 	F.T.C. 	949 	(1984),
which 	contains 	an 	extensive 	discussion 	of 	deception 	and
unfairness 	principles.
10 	~ 	Final 	Guideline 	3.1.3 	and 	Comment 	thereto.
11 	For 	example, 	the 	Commission 	has 	recognized 	the
impossibility 	of 	disclosing 	in 	an 	advertisement 	all 	terms 	and
conditions 	that 	may 	be 	material 	to 	consumers. 	International
Harvester 	Co., 	supra, 	at 	1059-1060. 	Of 	course, 	under 	certain
circumstances 	determined most 	typically 	on 	a 	case-by-case 	basis,
the 	Commission 	has 	found 	that 	the 	omission 	of 	material
information 	is 	deceptive 	or 	unfair. 	~. 	See 	also 	Letter 	from
Federal 	Trade 	Commission 	to 	the 	Hon. 	John 	D. 	Dingell 	(October 	14,
1983) (Deception Statement), 	reprinted 	in 	Cliffdale 	Associates,
~ 	103 	F.T.C. 	110, 	174 	(1984) 	and 	Commission 	Enforcement 	Policy
Statement 	on 	Unfairness, 	Letter 	from 	Federal 	Trade 	Commission 	to
Senators 	Wendell 	H. 	Ford 	and 	John 	C. 	Danforth 	(December 	17,
1980) (Unfairness 	Statement), 	reprinted 	in 	International 	Harvester
~, 	104 	F.T.C. 	949, 	1070 11984).
3

The 	failure 	of 	the 	Final 	Guidelines 	to 	articulate 	their
legal 	basis 	seems 	particularly 	relevant 	in 	light 	of 	the 	possible
constitutional 	questions 	raised 	by 	some 	aspects 	of 	their 	content.
Although 	commercial 	speech 	is 	generally 	entitled 	to 	less
protection 	under 	the 	First 	Amendment 	than 	other 	forms 	of
expression, 	the 	courts 	have 	recognized 	that 	absent 	a 	substantial
government 	interest, 	the 	state may 	not 	regulate 	truthful 	and
nonmisleading 	advertising. 	See 	Central 	Hudson 	Gas 	and 	Electric
Corp. 	v. 	Public 	Service 	Commission, 	447 	U.S. 	557, 	566 	(1980). 	In
addition, 	regulation 	that 	prohibits 	speech 	must 	be 	limited 	to 	the
least 	restrictive 	method 	of 	preventing 	harm. 	Zauderer v. 	Office
of 	Disciplinary 	Counsel 	of 	the 	Supreme 	Court 	of 	Ohio, 	471 	U.S.
626, 	651 	(1985).12 	It 	is 	not 	clear 	that 	all 	of 	the 	allegations
of 	deception 	or 	remedies 	articulated 	in 	the 	Final 	Guidelines 	meet
this 	standard, 	and 	we 	urge 	that 	additional 	consideration 	be 	given
to 	any 	modifications 	that 	might 	achieve 	the 	intended 	goals 	in 	a
less 	restrictive 	manner.
Examination 	of 	Advertising 	Provisions
The 	Commission 	believes 	that 	an 	examination 	of 	several 	of
the 	practices 	addressed 	in 	the 	Final 	Guidelines 	will 	demonstrate
that 	some 	of 	the 	covered 	practices 	may 	not 	satisfy 	the 	standard
for 	deception 	or 	unfairness 	applied 	under 	state 	law 	or 	Section 	5
of 	the 	FTC Act. 	Furthermore, 	proscription 	or 	unduly 	broad
restriction 	of 	these 	practices 	may 	well 	injure 	consumers. 13
The 	Final 	Guidelines 	take 	the 	position 	that 	restrictions
significantly 	affecting 	the 	price 	or 	use 	of, 	or 	consumers'
financial 	responsibility 	for, 	a 	rental 	car must 	be 	clearly 	and
conspicuously 	disclosed 	in 	advertisements 	containing 	price
information 	to 	prevent 	those 	advertisements 	from 	being
12 	Other 	questions 	may 	also 	arise 	in 	connection with
guidelines 	of 	this 	nature. 	Trans 	World 	Airlines, 	Inc. 	v. 	Mattox,
civ. 	No. 	A-89-CA-067 	(W.O. 	Tex., 	Austin 	Div., 	Jan. 	23, 	1989)
appeal 	filed 	(5th 	Cir., 	Feb. 	10, 	1989) 	(holding 	that 	Federal
Department 	of 	Transportation 	regulations 	preempted 	state 	laws
regulating 	airline 	fare 	advertising 	and 	activities 	involving
rates, 	routes 	or 	services, 	but 	not ·reaching 	plaintiffs' 	other
constitutional 	arguments 	based 	on 	the 	Commerce 	and 	Interstate
Compact 	Clauses 	of 	and 	the 	First 	Amendment 	to 	the 	United 	States
Constitution).
