Tracking Every Move You Make: Can Car Rental Companies Use Technology to Monitor Our Driving?
A Connecticut Court's Ruling Highlights an Important Question

As many readers will already know, the Global Positioning Satellite System (GPS) has a number of major advantages. It can help with driving directions, or help find a stolen car. It can improve safety by allowing emergency rescue services to trace the originating location of cell phone "911" calls. And, if installed in school buses, it can tell parents exactly when a bus is approaching their house so children do not have to wait in the rain or snow for long.

How does it do so? GPS consists of a group of 24 satellites, which continuously transmit microwave signals regarding their locations at a given time. Through analysis of the data coming in from various satellites, a GPS receiver can determine its own location (for instance, if it's in a car, it can determine the car's location). And if a GPS device has a transmitter, as well as a receiver, it can also broadcast its location to third parties.

Does GPS have a down side? Unfortunately, the answer may be yes - and a recent Connecticut Supreme Court ruling illustrates why.

Fortunately, however, a few simple legal measures can help to mitigate the downside of businesses' use of GPS. (The more troubling use of GPS by the government, however, is beyond this column's scope.) And several states --including New York, Connecticut and California -- have already enacted legislation restricting the car rental industry's ability to use GPS information in certain ways.

The Recent Connecticut Case: Revealing One Company's Surprise Use of GPS

First, let's look at the Connecticut case. It arose because American Car Rental had a policy of charging its clients $150 for "excessive wear and tear" to the rental car, each time they drove over 79 miles per hour.

American knew exactly when that occurred because its subsidiary, Acme Rental, used GPS installed in its cars to monitor renters' speed as they traveled. Whenever GPS reported that the customer drove at least 80mph for more than two minutes at a time, the company charged the customer's credit or debit card $150.

This happened as follows: Wireless technology transmitted the vehicle's location, as determined by GPS, to a tracking company. The tracking company faxed the information to Acme, which - with the rental customer's credit card on file -- posted a $150 charge to the card. Sometimes, this process was repeated numerous times. And sometimes, as a result, customers had their credit or debit cards rejected by retailers because their credit limit was exceeded.

Did the company alert customers to this policy beforehand? Not very prominently.

Buried in the fine print of the rental contracts was a clause stating that "Vehicles driven in excess of the posted speed limit will be charged $150 per occurrence. All our vehicles are GPS equipped." (Acme eventually replaced the words "posted speed limit" with "79 miles per hour.")

In the contract, no explanation of what GPS is, or of how the customer would be charged, was given. Nor was "occurrence" defined to make clear that just two minutes of speeding would count - or that drivers could be charged for an apparently limitless number of such two-minute periods, even within a single trip.

Some customers apparently received a verbal explanation of the policy. Others, however, did not.

What about when the customer was driving? Was there any warning then that the policy was being enforced? No. The customer, as the court explained, "received no indication that the GPS device was transmitting information," and no indication of a charge to his or her card.

The Connecticut Supreme Court's Ruling: An Illegal Contractual Penalty

Common intuition suggests the $150 charge - and, especially, the sum of multiple $150 charges - is too high. And fortunately, the court interpreting the contract here agreed.

Under the law of contracts, "liquidated damages" - that is, reasonable contractual estimates of actual damages - are permissible. But penalties - excessively amounts designed to punish contract breaches, over and above compensating for them - are not.

The Connecticut Supreme Court rightly deemed the $150 fee a penalty (and also a violation of the Connecticut Unfair Trade Practices Act).

In support of its holding, it noted these striking findings: An administrative hearing officer had determined, based on the testimony of various expert witnesses, that the actual cost of excess wear and tear associated with driving one of the rental car company's cars at 80 miles per hour for two continuous minutes was closer to 37 cents, than $150.

Based on these calculations, Justice David Borden pointed out that "[t]he $150 collected by [American Rental] was more than 400 times the potential damage incurred." Justice Borden also noted that "a customer would have to travel more than 1,070 miles at high speeds, without decelerating below 80 miles per hour, to [actually] cause $150 of excess wear on the vehicle."

And a customer who did drive that far at that speed would still be overcharged, the court noted. In reality, the customer would have had to decelerate to fuel up, meaning he would actually incur multiple $150 charges (each time he accelerated to 80), not just one.

Finally, the Justice added, a renter who drove at 80 for two minutes, and a renter who drove at 80 for half an hour, would incur the very same $150 charge.

According to the court, all this indicates that the charge did not reasonably correlate to actual vehicle wear and tear, and thus was meant to penalize the driver, not to compensate the company for actual harm to the rental car.

A California GPS-Related Surcharge Action Has Also Been Initiated

Meanwhile, the California attorney general also recently took administrative action against a car rental company that used GPS information to surcharge its customers.

The company's rental contract reportedly disclosed the fact that a higher mileage charge would apply if a rental car was driven out of state. The same company apparently did not disclose that GPS information would be used to enforce compliance.

In addition, the rental company apparently advertised unlimited mileage (no per-mile charges), without disclosing that the mileage had to be driven strictly within geographic limits.

