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

.'
OFFICE OF THE SECf>ETAFlY
V880060
UNfTED SfATES OF AMERICA
FEDERAL TRADE COMMISSION 	ClnM
WASHINGTON. D.C. 20580 	U 	MISSION AUTHORIZED
November 	4, 	1988 	.
Art 	Weiss, 	Esq.
Deputy Attorney General
Kansas 	Judicial 	Center
301 	West 	10th Street
Topeka, 	Kansas 	60612
Dear Mr. 	Weiss:
On 	October 5, 	1988, 	the 	National 	Association 	of 	Attorneys
General 	("HAAG") 	invited comment 	from 	interested 	parties 	on 	the
September 	26, 	1988, 	draft 	guidelines 	prepared by NAAG's 	Task
Force 	on 	Car Rental 	Industry Advertising 	and 	Practices. 	The
Federal 	Trade 	Commission 	always 	appreciates 	the 	opportunity 	to
share 	its 	views 	on 	important 	issues 	of 	consumer policy 	and 	it 	is
pleased 	to 	offer 	these 	comments 	on 	some 	aspects 	of 	the 	draft
guidelines.
It 	is 	the 	common 	goal 	of 	the 	Commission 	and 	the 	Attorneys
General 	to 	eliminate 	unfair 	and 	deceptive 	acts 	or 	practices 	from
the 	market. 	Under 	Section 	5 	of 	the 	Federal 	Trade 	Commission 	Act,
which 	serves 	as 	the 	model 	for 	th'~ consumer protection 	laws 	of
many 	states, 	the 	Commission challenges 	unfairness 	and 	deception
in 	order 	to 	ensure 	the 	free 	flow 	of 	accurate 	information 	to
consumers.
The 	Commission 	agrees 	with 	the 	guidelines' 	general
conclusions 	that 	deception 	and 	unfairness 	in 	the 	advertising 	and
marketing of 	rental 	cars 	should not 	be 	tolerated, 	and 	the 	task
force 	has 	defined 	certain 	acts 	and 	practices 	that 	fall 	into 	this
categor:. 	Indeed, 	the 	general 	premises 	of 	some 	of 	the 	guidelines
appear 	to 	help consumers. 	However, 	the 	Commission 	is 	concerned
that 	some 	of 	the 	guidelines' 	provisions 	could 	discourage
advertising 	that 	may 	provide 	useful 	information 	as 	well 	as
advertising 	that 	is 	unfair 	or 	deceptive. 	Other 	provisions 	could
eliminate 	services 	of 	value 	to 	consumers, 	rather 	than 	prohibiting
practices 	that 	injure 	them. 	The 	Commission hopes 	that 	the 	task
force 	will 	reconsider 	those 	provisions.
1. 	The 	Leaal 	Basis 	for 	the 	Guidelines
We 	question whether 	all 	the 	practices 	that 	the 	guidel~nes
would 	prohibit 	are 	"deceptive" 	or 	"unfair" 	under 	existing 	state
laws. 	-'he 	commentary provides 	that 	the 	guidelines 	"restate
indivic 	al 	states' 	false 	advertising 	and 	deceptive 	practices 	laws
..

as 	they 	apply 	to 	car 	rental 	advertising. HI 	As 	noted 	below,
several 	rules 	advanced 	by 	the 	task 	force 	may 	be 	at 	variance 	with
settled 	law. 	Moreover, 	to 	the 	best 	of 	our 	knowledge, 	a 	number 	of
states 	(including 	task 	force 	members 	Arizona, 	Indiana, 	Minnesot~,
New 	York, 	and 	Texas) 	do 	not 	have 	laws 	that 	expressly prohibit
unfair 	practices;2 	others 	have 	laws 	that 	specifically 	limit 	the
definition 	of 	deception. 3 	Since 	the 	Commission 	is 	unaware 	of
state 	statutes 	that 	specifically 	prohibit 	the 	challenged
practices, 	it 	is 	not 	clear 	to 	us 	whether 	a 	legal 	basis 	exists
under 	which 	the 	Attorneys 	General 	of 	those 	states 	could 	enforce
these 	guidelines. 	The 	task 	force 	may want 	to 	explore 	further 	the
legal 	basis 	for 	the 	guidelines.
