So I’ve started planning our honeymoon to Hawaii, and today I came to the rental car portion.  And with that comes the age restrictions.  Luckily, I’m not totally locked out of the rental car market, but since I will be 24.75 years old when I rent the car, I will be subject to an “underage fee” that amounts to roughly 100% of the cost of the rental.

Now, at first glance this may seem legitimate.  Like car insurance, us under-25′s are forced to pay higher rates due to the higher likelihood that drivers in our age-group will drive recklessly and get into accidents.  But upon further inspection, this explanation doesn’t hold water.

Insurance products are based on risk.  I pay a firm a fee to pay me if some unlikely event happens.  Naturally, the fee I pay is proportional to the likelihood of the event occurring and the size of the payout.  When I rent a car, however, I am not buying an insurance product.  I’m buying the rights to use a motor vehicle for a specified period of time.  Granted, the issuer of the car takes some risk as to whether the vehicle will come back in the same condition, but they are not selling a product in regards to this.  If I wreck the car, I have to pay for it.  This is not the case with insurance; in fact, it’s the exact opposite.  If I wreck the car, the insurance company pays for it, which is why it’s in their best interest to understand the likelihood of the event.

What the rental car industry is doing is basically like a hotel charging you 50-100% more per night because you are under-25 and, therefore, more likely to trash the room.  This would be insane.

Furthermore, I’m still paying extra for insurance for the rental car.  The higher-priced insurance I pay for my own car extends to any rental car that is used for less than 31 days.

What’s really going on here is that usage rates for people under-25 for rental cars is probably pretty low.  This means that this demographic is not a significant portion of the rental car customer base, and they can afford to drive the bulk of the demographic away with ridiculous fees.  On the other hand, it’s fairly difficult to travel to a car-based island by airplane and not rent a car, so when these under-25′s really need a vehicle, they’ll bend over and take it because they have to.  This is far from legitimate and is usually called price gouging and/or discrimination.

I’d be up for a compromise that forced under-25′s to have suitable insurance that would cover them in an accident, but a 100% surcharge is completely ridiculous.