13 	In 	an 	effort 	to 	avoid 	undue 	repetition, 	either 	of
material 	covered 	in 	its 	Prior Comment 	or of 	aspects 	of 	these
remarks, 	the 	Commission 	has 	not 	sought 	to 	critique 	the 	Final
Guidelines 	in 	a 	comprehensive 	manner. 	Rather, 	these 	remarks
focus 	on 	several 	of 	the 	provisions, 	either 	to 	furnish 	examples 	or
to 	provide 	previously unfurnished 	information.
4

.. 	.. .
deceptive. 14 	In 	more 	particularly 	describing 	the 	restrictions
that 	must 	be 	disclosed, 	the 	Final 	Guidelines 	specify 	more
restrictions 	to 	be 	disclosed 	in 	print 	advertisements 	than 	to 	be
disclosed 	in 	broadcast 	advertisements. 15 	The 	basis 	for 	this
distinction 	is 	said 	to 	be 	the 	practical 	limitations 	of 	broadcast
advertising. 16 	As 	a 	matter 	of 	deception 	law, 	if 	it 	is 	determined
that 	omission 	of 	a 	particular 	fact 	is 	not 	deceptive 	in 	a
broadcast 	advertisement, 	it 	is 	not 	clear why 	its 	omission 	is
deceptive 	in 	a 	print 	advertisement.
The 	distinction 	between 	print 	and 	broadcast 	advertising 	in
the 	Comment 	to 	Final 	Guideline 	2.2 	implicitly 	recognizes 	that
advertising 	is 	often 	a 	poor 	vehicle 	by 	which 	to 	convey 	detailed
disclosures 	of 	all 	material 	information 	regarding 	a 	product 	or
service, 	and 	that 	the 	failure 	of 	an 	advertisement 	to 	disclose 	all
material 	information 	does 	not 	necessarily 	render 	the
advertisement 	deceptive. 1 ? 	See 	Prior Comment.
Disclosure 	requirements 	can 	impose 	costs 	that 	in 	turn 	may
inhibit 	advertising 	and 	thereby 	reduce 	the 	incentive 	for 	affected
firms 	to 	engage 	in 	price'competition. 18 	Therefore, 	the
14 	See 	Final 	Guideline 	1.4 	and 	2.0.
15 	For 	example, 	such 	restrictions 	as 	geographical
limitations 	on 	use, 	the 	extent 	of 	advance 	payment 	requirements,
and 	penalties 	or 	higher 	rates 	for 	early 	or 	late 	car 	returns 	must
be 	disclosed 	in 	print 	advertisements. 	In 	broadcast
advertisements, 	however, 	similar 	restrictions 	require 	only 	a
disclosure 	like 	"(o]ther 	important 	restrictions 	apply." 	See
Final 	Guidelines 	2.1 	and 	2.2.
16 	Comment 	to 	Final 	Guideline 	2.2.
17 	For 	example, 	the 	Guidelines 	specify 	that 	penalties 	or
higher 	rates 	for 	early 	or 	late 	car 	returns 	should 	be 	disclosed.