A sufficient 	demonstration 	that 	a 	prohibited 	practice
violates 	an 	applicable 	law-is 	important. 	Regulations 	that 	are
not 	reasonably 	necessary 	to 	serve 	legitimate 	state 	interests,
such 	as 	the 	elimination 	of 	deception or unfairness, 	may 	violate
tho 	First 	Amendment 	or 	analogous 	state 	constitutional
1 	Draft 	Guidelines 	at 	5.
2 	The 	other 	states 	that 	apparently 	have 	not 	statutorily
proscribed 	unfair 	practices 	include Alabama, 	Nevada, 	New 	Jersey,
North 	Dakota, 	Oklahoma, 	South 	Dakota, 	Utah, 	and Virginia. 	Nor
has 	the 	District 	of 	Columbia.
3 State 	stututes 	that 	have 	limited 	the 	definition 	of
deception 	by 	itemizing 	deceptive 	acts 	include: 	Colo. 	Rev. 	Stat.
§ 	6-1-105 	(1987), 	L.C. 	Code 	Ann. 	§ 	28-3904 	(1987), 	Ind. 	Cude 	§
24-5-0.5-3 	(1988), 	Iowa 	Code 	§ 	714.16 	(~988), Mich. 	Compo 	Laws 	§
445.903(2) 	(1987), 	Miss. 	Code Ann. 	§ 	75-24-5 	(1987), 	Nev. 	?ev.
Stat. 	§ 	598.410 	(1988), 	Okla. 	Stat. 	15 	§ 	753 	(1988), 	Wyo. 	S~at. 	§
40-12-105 	(1987).
2

provisions. 4 	As 	the 	following 	discussion 	indicates, 	some 	of 	the
specific 	proposals 	may 	raise 	such 	constitutional 	issues.
2. 	L'lertising 	guid~lines
a. 	Mandatory disclosures
The 	guidelines 	propose 	to 	require 	certain disclosures 	in 	any
advertisement 	that 	includes 	price 	information. 	The 	task 	force
lists 	eleven 	disclosure 	requirements 	(and 	observes 	that 	there 	may
be 	others) 	that 	must 	be 	made 	clearly and 	conspicuously 	in 	prin"
advertising. 5 	Four 	of 	those 	disclosures 	a~e required 	in
broadcast 	price 	advertisements. 6 	It 	is 	unclear whether 	the
disclosure 	requirements 	are 	based 	on current 	law defining
deception 	and 	unfairness. 7 . The 	Commission 	cannot 	require
disclosure 	of 	information without 	first 	determining 	that 	the
advertising 	is 	deceptive 	or 	unfair, 	and 	that 	the 	disclosures 	are
necessary 	to 	remedy 	the 	law 	violation.
The 	task 	force 	notes 	that 	it 	has 	"singled out 	those
4 	See, 	e.a., 	Shapero 	v. 	Kentucky Bar Association, 	108 	S.
Ct. 	1916, 	1921 	(June 	13, 	1988); 	In 	the 	Matter 	of 	R.::.J., 	455 	u.s.
191, 	203 	(1982); 	Coldwell 	Banker 	Residential 	Real 	Estate 	Servs.,
Inc. 	v. 	Clayton, 	475 	N.E.2d 	536 	(Ill. 	Sup. 	Ct. 	1985). 	As 	the
Court 	said 	in 	Zauderer v. 	Office 	of 	Disciplinary Counsel 	of 	the
Supreme 	Court 	of 	Ohio, 	471 	U.S. 	626, 	646 	(1985):
Our 	recent 	decisions 	involving 	commercial
speech 	have 	been 	grounded 	in 	the 	faith 	that
the 	free 	flow 	of 	commercial 	ir.formation 	is
valuable 	enough 	to 	justify 	imposing 	on would-
be 	regulators 	the 	costs 	of 	distinguishing 	the
truthful 	from 	the 	false, 	the 	helpful 	from 	the
misleading, 	and 	the 	harmless 	from 	the
harmful.
5 	Draft 	Guidelines, 	Section 	2.1. 	These 	disclosures 	cover
three 	general 	areas: 	availability, 	restrictions 	on 	use, 	and
potential 	additio~al costs.