Companies' Use of GPS, With Clear Notice Legally-Required, Can Be A Great Idea

How far should a rental company (or an insurance company) be able to go in monitoring our driving patterns using tracking technology? And if companies do use GPS, or another system, to monitor our driving, how clearly must they give us notice of their plan to do so beforehand?

In my opinion, legislation should require clear notice whenever GPS is used by a business.

Fine print is not enough, and nor is partial or ambiguous disclosure: The notice in a car rental or insurance contract ought to be clear, prominent, and ought to mention GPS specifically. (Perhaps the company's cars ought also to bear a prominent sticker on the dashboard alerting the driver to the presence of GPS, and warning how it can be used.)

GPS-Plus-Wireless Transmitters: Why the Combination May Invade Privacy

It's little wonder that companies want to couple GPS with wireless transmitters. Here are a few examples of why:

A GPS-plus-transmitter system can help a trucking company monitor whether its employees are obeying speed limits and driving-hours limits, and taking their required rest breaks.

Using such a system can also aid insurance and/or rental car companies in giving discounts to those who do not speed; possibly adding (small, reasonable) penalties to the bills of those who do; and finding stolen cars. (Companies should be careful not to assume, however, that an occasional speeder is a scofflaw: Many drivers are forced to speed simply to keep pace with other cars in traffic.)

GPS could be useful in terms of curbing truly reckless driving such as speed racing. Rental car companies might be able to prohibit certain drivers from car rentals if they are repeatedly driving in excess of the speed limit.

But what about the cost, when it comes to privacy? Even when tracking is done openly and consensually - as I have suggested ought to be legally required - the transmission of location data in real time may reveal more than the consumer has bargained for.

A consumer might assume that GPS is only being installed to recover his car if stolen, but in fact, it could be used for marketing and pricing purposes - to figure out how far a given driver typically drives, how often she uses her car, and how fast she travels.

More disclosure is at least a partial solution to possible lack of customer knowledge about how GPS-plus-transmitter systems can and will be used. But it may not be a complete solution, as I will explain.

GPS-Plus-Transmitter Data May Only Further Expand Intrusive "Digital Dossiers"

As I discussed in a prior column, information-filled digital dossiers already exist on each of us - based on information we give to private companies and to the government. Information we give to private companies may, in the future, end up in the government's dossiers on us too.

Do we really want the car rental agency collecting data that may allow tracking of the restaurants we eat at, the hotels we sleep in, and the addresses we visit? Probably not. Yet if results from search engines like Zabasearch - which uses satellite photos to show particular addresses - were combined with transmitted GPS data, a profile of a person's entire work and social life could be constructed by a private company for its dossier. (I wrote in more detail about Zabasearch in an earlier column). That seems very undesirable - and even potentially dangerous.

Instituting policies of purging information regarding specific routes taken - and retaining information only as to speed and length of trip - might be one way to address the "digital dossier" fear.

Legislation In Several States Restricts Rental Car Company GPS Use

Perhaps based in part on this kind of privacy concern, the California and Connecticut legislatures have enacted laws restricting the ability of leasing companies to use GPS information.

In California, for instance, car rental companies may no longer use GPS information to impose surcharges, fines or penalties relating to the renter's use of a leased vehicle.

GPS information may, however, be used by a California rental company to help find a stolen, abandoned or missing vehicle. This practice must be clearly and conspicuously disclosed to the rental customer.

GPS information also may be used by a California car rental company "for the sole purpose of determining the date and time the vehicle is returned to the rental company, and the total mileage driven and the vehicle fuel level of the returned vehicle." Such determinations may be made "only after the renter has returned the vehicle to the rental company."

In addition, a rental vehicle may include electronic surveillance technology for remote locking or unlocking of the vehicle at the request of the renter. Vehicle roadside assistance is also permitted at the renter's request.

New York has a law that also prohibits car rental companies from using GPS information "to determine or impose any costs, fees, charges or penalties on an authorized driver for such driver's use of a rental vehicle," subject to an exception for the recovery of "a vehicle that is lost, misplaced or stolen."

Other states are currently contemplating similar legislation. These states are right to consider the use to which rental companies may put GPS or other tracking technology. That said, however, they should not ban all attempts to correlate risk with a driver's behavior by using tracking devices. To do so would rob us of some of the potentially positive benefits of these activities: safer driving, and, one would hope, fewer accidents.

Beyond Informed Consent: Moving Toward a Privacy-Free Society?

When it comes to GPS - especially GPS-plus-transmitter systems - informed consent should be, legally, a must before consumers' movements are tracked. But is informed consent enough?

As I have indicated, that is a difficult question. On the one hand, simply requiring informed consent alone will predictably increase road safety, and decrease accidents. It will also allow drivers to receive fairer pricing for rentals and insurance - pricing that accords with their actual habits, not just those of the average driver.

On the other hand, however, legislators in states such as California and New York are correct to scrutinize the use of GPS in the car rental industry, and to attempt to craft a public policy that balances the benefits of the technology with privacy concerns. As our society becomes less private, even with our consent at each step, the sum of all those steps may mean it also becomes less free.