To 	the 	extent 	that 	consumers 	are 	quoted 	discounted 	rates 	for
fixed 	rental 	terms, 	such 	as 	weekends 	or weeks, 	they 	reasonably
may 	anticipate 	that 	late 	return 	will 	result 	in 	the 	imposition 	of
penalties 	or 	higher 	rates. 	If 	they 	do, 	the 	omission 	from
advertisements 	of 	information 	relating 	to 	the 	penalties 	or higher
rates 	might 	not 	be 	material 	or deceptive. 	Before 	including 	such
a 	provision 	in 	the 	Guidelines, 	therefore, 	we 	suggest 	that 	the
Task 	Force 	determine 	if 	there 	is 	evidence 	concerning 	consumers'
expectations 	regarding 	the 	consequences 	of 	late 	car 	returns 	that
would 	justify 	its 	inclusion.
18 	See 	Prior 	Comment, 	notes 	10-13 	and 	related 	text. 	Car
rental 	companies 	might 	respond 	by 	shifting 	to 	"image"
advertising, 	which 	may 	benefit 	consumers 	less 	than 	price
promotion.
5

Commission urges 	caution 	against 	imposing 	disclosure 	requirements
unless 	required 	by 	deception 	or 	unfairness 	law.
The 	Final 	Guidelines 	also 	state 	that 	any 	fee 	that 	consumers
generally 	must 	pay 	should 	be 	reflected 	in 	the 	total 	advertised
price 	rather 	than 	being 	stated 	separately.19 	This 	requirement,
referred 	to 	as 	"bundling," 	is 	said 	to 	be 	directed 	toward
preventing 	car 	rental 	firms 	from 	advertising 	base 	rental 	rates
that 	have 	been 	artificially 	reduced 	by 	subtracting 	charges 	that
must 	be 	paid, 	at 	least 	in 	certain 	locations, 	such 	as 	fuel
charges, 	surcharges, 	and 	airport 	access 	fees. 	The 	Commission
agrees 	that 	it 	is 	an 	unfair 	or deceptive 	act 	or 	practice 	for 	a
company 	to 	fail 	to 	disclose 	unavoidable 	charges 	prior 	to 	taking
reservations 	for 	rental 	cars. 	The 	bundling 	approach, 	however,
may 	be 	unnecessary 	to 	protect 	consumers 	from 	deception 	or 	unfair-
ness. 	For 	instance, 	it 	is 	not 	clear why 	an 	advertisement 	stating
the 	availability 	of 	a 	vehicle 	for 	"$25 	per 	day 	plus 	a 	$12 	fuel
charge" 	is 	more 	deceptive 	or 	unfair 	than 	an 	advertisement 	in 	the
format 	approved 	in 	the 	Final 	Guidelines 	stating 	the 	rate 	as 	"$37
for 	first 	day; 	$25 	for 	each 	succeeding 	day." 	Nor 	is 	it 	clear
that 	consumers 	would 	be 	misled 	as 	to 	the 	total 	cost 	of 	car 	and
fuel 	by 	either 	advertisement.
Adoption 	of 	the 	requirement 	that 	any 	mandatory 	fee 	must 	be
included 	in 	the 	total 	advertised 	price 	may 	reduce 	consumer
welfare 	in 	several 	ways. 	This 	requirement may 	increase 	the 	cost
of 	advertisements 	containing 	price 	information 	because, 	as 	the
preliminary 	report 	accompanying 	NAAG's 	Prior 	Draft 	appeared 	to
recognize, 	the 	bundling 	requirement, 	coupled with 	differences 	in
charges 	assessed 	by 	franchisees 	and 	in 	surcharges 	imposed 	by
various 	airports 	may make 	it 	difficult 	for 	some 	car 	rental
companies 	to 	build 	these 	fees 	into 	nationally 	advertisable
rates. 20 	This 	may 	result 	in 	reduced 	price 	promotion, 	and 	lead 	to
higher 	prices. Collision 	Damage 	Waiver
The 	Final 	Guidelines 	conclude 	that 	some 	current 	car 	rental
industry 	practices 	with 	respect 	to 	the 	sale 	of 	collision damage
waivers 	("COW") 	are 	deceptive, 	unfair, 	and 	unconscionable. 	The
Guidelines make 	three 	alternative 	legislative 	proposals, 	two 	of
which 	would 	irrevocably 	allocate 	most 	of 	the 	risk 	of 	damage 	to 	or
19 	Final 	Guideline 	2.5.
20 	National 	Association 	of Attorneys 	General, 	Task 	Force 	on
Car Rental 	Industry 	Advertising 	and 	Business 	Practices,
Preliminary 	Report 	(June 	19, 	1988) 	at 	5 	and 	8, 	respectively.
