Wrong way of creating wealth?

June 3, 2008

Rental firms 'leasing' cars from cash-strapped owners. They pay owners' loan instalments and use cars as rentals - but this is illegal
By Christopher Tan, Senior Correspondent

AGAINST THE LAW: On the surface, it looks like a good deal. But it is illegal to rent your car out in this way. Also, if something happens to the car, there may not be any insurance cover.

COMPANIES which offer financially strapped car owners a way out - by taking over their vehicles to be used as rentals - are sprouting. It makes good business sense for the dozen or so firms, which advertise their services online - they avoid the huge capital outlay of acquiring their own car fleet.

On the surface, it looks like a good deal for the car owners too. Many of them cannot sell their cars due to their huge loans and the fall in car prices in recent years. The 'rental' firms pay them a monthly fee for their cars, often enough to cover their loan instalments.

But there is a catch - a costly one. It is illegal to rent your car out this way.

If something happens to the car while it is hired out, there may not be any insurance cover. If it is stolen, insurers may not pay up.

The rules and penalties

Private car owners are allowed to rent their cars out only from 7pm on Friday to 7am the following Monday and from 7pm on the eve of a public holiday to 7am on the first working day following the public holiday.

For illegally renting out cars, both car owners and rental companies face fines of up to $1,000, jail terms of up to three months or both. Car owners also risk a driving ban of up to 12 months.
'Leased' car missing - now owner faces bankruptcy

CASH-STRAPPED businessman Lau Cheun Kee 'leased' his 2004 Honda Odyssey seven-seater to a rental firm when his food business failed last year.But he now faces a bigger problem: involuntary bankruptcy and possible prosecution by the Land Transport Authority.

A check by The Straits Times found several advertisements on a website, efair.com.sg, targeting individuals who cannot quite afford the car they bought.

An ad by Xtreme Car Rental read: 'Having problems to upkeep your current car? Wanted (sic) to sell away car but can't sell due to huge cash top-up?I can solve all your problems and I have help (sic) a lot of car owners.'

Another promised to not only take care of monthly instalments, but also give 'cash rebates'.All the owner needed to do was to leave the car with it, a 'licensed car rental company in Singapore'.

One ad by a Mr Ricky Soh was more direct: 'Are you having any difficulties in servicing your monthly instalment? No worries! Do e-mail me your car model, monthly instalment...and we can work it out for you.'

What these firms are doing is against Land Transport Authority (LTA) rules. 'Private car owners are not allowed to rent out their cars through rental companies,' its spokesman said.

They had to do so on their own - and only at certain times and on particular days of the week.
The LTA cracked down on six cases each in 2005 and 2006 and on 11 last year. There have already been six cases in the first four months of this year. Both car owners and rental firms face fines of up to $1,000, jail terms of up to three months or both. Car owners also risk a driving ban of up to 12 months.

Despite the penalties, trade sources say the practice is widespread.

'There are a lot of cases which go unreported,' said Mr Peter Chong, president of the Vehicle Rental Association, which represents over 30 rental firms controlling most of the rental fleet here.

Firms operating illegally do not need huge capital outlays to start up a fleet. They can reach out to consumers on a tight budget because they offer lower rates.

Mr Chong said that since many of these cars were not registered as rental cars, hirers may have no insurance cover in an accident.

'I've come across cases where insurers refuse to pay up because the vehicle was not a rental car,' he said. 'That's the danger.'

The LTA said it takes a serious view of illegal rentals, and is 'consistently taking action against those who fail to comply with the law''.
Source: The Straits Times