Hertz Must Pay $6.85-Million Fine for Repair Scheme

Hertz Corp., the nation’s biggest rental car company, pleaded guilty in U.S. District Court in Brooklyn on Thursday to one count of mail fraud for overbilling on repairs made to damaged cars by 25% between 1978 and 1985.

The company agreed to pay a fine of $6.85 million, or about half the amount it overcharged for the repairs. It has also agreed to make restitution to those it overcharged--mostly insurance companies--of about $13.7 million.

U.S. Atty. Andrew Maloney of Brooklyn said the fine was the largest ever imposed upon a corporation in a criminal consumer fraud case.

Under the scheme, which was discontin ued in 1985, Hertz would charge its customers or insurance companies the retail price to repair damaged cars even though the actual cost to it was much cheaper because of its high volume of repairs.

Hertz said overcharging is an industrywide practice that continues at other companies.

“This customary practice, in which Hertz no longer engages, is still utilized by most major rental car companies, including Avis,” the company said in a statement.

Avis said in response that while it is an industrywide practice to charge retail prices on car repairs, the situation is different from Hertz’ actions.

Maloney said that although some of the practices were common in the industry, “Hertz’s practices rose to the level of criminal fraud because the company affirmatively misrepresented facts to its customers and third parties (insurance companies) regarding the cost of the repair.”

Assistant U.S. Atty. Jonny Frank, who led the investigation, said that after Hertz learned in 1985 it was the subject of a federal grand jury probe, the company altered the fine print in its rental contract to show it was charging more for repairs than it was paying.

This, Frank said, ended the company’s criminal activity, but left it open to the civil action by the state attorneys general.

Hertz admitted using phony damage claims, altered documents and inflated repair bills to charge higher prices than it paid to repair automobiles damaged in accidents.

Hertz employed a number of techniques to defraud its customers, the prosecutors said.

Without informing its car renters, Hertz sent to customers who had been involved in an accident or their insurance company damage appraisals that did not reflect the fleet discounts the company received, prosecutors said.

The company also programmed a computer to produce inflated damage-repair estimates, they said.

In addition, Hertz prepared appraisals only on the basis of photographs or accident reports to set the billed cost of repairing a damaged car, Maloney said. Hertz disguised these phony appraisals as legitimate by forging the signature of appraisers, he said.

Maloney said it was not criminal for an automobile rental company to earn a profit on repairs, but said Hertz acted illegally by failing to inform its customers and by submitting fraudulent documents.

Hertz said it now bills only for its actual cost of repairs and has discontinued the other illegal practices.

Maloney said the case should “serve as a warning to other companies. We do not believe that the practices are limited to the Hertz Corp. Some of these practices were industrywide.”

Frank said that in the next few days ads would begin appearing in major newspapers telling consumers who were defrauded by Hertz how to file a claim for a refund.

In the related state case, New York Atty. Gen. Robert Abrams said Hertz had agreed to pay an additional $2 million in restitution to customers the company charged for repairs in the 12-month period through May 31, 1986. Hertz admitted no wrongdoing in that case.

Abrams said that during the latter period, Hertz charged “prevailing retail prices for repairs” when the actual repair cost was about 22% less because the company kept discounts for work on its huge fleet of cars.

A good portion of the funds will go to insurance companies, Hertz spokesman Joseph Russo said, since they paid out on most of the original claims. About $3 million has already been repaid.

Hertz was spun off by its parent UAL Corp. at the end of last year and is now privately held.

The scheme was devised by the Park Ridge, N.J.-based company’s national accident control manager, who has been fired. About 20 other Hertz employees were also let go, Russo said.

“The claims we collect every year never measure up to our total damage,” Russo said, which is why the practice was well hidden during the seven years.