6

loss 	of 	a 	rental 	car to 	the 	rental 	car 	company.21 	This 	result
seems 	to 	be 	an 	overly 	broad 	solution 	to 	what 	may 	be 	a 	genuine
problem 	-- 	the 	unfair 	or 	deceptive 	marketing 	of 	COW 	arrangements.
The 	Commission 	previously 	indicated 	that 	legislative
restriction 	of 	the 	offering 	of 	a 	distinct 	Cow 	product 	would 	be
tantamount 	to 	mandating 	that 	car 	rental 	com~anies bundle 	COW
coverage 	into 	every 	car 	rental 	transaction. 	2 	Any 	legislatively
imposed 	bundling 	requirement 	will 	restrict 	consumer 	choice 	among
COW-like 	coverages 	of 	rental 	cars,23 	resulting 	in 	some 	consumers
having 	to 	bear greater 	costs 	primarily 	in 	the 	form 	of 	higher 	base
prices 	than 	they 	otherwise might 	have 	to 	cover 	the 	accident 	and
theft 	losses 	statutorily 	shifted 	to 	the 	rental 	car 	companies.
Recent 	news 	reports 	suggest 	that 	this 	may 	be 	happening 	to 	some
consumers 	in 	at 	least 	one 	state. 	A recent 	article 	in 	The 	New
York Times 	regarding 	adoption 	of 	COW-bundling 	legislation 	in
Illinois 	said:
[C]ar-rental 	companies 	have 	raised 	their 	rates 	in
Illinois, 	where 	the 	ban 	on 	collision 	waivers 	took
effect 	Jan. 	1. 	Hertz 	raised 	its 	prices 	by 	8 	percent 	in
Illinois 	and 	by 	2.5 	to 	5 	percent 	elsewhere 	in
anticipation 	of 	a 	decline 	in 	waiver 	sales 	to 	American
Express's 	22.1 	million 	cardholders. 	Alamo 	and 	BUdget
have 	also 	followed 	Hertz's 	lead 	by 	raising 	prices 	in
Illinois, 	but 	no 	other major 	company 	has 	raised 	prices
across 	the 	board. 24
21 	The 	final 	legislative 	proposal 	would 	permit 	a 	rental 	car
company 	to 	hold 	consumers 	liable 	for 	damages 	resulting 	from 	their
negligence 	or 	intentional 	misconduct 	provided 	that 	the 	rental 	car
company 	offered 	to 	sell 	to 	consumers 	a 	waiver 	at 	a 	regulated
price 	related 	to 	the 	company's 	loss 	experience. 	See 	Final
Guideline 	3.1.
22 	Hereinafter 	the 	Commission 	refers 	to 	measures 	that 	would
restrict 	the 	offering 	of 	a 	distinct 	COW 	product 	as 	"COW-bundling"
measures, 	in 	recognition 	of 	their 	practical 	effect.
23 	These 	options 	include 	purchasing 	no 	insurance 	and
assuming 	the 	full 	risk 	("going 	naked"), 	purchasing 	cow, 	relying
on 	personal 	automobile 	liability 	insurance 	that 	extends 	to 	rented
cars, 	and 	using 	coverage 	provided 	by 	a 	third 	party 	such 	as 	a
credit 	card 	provider. 	Initially, 	credit 	card 	providers 	extended
these 	benefits 	t~ holders 	of 	their 	"prestige" 	cards, 	such 	as
"gold," 	"platinum," 	and 	corporate 	cards. 	Recently, 	however,
American 	Express 	extended 	rental 	car damage 	coverage 	to 	its 	basic
"green" 	card. 	Other 	credit 	card 	companies 	are 	expected 	to 	follow
suit. 	The 	Record, 	Jan. 	15, 	1989, 	at 	B2, 	col. 	2.
