Old law threatens New York car-leasing options

CNY Business Journal (1996+), Feb 28, 2003 by Yunich, Rob

SYRACUSE-A New York State law codified in 1924 is threatening to shut down automobile leasing in the Empire State. Under the so-called "vicarious liability" law, lending institutions are deemed the owners of leased vehicles and are therefore responsible if that vehicle should be involved in an accident. The law absolves the car's driver of any accountability.

That law-which only exists in New York, Rhode Island, and Connecticut-is forcing lending institutions to reconsider leasing vehicles in those three states. New York State Rep. Ronald Canestrari and State Sen. Owen Johnson have proposed a bill to shift the responsibility to the vehicle's lessee.

"If a vehicle is a leased vehicle, the term 'owner' shall mean the person to whom the vehicle has been leased, not the person to whom the certificate of title for the vehicle has been issued or assigned or to whom the manufacturer's or importer's certificate of origin for the vehicle has been delivered or assigned," the bill states.

The law was enacted during a time when livery drivers-who were often poor-caused property damage and were unable to pay the expenses, according to Canestrari and Johnson.

"In 1924, when this law was codified into the Vehicle and Traffic law, it made sense to pass on the liability from a reckless livery driver to the owner of the vehicle who was usually the cause for the drivers' actions," New York State Automobile Dealer's Association (NYSADA) President Robert E. Vancavage says. "Clearly the law was written to establish vicarious liability in the context of a masterservant relationship.

"During the late 1980s to today, automobile leasing has grown in New York to encompass more than one in every four transactions," he adds. "Unfortunately, as leasing has grown, so has the amount of lawsuits filed by attorneys."

Vancavage says that there is currently about $1.6 billion pending in lawsuits against the eight largest leasing companies as a result of the law.

"These judgments or just their threat have caused over 30 independent leasing companies to leave the state since September 2002," Vancavage says. "Now GMAC, Ford Motor Credit, DaimlerChrysler Credit, Chase Financial, and others are considering leaving the state as well."

Chase Manhattan Automotive Finance Corp., an arm of JPMorgan Chase and Co., stopped leasing cars in Rhode Island in October 2002 and is close to following suit in New York and Connecticut.

"We've been concerned about vicarious liability for a number of years," says Jeff Levine, Chase's general counsel. "We've gotten to a point where we can't do business in a state where the liability [for the car] is out of our hands."

Additionally, Chase increased the acquisition fee - the amount charged when the lease is signed - to $1,000 from $595 until the law is changed.

"We're not doing this in any other states; it's not impacting leasing in 47 states," Levine says. "If the law goes away, we will go back to doing business the way we did before."

"This issue is bad for consumers," he adds. "One, it's going to give them less choice for leasing vehicles or leasing can go away [entirely]. Either way, it's more expensive for them. Leasing allows consumers to [drive] newer, safer cars more often and only pay for the use of the car as opposed to the full price [if they purchase it]."

Levine adds that Chase-or any lending institution-would not be liable for cars that were purchased by the consumer, but would be if the car were leased. And, Levine says, the amount that Chase finances is the same in both cases.

Chase has been seriously affected by lawsuits resulting from the law. In one instance, they lost a nearly $28 million lawsuit that resulted from an automobile crash. Ford Motor Credit suffered a $51 million, structured settlement.

Jim Bradshaw, co-owner of Syracuse's Crest Cadillac and Acura, says this affects everybody connected with leasing cars.

"If [the consumer] is not allowed to lease a car, then they'll be forced to buy it," he says.

Bradshaw says that leases account for about half of all sales at his dealerships.

"In the long run, it's our opinion that this will cost the consumer more to buy a car and not be able to remain as current [in the model driven]," Bradshaw says. "And then, after the warranty expires, you'll have to pay for repairs.

"We are contacting [ ... the New York State] legislature, and there'll be a reception on March 4 [in Albany] and many of the dealers will be down there trying to persuade [them to pass the bill] and tell our story," he adds.

GMAC will I not lease cars in New York after May 1 if the law is not changed. Other companies have switched to a balloon-payment agreement, where the consumer finances the first portion of the loan and either pays the remainder of the loan or returns the car to the dealer at the end of the agreement. In that scenario, the "vicarious liability" law does not apply.

NYSADA has drafted a letter that all dealers in the state can send to the State Assembly and the State Senate.

"[The dealers'] concern is that at some point in time, they won't be able to lease vehicles," Vancavage says. "It's as simple as that."