6 	Draft 	Guidelines, 	Sectio~ 2.2. 	If 	other material
restrictions 	are 	not 	mentioned 	in 	the 	broadcast 	ac, 	the 	ad 	must
disclose 	that 	"other 	substantial 	restrictiuns 	apply" 	and 	the 	car
rental 	company must 	orally 	disclose 	the 	nature 	of 	those
restr~=tions to 	consumers 	at 	the 	point-of-sale.
7 	See, 	e.g., 	International 	Harvester, 	104 	F.T.C. 	949
(1984), 	appeal 	dismissed, 	No. 	85-1111 	(D.C. 	Cir. 	1985).
3

restrictions 	that 	it 	finds 	are 	the 	most 	important 	to 	disclose. "8
While 	i~ 	is 	not 	clear, 	it 	appears 	that 	Section 	2.1 	is 	premised 	on
a 	conclusion 	that many 	importf:lt 	restrictions 	must 	be 	disclosed
in 	price 	advertising, 	whether 	or 	not 	the 	advertisin~ is 	deceptive
or 	unfair 	at 	the 	outset. 9 	The 	task 	force 	may 	want 	to 	reconsider
this 	premise, 	if 	it 	does 	underlie 	the 	disclosure 	requirements.
The 	task 	force's 	proposed treatment 	of 	price 	and 	nonprice
advertising 	differs. 	When 	advertised 	claims 	pertain 	to 	nonprice
characteristics 	of 	a 	product 	or 	service, 	the 	proposed 	guidelines
do 	not 	require 	the 	disclosure 	of 	all 	the 	important 	information
consumers 	might 	want 	to 	know. 	But 	there 	is 	no 	explanation 	why
nonprice 	advertising 	is 	subject 	to 	the 	est~blished law, 	while
price 	advertising 	should 	trigger 	unique 	burdens.
Requiring 	the 	disclosure 	of 	too 	much 	information 	can 	have
the 	paradoxical 	effect 	of 	stifling 	the 	information 	that 	consumers
receive. 	For 	example, 	in 	ITT 	Continental 	Baking Co., 	the
Commission 	declined 	to 	require 	certain 	disclosures, 	recognizing
that 	the 	disclosures 	sought 	would 	be 	"tantamount 	to 	a 	de 	facto
ban 	on 	... 	advertising 	through 	the 	radio 	and 	TV media. "10 	In
considering advertising 	of 	home 	insulation 	in 	1979, 	the
Commission 	refused 	to 	require 	detailed 	disclosures 	of 	a 	variety
of 	conditions 	affecting 	a 	particular 	savings 	claim. 	Citing
concerns 	about 	discouraging 	savings 	claims, 	the 	Commission
adopted 	a 	provision 	simply 	requiring 	a 	general 	disclosure 	that
more 	information was 	available. 11
T~3 task 	force 	apparently 	anticipates 	that 	the 	disclosure~
could 	eliminate 	specific 	pric8 	promotions 	from 	15-second
commercials. 12 	The 	Commission would 	be 	concerned 	about 	a 	policy
that 	sacrifices 	short 	price 	commercials, 	since 	they 	c~e a
potentially important 	means 	of 	price 	competition. 	Advertising
(including 	price 	advertising) 	can 	signal 	to 	consumers 	that
attractive 	features 	(including 	lower 	prices) 	may 	be 	avai2~ble,
and 	that 	consumers 	should 	inquire 	further 	for 	details. 	Numerous
economic 	studies 	have 	demonstrated 	that 	price 	advertising
8 	Draft 	Guidelines 	at 	7.
9 	The 	guidelines 	also 	require 	disclosure 	of 	certain
information 	in 	other 	circumstances. 	Seer 	e.cr., 	Section 	3.3(b).
We 	are 	not 	commenting 	on 	those 	sections.
10 	ITT 	Continental 	Baking 	Co., 	83 	F.T.C. 	865, 	965 	(1973).
11 	Statement 	of 	Basis 	and 	Purpose, 	Trade 	Regulation 	Rule 	on
Labeling 	and 	Advertising 	of 	Home 	Insulation, 	44 	Fed. 	Reg. 	50218,
50234 	(1979).
~?-	- 	Draft 	Guidelines 	at 	12.
