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It’s legal under federal law to rent out recalled cars – but maybe not for long

By Autumn Cafiero Giusti

vehicle recallsIt’s against federal law for new car dealers to sell recalled new cars, but it’s not against federal law for dealers and rental car companies to rent or loan out these same potentially dangerous vehicles.

Congress is considering a new law that could change that practice.

The Raechel and Jacqueline Houck Safe Rental Car Act would close the loophole that allows rental car companies to rent or sell recalled vehicles. The Senate passed the legislation in July, and the House passed an amended version of the act in early November. The Senate is expected to vote on the amended legislation before year’s end as part of a larger multiyear federal transportation bill.

The act is named for sisters Raechel and Jacqueline Houck, who were killed in a fiery crash in 2004 involving a recalled Chrysler PT Cruiser they had rented from Enterprise. The crash happened while Raechel, 24, and Jacqueline, 20, were driving home to Santa Cruz, Calif., after visiting their parents and younger brother. Unbeknownst to them, the rented PT Cruiser the sisters were driving had been recalled for a defective steering component about a month earlier. During the drive, the car’s steering hose started leaking fluid, which resulted in a fire under the hood that caused the girls to crash head-on with an 18-wheeler. Witnesses said the car was on fire before the crash.

In 2010, a jury issued a $15 million verdict against Enterprise, concluding that the company had failed to make repairs after learning about the PT Cruiser recall. During the case, an Enterprise area manager in San Francisco admitted to renting out recalled cars when demand was high.

Since then, Enterprise and several other major rental car companies have stated that they want to change this practice and have stepped forward in support of the Safe Rental Car Act. Some of the other larger companies include Hertz, Avis, Dollar Thrifty, Alamo and National. The companies have pledged that they won’t rent out recalled cars in the meantime.

“It’s unusual to see an industry come in and say, ‘Yes, we want to be regulated,’” says Rosemary Shahan, president of the advocacy group Consumers for Auto Reliability and Safety, or CARS.

Greg Scott, a lobbyist for the American Car Rental Association, says the group has backed the legislation for the past two years, after working out a compromise with the consumer groups over some of the act’s stipulations.

The original act, introduced in 2011, would have required that rental car companies immediately ground all defective vehicles upon getting notice of a recall. Scott said that the rental companies agreed that they shouldn’t be renting out recalled cars, but that they would need enough time to notify all of their franchises. For example, if a recall notice came into a company’s headquarters in New Jersey, they needed enough time to share that notice with franchises nationwide. “It’s really more of a practicality issue. You can’t instantly get a car out of a rental fleet,” Scott says. “And as the consumer groups began to understand that we wanted to do the right thing here and work with them on what we can do, we were able to work out a compromise.”

The act now allows rental car companies up to 24 hours to ground their recalled vehicles. Or, if a company has more than 5,000 vehicles in its fleet, they have up to 48 hours.

With those stipulations, the proposed legislation received unanimous support from ACRA’s membership, with all 270 members voting in favor of it.

“It’s an unusual circumstance to have consumer groups trying to impose regulations on an industry, and then have the industry agree. But that’s the way it’s been since 2013,” Scott says. “It’s a testament to the car rental industry putting the safety of the customers and consumers first. Nobody should have to wonder when they go and rent a car whether or not there’s a safety defect.”

Recalled rental cars legislation has been addressed on the state level in recent years, although apparently in just one state. In California, a pending measure known as the Consumer Automotive Recall Safety Act would prohibit the rental of vehicles subject to a recall no later than 48 hours of receiving notice of a recall, according to the National Conference of State Legislatures. The measure would require the rental car company to repair the recalled vehicle before renting it out again.

Scott says the industry saw a tragic example last year of why broader-reaching federal legislation is necessary, and why quick passage of such a law is important. In June, 26-year-old Jewel Brangman of California was killed by an exploding airbag while driving a rented Honda Civic. The airbag deployed with such force that it ruptured the inflator housing, spraying metal shards throughout the passenger cabin. Brangman suffered a fatal laceration to her neck as a result of the shards. The accident prompted the recall of 34 million vehicles containing airbags manufactured by Takata Corp.

“We had a terrible tragedy that could have been averted if Congress had acted on this legislation more quickly,” Scott says.

Although the act received the House’s approval, the amended legislation contains a

caveat that some of the act’s supporters strongly oppose. Although the legislation would prohibit rental car companies from renting out recalled cars, the amendment would create a special exemption allowing car dealers to rent out recalled vehicles.

That means if a car owner were to learn that their vehicle had been recalled and brought the car into the dealership for repairs, the dealership could technically loan that person another recalled car, Shahan says.

“Part of what is so troubling is that all of these manufacturers are telling their customers that if you’re concerned about the safety of your recalled car, come on in and get your loaner car,” she says.

Shahan points out that other dangerous recalls have surfaced in recent years, including this past year’s recall involving the Takata airbags. She uses the example of 35-year-old Carlos Solis, who died in what she describes as a “survivable” crash after one of the recalled airbags deployed and a metal shard sliced an artery in his neck. “Under this exemption, it wouldn’t be a violation of the act for the dealer to loan out a car like that,” Shahan says.

National Automobile Dealers Association spokesman Jared Allen says the organization supports the full completion of recalls, but opposes the act because its membership disagrees with the approach that the act suggests.

“The overwhelming majority of recalls do not require or warrant the drastic step of grounding, and there is no evidence that a blanket grounding of all vehicles with open recalls will make the roads or consumers any safer,” Allen says. “NADA supports a 100-percent recall completion rate, but achieving that requires policies that focus on consumer empowerment, not policies that are overly broad, harmful to consumers and ultimately counterproductive to the goal of getting more, not less, recalls completed.”

Peter Kochenburger, executive director of the insurance law program at the University of Connecticut School of Law, says he is skeptical about the idea of consumer empowerment because generally consumers don’t realize what they’re getting into. “That would be great if in fact the choice is real and practical. Often it’s not. It’s buried in the fine print,” he says. “You can give them a document that explains all these things, and generally they’re not going to read it.”

Shahan says that even though many dealers say they follow best practices that prevent them from renting out recalled vehicles, having a law in place follows the same principle as fining people for not wearing seatbelts. “You would think for some people that the prospect of getting injured or killed would be enough to get them to wear a seatbelt,” she says. “But we actually get much better compliance when people know they can get a ticket for this.”

Updated November 17, 2015