Considering Contactless Rentals? Check Your State Laws First.

As long the coronavirus threatens our health, renters are likely to want limited contact with rental agency employees and other customers. Some customers may even prefer “contactless” rentals where the entire rental transaction, including access to and return of vehicles, is conducted remotely or electronically. 
The industry was clearly trending in this direction before the pandemic, and contactless processes will likely remain after it subsides. In addition, initial reluctance of consumers to return to public or other shared transportation modes could lead to requests for longer rental periods. 
This article will briefly review some of the legal considerations regarding remote rental transactions, electronic rental transactions designed to limit contact, and extended rental terms beyond 30 days.
Contactless RentalsRemote rentals, including membership/loyalty programs, carsharing, and other app-based models, have been part of the industry for many years and typically require the customer to register as a “member” and agree to a master rental agreement or membership agreement through a website or an app. In a completely contactless rental, the customer also accesses and returns the vehicle through a pin code, a smartphone, or another similar method — all without any face-to-face contact with the car rental operator. As car rental operators develop new policies and procedures to meet customer expectations and comply with local law and public health recommendations amidst the coronavirus pandemic, operators should keep in mind that many state rental laws still contemplate some face-to-face contact while others may impede completely contactless rentals. For example:Physical inspectionsMany states, including Arizona, California, Colorado, Florida, Illinois, Nevada, and Texas still require a physical inspection of a renter’s driver’s license at the time of rental. Presently, only a handful of states, including California, Colorado, and Florida exempt remote transactions from the physical inspection requirements if certain conditions are met, such as requiring the renter to verify that he or she holds a valid, unexpired license at the time of entering into a master agreement or before the first rental. GPS UseSeveral states, including California, Connecticut, Montana, and New York prohibit or limit the use of GPS or telematics to track the location of the vehicle and access other information about the vehicle. California is the most restrictive and prohibits rental companies from using, accessing, or obtaining any information about the vehicle from telematics, including to impose fees, with only limited exceptions, such as to provide roadside assistance to the renter, to locate a vehicle reported stolen by the renter, or to assist with an Amber Alert. Operators in any state should consult with counsel to understand whether state rental laws or other privacy laws may limit their ability to implement the latest technology to improve customer experience and encourage social distancing, and if so, whether they can restructure their model or planned use of the technology to remain compliant. Identifying ImpairmentDuring a completely contactless rental, the operator cannot observe the customer to determine whether he or she appears fit to drive, which may lead to claims of negligent entrustment if a renter with an impairment later causes an accident that injures a third party. As a result, an operator and its insurance company may establish additional rental qualifications (which may be based on a motor vehicle record report) before permitting a customer to participate in a contactless program.Technology and PrivacyIf an operator uses facial recognition technology, fingerprints, or other biometric information to verify the customer’s identity, unlock the vehicle, or both, the operator must ensure that its program, technology, and customer disclosures and policies comply with any applicable privacy laws, such as the California Consumer Privacy Act, the Illinois Biometric Information Privacy Act, or similar state (or federal) privacy laws, which may require a customer to “opt-in” to use of biometric information.

Electronic Transactions

Contactless rentals generally involve a membership agreement entered into via a website or an app or some other digital agreement. Generally, electronic signatures and agreements are permissible and enforceable as long as they meet certain conditions, including:Consent The customer must consent to the use of electronic signatures and records. Consent to electronic transaction can generally be inferred from conduct, for example completion of a transaction online or signing an electronic signature pad or tablet.Proof of Electronic SignatureTo be effective, an electronic signature must be “attributable” to the signatory, meaning the method must be capable of linking to that individual and shown as his or her act. According to the Uniform Electronic Transactions Act (adopted in most states), the act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. Examples of electronic signatures include a person typing his or her name, initials, or email on a screen; a person initialing or signing a screen using finger or stylus; clicking or tapping on computer or screen that says, “I agree,” “submit” or equivalent.No alternation of document after signature Any verbiage on a printed agreement must be identical to the verbiage in the electronic agreement signed. An electronic signature cannot be copied and inserted into multiple sections of an agreement.

Extended Rental Terms

Rental car laws and definitions vary by state. For example, the California Vehicle Rental Law defines a renter as a person obligated under a vehicle contract for a period “less than 30 days.”Texas defines a vehicle rental as “30 days or less.” And in some states, such as Arizona, the maximum statutory time period varies depending upon whether a statute regulates taxes, collision damage waiver, limited licenses for optional insurance product sales, etc. Creating a contract term that is longer than the state law definition of rental creates the possibility the transaction will be construed as a lease rather than a rental. Vehicle lease transactions are subject to additional contract and legal requirements. For example, Regulation M issued by the Bureau of Consumer Financial Protection (which applies to all states) requires certain disclosures for consumer transactions with an initial period of four months or longer. Regulation M does not consider renewal periods and applies only if the initial period exceeds four months; however, certain state consumer motor vehicle leasing laws (like the Maryland Consumer Motor Vehicle Leasing Law) applies to a transaction if the total term, including the initial term and any renewal terms, exceeds four months. Compliance with those obligations can be challenging for a rental operator and will be subject to state licensing requirements. Moreover, transactions for a defined term between 30 days and four months may fall into a “grey area” of the law creating compliance challenges For these and other reasons, many rental car operators require that a new contract be written every 30 days or, at a minimum, that the existing agreement be renewed every 30 days. Even operators in states without a defined rental term should consider similar practices. Strict compliance with state law drivers’ license inspection laws would require the renter to return to a rental location for a driver’s license inspection and the generation of a new contract. The above discussion regarding contactless and electronic transactions should be considered for the renewal process. 

Beware of Outdated Laws

Similar to the driver’s license inspection laws, many states have not updated their rental agreement laws to reflect the move from paper-based to electronic transactions. For example, many states require vehicle rental companies to disclose information, such as collision damage waiver conditions, state conversion/theft laws, and insurance requirements in a specific font style and size.And some states even mandate that disclosures appear on the “face” of the agreement or on clear and conspicuous signage posted at the rental location. With most digital agreements, font size, style, and even placement are largely irrelevant. Depending upon where the renter will access the vehicle, signage may be impractical. Although some states are beginning to recognize the evolution from counter-based, face-to-face transactions to all digital, contactless rentals, only New York has amended its law to explicitly exempt digital agreements from the font and placement requirements. As a result, operators should take into account these requirements and determine the best methods for implementing the state disclosure requirements, which may include use of separate fields in an app or separate state addenda to an agreement to highlight the special state disclosures.

About the Authors

Leslie J. Pujo is an attorney with Plave Koch PLC in Reston, Va., focusing on mobility and vehicle use, as well as franchising.  Wesley D. Hurst is an attorney in the Los Angeles office of Polsinelli and leads the firm’s Mobility & Vehicle Use practice.

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