Ford Motor Credit Co. and General Motors Acceptance Corp. plan to stop leasing vehicles in New York. Has leasing lost its allure in the Empire State? Hardly. What's the problem? Vicarious liability.
Under the concept of vicarious liability, leasing companies can be held legally liable for accidents involving leased vehicles. New York, Connecticut and Rhode Island have some of the nation's toughest vicarious liability laws. That's wrong, and it must change.
Ford Credit, GMAC and other finance companies got a wake-up call last summer when a jury in Providence, R.I., slapped a $28 million judgment on Chase Auto Finance Corp. and its insurer. Chase owned the title to the leased car involved in a 1998 accident in which a woman was paralyzed. Banks and captive lease companies face hundreds of similar lawsuits. Can anyone blame Ford Credit and GMAC for taking steps to protect themselves?
Unfortunately, consumers will be the ultimate losers. The most likely substitute for leasing is the so-called balloon loan, which is structured to allow monthly payments similar to those of a lease. But balloon loans have disadvantages. For example, the purchaser must pay sales tax on the entire value of the vehicle. By contrast, a lease requires the customer to pay sales tax on only a portion of the vehicle's value.
Nearly a century ago, states passed vicarious liability laws to prevent wealthy motorists from shifting liability for an accident to their chauffeurs. Needless to say, the law has outlived its original purpose.
That is not to say that vicarious liability is never justified. For example, tavern owners can be sued if their bartenders continue to serve drunken customers. That's appropriate.
But consumer finance companies have no control over the actions of their customers and shouldn't have to walk around with a target on their backs. Lawmakers in New York, Rhode Island and Connecticut should do the right thing and exempt vehicle leases from vicarious liability.