4

-..>.
enhances 	competition 	and 	lowers 	prices. 13 	Advertising 	is 	seldom
an 	appropriate 	vehicle 	for 	disclosing 	detailed 	and 	comprehensive
characteristics 	of 	a 	potential 	transaction, 	and 	the 	failure 	to 	do
so 	does 	not 	necessarily 	render 	it 	deceptive. 14 	At 	least 	one
court 	has 	concluded 	that 	efforts 	to 	require 	more 	disclosures 	than
necessary to 	combat 	deception can violate 	the 	First Amendment. IS
b. 	Inclusion 	of 	all 	mandatory 	charges 	i.n 	the 	"basic
~"
Section 	2.5 	of 	the 	proposed 	guidelines 	requires 	that 	any
surcharge 	or 	fee 	that 	renters 	must 	pay 	in order 	to 	obtain 	a
vehicle must 	be 	included 	in 	the 	total 	advertised 	price 	of 	the
rental. 	The 	task 	force 	seems 	to 	have 	concluded 	that 	no 	separate
disclosure 	of 	a 	mandatory ·charge, 	regardless 	of 	how 	clear 	or
·conspicuous 	it 	iS,is 	sufficient 	to 	inform 	consumers 	of
applicable 	costs 	of 	the 	rental 	transaction.
The 	provisions 	dealing 	with 	fuel 	charges 	and 	airport 	access
fees 	could make 	it 	more 	difficult 	for 	smaller companies,
companies 	offering different 	rental 	packages 	and 	off-airport
13 	See, 	e.g., 	Cleveland 	Regional 	Office 	and 	Bureau 	of
Economics 	of 	the 	Federal 	Trade 	Commission, 	Jacobs 	et
al.,Improving 	Consumer Access 	to 	Legal 	Services: 	The 	Case 	for
Removing 	Restrictions 	on Truthful 	Advertising, 	Federal 	Trade
Commission 	Staff 	Report 	(1984); 	Benham, 	The 	Effects 	of
Advertising 	on 	the 	Price 	of 	Eyeglasses, 	15 	J.of 	L.and 	~con. 	337
(1972); 	Cady, 	A~ Estimate 	of 	the 	Price 	Effects 	of 	Restrictions 	on
Drug 	Price 	Advertising, 	14 	Econ. 	Inquiry 	493 	(1976); 	Kwoka,
Advertising 	and 	the 	Price 	and 	Quality 	of 	Optometric 	Services, 	74
Am. 	Econ. 	Rev. 	211 	(1984); 	and 	Schroeter 	et 	al., 	Advertising 	and
Competition 	in 	Routine 	Legal 	Service 	Markets: 	An 	Empirical
Investigation, 	36 	The 	J. 	of 	Indus. 	Econ. 	49 	(1987).
14 	We 	agree 	that 	renters 	should 	have 	access 	to 	material
information 	concerning 	their 	rentals 	prior 	to 	signing 	an
agreement. 	However, 	point-of-sale 	disclosures, 	rather 	than
advertising,-may 	inform renters 	more 	effectively of 	the 	numerous
details 	connected 	to 	car 	rentals.
See 	Ehrlich 	and 	Fisher, 	The 	Derived 	Demand 	f~r Advertising:
A Theoretical 	and 	Empirical 	Investiaation, 	72 	Am. 	Econ. 	Rev. 	366
(1982). 	The 	authors 	find 	that 	advertising 	is 	but 	one 	component
of 	the 	general 	market 	for 	information 	and, 	in 	particular, 	that
industries 	with more 	complicated 	products 	engage 	in 	relatively
more 	pOint-of-sale 	marketing 	efforts 	and 	relatively 	less
advertising.
15 	South 	Ogden 	CVS 	Store, 	Inc. 	v. 	Ambach, 	493 	F. 	Supp 	374,
380-81 	(S.D.N.Y. 	1980).
5
..

companies 	to 	compete 	against 	their 	larger 	rivals. 	With 	respect
to 	fuel 	charges, 	we 	agree 	with 	the 	observation 	in 	the 	Preliminary
Report 	(at 	5) 	that 	disclosure 	of 	specific 	fuel 	charges 	in
national 	advertising may 	be 	difficult because 	local ~ranchisees
may charge different 	amounts. 	We 	also 	agree 	with 	the 	Preliminary.
