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Do rental car firms profit from unpaid tolls?

Add this to the list of hidden fees you need to worry about when renting a car: an unpaid tolls collection charge. Rental car companies are collecting hefty fees from consumers who drive through electronic toll collection booths without paying -- in some cases nearly 10 times the amount of the original toll.

For example, Advantage Rent A Car customers who accidentally drive through electronic toll booths on roads like the new Texas Highway 121, which has no human toll collectors, without the proper equipment can expect to eventually receive a bill stating that they owe the state 60 cents – and $5 to a company named Violation Management Services. At Avis, drivers who do the same can be billed $25 for each transgression, in addition to the toll charge.

The problem is twofold: Some drivers purposely drive though toll stations, figuring the rental car company will have to deal with problem if anyone does. But others are innocent victims who fail to pay simply because they aren’t familiar with an electronic toll collection system and end up driving through the wrong booth, or find themselves on roads where there is no cash option for those who lack the required electronic-payment device. This problem is expected to get worse as more toll roads are built. According to Advantage, some 70 e-toll only roads are in the planning stages in Texas alone.

Governments and rental car companies aren’t helping the situation. Many toll roads have confusing or hard-to-see signs guaranteed to confuse visitors.

And while some rental car offices let customers borrow the devices needed to pay e-tolls for a small fee, such services are not yet widespread and aren’t compatible with every toll collection system. And with unpaid tolls increasing, many rental car companies are turning to third-party firms, which sometimes add hefty fees to the bill they send to the customer.

The rental car industry insists that it's only trying to recover the cost of going after intentional deadbeats who cost rental car companies "tens of millions of dollars" each year, according to industry analyst Neil Abrams of Abrams Consulting.

Abrams said that rental car companies generally pay the violations and then attempt to collect later from consumers. Even with the steep fees, he said, firms still lose money on unpaid tolls and tickets.

Profiting from violations?

But marketing materials from Violations Management Services, a third-party firm that helps rental car companies track down toll evaders and other violators, suggest violation collections can be profitable. The company indicates on its Web site that it can turn "a costly customer service headache into a profitable customer service solution.”

Also on its site, VMS indicates it shares the spoils with rental car companies, saying it offers them a "summons incentive (up to $10 net) for each service fee collected."

And last year, when Violation Management teamed up with rental car software firm TSD, TSD CEO Charles Grieco said in a press release that rental car firms are "working with VMS to convert what is normally a cost center for the rental car company into a profit center."

Violation Management Services didn't respond to repeated requests for comment. During a brief conversation, company founder Dennis Round insisted that his firm is not a collection agency, but rather a billing agency, akin to the sort of firms utilized by doctors and other professionals.

The idea that companies might profit from government-issued violations may be unnerving, but it's not new. Municipalities have been outsourcing parking ticket collections for years. And rental car companies have long assessed fees for parking and speeding tickets.

Tollway agency doesn't limit add-on fees

Advantage’s $5 fee for a 60-cent toll mishap may sound steep, but it’s actually an improvement. When the new Texas 121 toll road first opened last year, service fees were as high as $40, according to Advantage spokesman Sean Buck. The company's service agreement warns consumers it could charge up to $100 for each violation, but the firm has yet to charge anyone that much, he said.

Gaby Garcia, a Texas Tollway spokeswoman, said consumers who don't have the electronic gadget needed to pay on Highway 121 are photographed and later get an invoice from the state with a $1 service fee charge tacked on. If a rental car is used in a toll violation, the rental agency receives the bill, she said. The agency does not limit the fees the rental agency can add on.

"We do encourage the rental car companies to be up front about their charges," she said.

Buck says the Advantage fee is disclosed multiple times to consumers before they drive off the rental lot. He also defended the amount of the $5 charge, saying the company merely covers the cost of tracking down the renters and processing the necessary paperwork.

"This is definitely not a revenue generator for us," he said.

'A very serious problem'

Abrams agreed. He said collecting a 60-cent toll violation could cost a rental agency $10, particularly because the firms often have to front the money to municipalities and then later try to recoup it from consumers.

Given the thin margins in the rental car industry -- firms are lucky to make $20 on the average $180 rental, he said -- companies are now forced to aggressively pursue violation collections, Abrams said.

"It is a very serious problem for the industry. ... It's a no-win situation for them," he said. "A lot of people when they get a ticket say, 'Screw it, it's the rental car company's problem.’" On the other hand, the firms risk ill will from consumers when they try to collect the charges, he said.

Other rental car companies charge much more than Advantage. Avis, for example, typically charges drivers a $25 "administrative fee" when it is forced to pay fines and collect later from drivers, spokeswoman Alive Pereira said.

“The administrative fee is neither a profit center nor revenue stream for us. It is an effort to minimize our loss,” she said.

RED TAPE WRESTLING TIPS

One invisible victim of all this: due process. It's very difficult for consumers to get a copy of underlying citations in rental car violations, giving them little or no chance to invoke their rights to adjudication. It is alarming to think private companies can act as enforcement agents for municipal authorities without having to abide by normal due process procedures.

It's also alarming to think about the perverse incentives created by the "summons incentives" paid by firms like Violation Management Services. Parking tickets are already often abused by local governments as hidden taxes; privatizing that process and adding even more to the cost seems positively un-American.

In some cases, consumers are innocent and helpless – such as when they find themselves on Texas Highway 121. Driving through confusing electronic-only toll booths should not enrich any company or government agency.

Car renters should keep in mind, however, that they can settle up directly with the agencies involved and avoid service charges. If you know you've skipped a toll or received a parking ticket, contact the agency involved and pay up. The rental car company will leave you alone.

No one should drop off a rental car after incurring tickets and violations, hoping the company won't find them. That's naive, given our electronic age, and unfair.

Rental car consumers should closely watch their bills in the months after a trip, looking for erroneous violation charges.

And anyone who's uncomfortable with the notion of private companies profiting off of statutory violations should contact their elected representatives and complain.