A pending Congressional bill to reform liability laws for automobile rental and leasing companies could boost commercial activity in those sectors and possibly raise ABS issuance volumes as well. The bill may repeal existing vicarious tort liability laws, in which the leasing company of a vehicle can be held liable for damages or injury caused by the operator of the vehicle, or lessee, lifting a substantial cost burden for leasing and rental companies. The bill passed through the U.S. House of Representatives earlier this month and is awaiting consideration by the Senate.

Chris Mrazek, managing director with Fitch Ratings, said the reform would help lessors and rental companies by reducing or eliminating vicarious tort insurance and settlement costs as well as spurring commercial activity as companies pass those savings on to customers. From an investor perspective, it would mean ABS deals from those companies would face less risk. "It will remove some risk and uncertainty from lease ABS," he said.

Mrazek said current vicarious tort liability laws have led some major consumer vehicle lessors, such as General Motors Acceptance Corp., Ford Motor Credit and American Honda Finance, to either curtail their activity or suspend it altogether in states, such as New York, that have no ceilings on tort liability. The present reform would create a federal standard for lessor and renter liability that would level the playing field and likely make it more profitable to compete in certain state markets. "You will see some of those companies coming back into the marketplace and originating leases," said Mrazek.

"It should open up business [and] it will definitely create a more business friendly environment in New York," said Tom James, vice president of government relations for the Truck Rental and Leasing Association. Alexandria, Va.-based TRALA has been one of the main forces driving attempts at liability reform since the mid-nineties, added James.

James said vicarious liability reform may be discussed in the Senate as part of the larger "highway bill" in the coming weeks, but that its discussion was not guaranteed. He could give no timeframe for action on the bill or on liability reform, but was cautiously optimistic the reforms would be adopted.

From a ratings perspective, issuers would have to purchase less liability insurance on their deals, and the ratings of existing deals would not be affected. "We do not anticipate any ratings implications on existing transactions," said Mrazek.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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