Report's 	statement/conclusion 	(at 	8) 	that 	"[b-Jecause 	[airport
access] 	fees 	vary 	from 	airport 	to 	Airport, 	it 	may 	be 	difficult 	to
build 	the 	fees 	i~to a 	nationally 	advertised 	rate." 	The 	task
force 	may want 	to 	re-evaluate 	these 	acknowledged 	restrictions 	on
competitive 	price 	advertising 	in 	the 	auto 	rental 	industry 	in
~ight of 	the 	points 	it made 	in 	the 	Preliminary Report 	and
comments 	filed 	on 	the 	guidelines.
3. 	Price 	availabilitv
In 	the 	Preliminary Report, 	the 	task 	force 	s~ated that 	it 	did
not 	at 	that 	time 	see 	a 	need 	for 	s~ecial advertising disclosures
relating to 	limited 	availability. 	6 	The 	task 	force 	also
recognized 	the 	benefits, 	in 	the 	form 	of 	discounts 	through 	"yield
management" 	pricing, 	that 	flow 	from 	this 	kind 	of 	advertising. l7
With 	appropriate 	qualifications, 	the 	task 	force 	approved 	of 	these
practices 	in June. l8 	The 	Commission 	agrees 	with 	the 	tasK 	force's
initial/preliminary conclusions 	on 	this 	issue.
Section 	2.4 	of 	the 	proposed 	guidelines 	apparently 	reverses
the 	task 	force's 	initial/preliminary con~lusions and 	revokes 	that
qualified 	approval. 	Under 	the 	current 	proposal, 	advertisers 	must
be 	able 	to 	meet 	reasonably 	expected demand, 	which 	could 	limit
benefits 	of }'ield management 	pricing. 	The 	task 	force 	may want 	to
consider whether 	a 	more 	flexibile 	approach 	is 	desirable 	in 	light
of 	the 	acknowledged consumer 	benefits 	of 	yield management
pricing. 	For example, 	the 	task 	force 	might consider 	allowing
disclosure 	of 	limits 	or conditions 	on the 	availability of 	rental
cars. 19
16 	preliminary Report 	at 	24.
17 	The 	Preliminary Report 	(at 	23) 	describes 	"yield
management" 	as 	a 	system by which 	rental 	companies 	can ensure 	that
as 	many vehicles 	as 	possible 	are 	rented each day. 	Companies 	make
a 	limited 	number 	of 	ver.icles, 	i.e., 	those 	they 	estimate 	would 	go
unrented 	at 	the 	full 	price, 	available 	at 	a 	deeply 	discounted 	rate
to 	attract 	consumers 	who 	would 	not 	ordinarily 	rent 	vehicles.
18 	Id.
19 	Id. 	at 	24 	n. 	11. 	In April 	1988, 	the 	Commission voted
(Commissioner 	Strenio, 	dissenting) 	to 	amend 	its 	rule 	regarding
the 	unavailability 	of 	advertised 	specials 	in 	retail 	food 	stores.
16 	C.F.R. 	Part 	424. 	The 	staff 	argued, 	among 	other 	things, 	that
(continued ... )
6

4. 	Optional 	collision 	damaqe 	waiver
Guideline 	3.1 	recommends 	adoption of 	legislation 	to
eliminate 	the 	sale 	of 	collision 	damage 	waiver 	("COW") 	and 	to
prohibit 	the 	practice 	of 	charging 	a 	customer 	for 	damage 	to 	or
loss 	of 	a 	rental 	vehicle, 	except 	in 	specific 	instances 	of
intentional 	damage, 	or 	similar 	criminal 	conduct. 	It 	appears 	that
thi~ change would 	dramatically 	alter 	the 	allocation 	of 	risk 	by
making 	car 	rental 	companies 	financially 	responsible 	for 	most
damages. 	The 	Commission 	is 	concerned 	that 	this 	could 	harr.l
consumers 	in 	two ways.
First, 	banning COW 	will 	eliminate consumer 	choice.