24 	N.Y. 	Times, 	Jan. 	~, 	1989, 	§ 	1 	at 	52, 	col. 	1.
7

According 	to 	the 	Final 	Guidelines, 	COW 	sales 	are 	troubling
in 	part 	because 	consumers 	lack adequate 	information 	and 	the~
encounter 	deception 	or 	high 	pressure 	at 	the 	rental 	counter. 	5
Where 	consumers 	suffer 	from 	insufficient 	or 	confusing
information, 	remedies 	requiring 	the 	disclosure 	of 	more 	or 	better
information 	often may 	resolve 	the 	problem. 	Therefore, 	providing
consumers 	information 	on 	COW may 	be 	more 	effective 	and 	less
costly 	than 	requiring 	that 	COW 	be 	sold 	in 	the 	rental 	bundle
regardless 	of 	whether 	or 	not 	consumers 	want 	it. 26 	On 	the 	other
hand, 	if 	consumers 	are 	encountering 	unfair 	or 	deceptive 	marketing
practices 	at 	some 	car 	rental 	counters, 	the 	most 	direct 	and
efficient 	remedy 	may 	be 	law 	enforcement 	action 	against 	the
offenders.
The 	authors 	of 	the 	Final 	Guidelines 	state 	that 	they 	do 	"not
believe 	that 	this 	[COW) 	information 	gap 	can 	be 	filled 	by 	more
disclosures 	.... 	" 	Comment 	to 	Final 	Guideline 	3.1(c). 	No
explanation 	is 	offered 	for 	this 	belief. 	Nevertheless, 	if 	this
conclusion 	is 	supported, 	traditional 	law 	enforcement 	efforts
might 	be 	adequate 	to 	prevent 	deception 	or 	unfairness 	in 	the
marketing 	of 	COW. 	These 	alternatives 	are 	worth 	exploring 	in
detail 	before 	concluding 	that 	mandated 	purchase 	of 	COW 	is 	the
proper 	solution 	to 	the 	problem 	of 	unwanted 	purchase 	of 	COW.
"Upselling"
Final 	Guideline 	3.3(a)3 	states 	that 	a 	rental 	car 	company 	may
not 	attempt 	to 	"upsell" 	a 	consumer 	by 	"disparaging" 	the 	reserved
class 	of 	vehicles 	as 	"uncomfortable 	or 	unsafe." 	The 	Commission
agrees 	that 	deceptively 	switching 	consumers 	from 	reserved 	cars 	to
more 	expensive 	vehicles 	is 	unlawful. 	The 	Commission 	is
concerned, 	however, 	that 	Final 	Guideline 	3.3(a}3 	may 	be
interpreted 	as 	barring 	all 	efforts 	to 	persuade 	consumers 	to 	rent
more 	expensive 	cars. 	Car 	rental 	company 	personnel 	perform a
valuable 	function 	in 	advising 	consumers, 	who 	may 	be 	unaware 	of
the 	capabilities 	and 	limitations 	of 	vehicles 	other 	than 	their
own, 	of 	the 	suitability 	of 	various 	vehicles 	for 	consumers'
intended 	purposes. 27 	In 	order 	to 	ensure 	that 	consumers 	are 	not
deprived 	of 	the 	counseling 	function 	performed 	by 	rental 	car
25 	See 	generally 	Final 	Guideline 	3.1 	(c) 	and 	following
discussion.
26 	See 	Beales, 	Craswell 	& Salop, 	"The 	Efficient 	Regulation
of 	Consumer 	Information," 	24 	J. 	of 	L. 	& Econ. 	491 	(1981).
27 	For 	example, 	a 	consumer who 	has 	reserved 	a 	low-powered
car 	to 	take 	a 	family 	of 	four, 	plus 	baggage, 	across 	mountainous
terrain 	might 	find 	it 	useful 	to 	be 	told 	that 	a 	more 	powerful 	and
more 	expensive 	car might 	~erve the 	purposes 	better.
