After a sharp drop in auto leasing nationwide in recent years due to extra-low
interest rates, leasing is starting to rebound, but legal issues could come
back to haunt Rhode Island dealerships and financing companies as soon as next
July.
Just last year, auto leasing companies were threatening to leave Rhode Island en masse, upset that a state law allowed them to be held liable, with no limits, for their customers’ accidents – sometimes with enormous consequences.
Rhode Island’s law had long been on the books, one of only a handful such statutes nationwide. But what scared companies was a 2002 ruling by the state Supreme Court asserting that they and car rental companies were indeed subject to the law, and a $28-million verdict against the Chase Manhattan Automotive Finance Corp. in a personal-injury case just four months later.
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After some vigorous debate pitting the companies against trial lawyers and consumer advocates, a compromise was reached. Rental and leasing companies’ so-called “vicarious liability” was kept on the books, but reduced.
For car rental companies, the cap was set at $250,000 per person or $500,000 per accident for injuries or death, and $25,000 for property damage. Leasing companies were not held liable at all if their customer had insurance for at least $100,000, $300,000 and $50,000, respectively, and their liability was limited to the difference between actual coverage and those caps if the policy fell under those limits.
The news spread across the industry that Rhode Island had solved its problem, and leasing companies that had left returned to the state. Only New York still has unlimited vicarious liability, and many companies have abandoned the state.
But in fact, the solution is only temporary. The caps approved last year were only valid through June 30, and a bill to make them permanent this year was only approved after being amended to only postpone the sunset date to June 30, 2005.
“We’d obviously like it to be permanent,” said Jack Perkins, executive vice president of the Rhode Island Automobile Dealers Association. Leasing is an important option to be able to offer customers, Perkins said, and without a permanent change in the law, “I think it makes it difficult to make long-term plans.”
“It’s always easier to operate in an environment where you know the law on a permanent basis,” Perkins added. “You don’t know whether to expand your operation, because you don’t know what kind of environment you’ll be operating in within months.”
The share of customers who lease instead of buying varies by make, Perkins said, but overall, nationally, after dropping from 36 percent in 1999 to 18 percent last year, the rate has rebounded to about 20 percent.
“Leasing is oftentimes the most affordable way of getting a new vehicle,” he said. “We’d hate to lose that option in this state when 48 other states have leasing.”