Currently, 	renters 	have 	several 	options. 	They 	can 	purchase
. optional 	COW 	from 	the 	rental 	company, 	which 	typically 	relieves
the 	renter 	of 	liability 	for 	damage 	to 	or 	loss 	of 	the 	rental
vehicle 	in 	case 	of 	accident 	or 	theft. 	Consumer~ can 	also 	decline
to 	purchase COW 	and: 	1) 	assume 	the 	risk 	of 	personal 	liability
for 	damage 	to 	rental 	vehicles, 	2) 	rely 	on 	their 	personal
automobile 	insurance 	policies 	for 	coverage,20 	or 	3) 	rely 	on 	the
coverage 	from 	other 	providers. 21 	One 	or more 	of 	these 	options
could 	be 	less 	expensive 	than 	required 	CDW 	for 	many 	consumers.
Renters 	with 	good 	driving 	records 	can 	reduce 	their 	costs 	by
arranging 	third-party 	insurance 	rather 	than 	purchasing 	a 	CDW.
Drivers 	who 	cannot, 	or 	choose 	not 	to, 	arrange 	for 	third-party
19( ... continued)
a 	requirement 	that 	stores 	have 	s~fficient quantities 	of 	an
advertised 	special 	to 	meet 	reasonably expected 	demand was 	hurting
consumers 	by discouraging 	stores 	from 	advertising 	limited-
quantity 	specials. 	The 	Commission decided 	to 	allow 	companies 	to
advertise 	specials 	with 	a 	disclosure 	that 	there 	is 	a 	limited
supply 	if 	they 	believe 	they 	may 	have 	less 	of 	the 	item 	than 	may 	be
necessary 	to 	meet 	demand.
20 	According 	to 	J. 	Robert 	Hunter, 	president 	of 	the 	National
Insurance 	Consumer 	Organization, 	approximately 	60% 	of 	all 	drivers
possess 	automobile 	insurance 	policies 	that 	provide 	coverage
should 	the 	insured 	driver 	experience 	an 	accident 	in 	a 	rental
vehicle. 	Car 	rentals: 	How 	to 	avoid 	beincr 	taken 	for 	a 	ride,
Money, 	Apr. 	1988, 	at 	201.
21 	For 	exr"nple, 	several 	credit 	card 	companies 	offe=
complcte 	coverage 	for 	damages 	incurred 	while 	driving 	? 	rental 	car
that 	is 	paid 	for 	with 	their 	card. 	Id.
7
,

insurance 	can 	still 	~educe the 	risk 	of 	driving 	a 	rented 	vehicle
by purchasing 	a 	Cow.~2
Second, 	banning optional 	COW 	and 	mandatory 	coverage 	for 	all
renters 	may 	lead 	to 	higher 	basic 	rates. 	If 	the 	task 	force's
recommendations 	are 	adopted, 	rental 	car companies 	may 	have 	to
increase 	the 	rental 	rate 	to 	compensate 	for 	the 	increase 	in 	their
liability 	for 	accidents 	and 	thefts. 	Thus, 	it 	may be 	more
accurate 	to 	characterize 	the 	task 	force's 	reconmlendation 	as 	a
proposal 	not 	to 	eliminate 	but 	to 	mandate 	the 	sale 	of 	COW
indirectly. 	Many consumers 	who 	would 	have 	declined 	purchasing
COW would 	be 	injured 	because 	they 	would 	be 	required, 	in 	essence,
to 	pay 	for 	coverage 	twice: 	first 	for 	the 	coverage 	provided 	by
their 	own 	insurance, 	which 	reflects 	their 	own 	driving 	records,
and 	also 	for 	rental 	ca~ company-provided 	insurance, 	which 	pools
-good 	and 	bad 	drivers. 2
The 	task 	force 	attributes 	problems 	with 	the 	marketing 	of 	COW
~o renters' 	ignorance 	of 	the 	product's 	features. 	The 	task 	force
then 	concludes 	that 	the 	informational 	gap 	is 	such 	that 	optional
COW 	should 	simply 	be 	banned. 	In 	general, 	when 	consumers 	lack 	the
information 	needed 	to 	make 	an 	informed choice, 	the 	preferable
approach 	is 	to 	provide 	them 	the 	information, 	not 	to 	eliminate 	the
choice 	altogether. 24 	We 	hope 	that 	the 	task 	force 	will 	reexamine
22 	In 	addition, 	the 	elimination 	of 	op~ional COW 	could 	cause
relatively 	safe 	drivers 	to 	subsidize 	relatively 	unsafe 	ones. 	It
is 	unclear 	that 	such 	a 	subsidy would 	be 	in 	the 	public 	interest.