8

personnel, 	it 	should be 	made 	clear 	that 	"upselling" 	is 	regarded
as 	problematic 	only when 	it 	involves 	such 	improper 	conduct 	as
coercion 	or 	false 	or misleading 	representations 	of 	fact. 28
Frequent 	Renter 	Programs
Final 	Guideline 	3.5, 	which 	is 	applicable 	to 	car 	rental
companies' 	"frequent 	renter 	programs," 	also 	may 	be 	unnecessary
and, 	indeed, 	seems 	to 	lack 	an 	empirical 	basis. 	That 	Guideline
would 	require 	that 	car 	rental 	companies 	refrain 	from 	modifying
"any 	aspect" 	of 	a 	frequent 	renter 	program 	"that 	will 	adversely
affect 	... 	members' 	ability 	to 	obtain 	any 	award 	or 	other
promised 	benefit" 	without 	providing 	at 	least 	one 	year 	prior
notice 	to 	members. 	The 	adoption 	of 	a 	one 	year's 	notice
requirement 	may make 	firms 	r~luctant to 	experiment 	with 	premiums
for 	frequent 	renters, 	because 	of 	the 	hazard 	of 	having 	to 	keep 	an
unexpectedly 	costly 	premium 	in 	place 	for 	a 	full 	year.
Accordingly, 	consumers 	may 	be 	deprived 	of 	the 	benefit 	of 	vigorous
competition 	among 	"frequent 	renter 	programs."
As 	the 	commentary 	appended 	to 	Final 	Guideline 	3.5
acknowledges, 	"frequent 	renter 	programs" 	are 	a 	new 	and 	"not 	very
sophisticated" 	phenomenon: 	they 	offer 	consumers 	premiums 	of 	small
value: 29 	and 	they 	"are 	not 	nearly 	as 	complex 	as 	the 	airlines'
frequent 	flyer 	programs 	•.•. " 	The 	Commission 	urges 	caution
against 	adopting 	rigid 	limitations 	on 	these 	programs 	unless 	they
are 	demonstrably 	necessary 	and 	unless 	they 	are 	designed 	to 	permit
innovative 	promotional 	efforts 	that 	will 	encourage 	competition
and 	benefit 	consumers.
28 	A 1975 	Synopsis 	of 	Federal 	Trade 	Commission 	decisions
concerning 	"Bait 	and 	Switch" 	sales 	practices 	provides 	that 	it 	is
an 	unfair 	or 	deceptive 	trade 	practice 	to 	disparage 	an 	advertised
product 	for 	the 	purpose 	of 	"switching" 	a 	customer 	to 	the 	purchase
of 	another 	product. 	See 	Southern 	States 	Distributing 	Co.,
83 	F.T.C. 	1125, 	1169 	(1973) (condemning 	"bait 	and 	switch"
practices 	but 	holding 	that 	even 	sellers who 	have 	engaged 	in
unlawful 	"bait 	and 	switch" 	activities 	must 	have 	the 	right, 	for
the 	sake 	of 	consumers 	as 	well 	as 	themselves, 	to 	point 	out 	genuine
shortcomings 	in 	advertised 	and 	unadvertised 	products).
29 	"Most 	simply 	offer 	consumers 	expedited 	check-in 	and
reservations, 	free 	upgrades 	for 	luxury 	cars 	and 	some 	discounts 	on
COW." 	Comment 	to 	Final 	Guideline 	3.5.
9

Conclusion
The 	Commission 	urges 	the 	Attorneys 	General 	to 	reconsider
whether 	the 	Final 	Guidelines 	are 	adequately 	supported 	in 	law 	and
fact 	and 	whether 	they 	will 	benefit 	consumers. 	As 	illustrated 	by
the 	discussion 	above, 	the 	Commission 	concludes 	that 	the 	Final
Guidelines 	as 	presently written 	may 	well 	prevent 	some 	non-
deceptive, 	fair 	and 	competitive 	conduct 	in 	the 	car 	rental
industry.
By 	direction 	of 	the 	Commission. *
(> 	/;/ 	" 	,',// 	/
,~~i( 	~. 	It.C;:'·K
Donald 	S. 	Clark
Secretary
* 	commissioner Strenio does 	not 	join 	in 	this 	letter.
10