Moreover, 	such 	subsidization 	is 	discouraged 	by 	the 	current
system, 	which 	allows 	consumers 	to 	choose 	COW protec~ion 	or 	to
decline 	such 	protection 	if 	they 	are 	(or 	believe 	themselves 	to 	be)
relatively 	good 	risks.
23 	It might 	even 	be 	argued 	that 	consumers, 	knowing 	they
have 	no 	liability, 	will 	be 	less 	careful 	with 	the 	rented 	vehicle,
and 	hence 	companies 	would 	experience 	higher 	repair 	costs 	and 	an
increase 	in 	the 	proportion 	of 	vehicles 	under 	repair 	at 	any 	given
time. 	The 	increased 	costs 	are 	likely to 	be 	passed 	th~ough to
consumers 	as 	~.igher rates. 	For 	a 	theoretical 	t~eatment of 	this
issue, 	see 	Brown, 	Toward 	an 	Economic 	Theory 	of 	Liabil~~ 	2 	J. 	of
Legal 	stud. 	323 	(1973); 	Diamond, 	Single 	Activity 	Acc!;ents, 	3 	J.
of Legal 	stud. 	107 	(1974); 	and 	Shavell, 	Strict 	Liabil'tv 	vs.
Negligence, 	9 	J. 	of Legal 	stud. 	1 	(1980).
24 	~. 	Virginia 	State 	Board 	of 	Pharmacy
Citizens 	Consumer 	Council, 	425 	u.s. 	748, 	770
v. 	Vi~ginia
(1976):
There 	~s, 	of 	course, 	an 	alternative 	to 	this 	highly
p~ternalistic approach. 	That 	alternative 	is 	to 	assume
that 	this 	information 	is 	not 	in 	itself 	harmful, 	that
(ccntinued ... )
8

its 	recommendation 	and 	explore methods 	of 	facilitating 	the
communication 	of 	accurate 	information co~cerning optional 	CDW,
rather 	than 	considering 	proposals 	to 	ban 	the 	CDW 	option
altogether.
5. 	Conclusion
The 	task 	force 	recognized 	in 	the 	Preliminary Report 	that 	the
issues 	here 	"are vea 	complicated 	and do 	not 	lend 	themselves 	to
simple 	solutions. N25 	Moreover, 	the 	task 	force 	recognized 	that
certain of 	the 	proposed 	re~~rerrlants would make 	national
advertising more 	difficult. 2b 	We 	are 	conc~rned that 	the 	proposed
guidelines 	might 	diminish 	price 	advertising 	and 	limit 	price
competition. 	Renters 	could 	also 	be 	deprived 	of 	low~r rental
rates 	if 	companies 	were 	prevented 	from 	offering 	low-priced,
·limited-quantity rental 	vehicles. 	Finally, 	the 	task 	force's
recommendation 	that 	optional 	CDW 	be 	banned might 	increase 	car
rental 	prices 	to 	all 	consumers 	and 	diminish 	the 	range 	of 	consumer
choices 	for 	allocating 	the 	risk 	of .driving 	rental 	vehicles. 	The
Commission 	hopes 	that 	the 	task 	force 	will 	reconsider 	whether
these 	provisions 	are 	likely 	to 	achieve 	the 	goal 	of 	protecting
consumers.
By direction of 	the 	Commission.*
~~,~
Donald 	S. 	Clark
Secretary
* 	Commissioner Strenio does 	not 	join 	in 	this 	letter.
24( 	.. " 	d)	... con_.Lnue
people 	will 	perceive 	their own 	best 	interests 	if 	only
they 	are 	well 	enough 	informed, 	and 	that 	the 	best 	means
to 	that 	end 	is 	to 	open 	the 	channels 	of 	communication
rather 	than 	to 	close 	them.
25
26
Prelimina~y Report 	at 	3.
rd. 	at 	8.
9