How Car Rental Companies Should Do Their Credit Card Processing

In the credit card processing world car rental companies are considered high risk merchants. The reasons are the usual ones: high rates of customer complaints, disputes and chargebacks. More often than not, the causes for customer discontent can be traced to improper payment processing procedures and poor customer service. Both of these can and should be remedied and in this article I will show you how to handle the credit card acceptance part.

Car Rental Credit Card Processing Procedures

Following are the most important aspects of the car rental credit card processing cycle:

1. Obtaining an authorization approval. You need to do that for all transactions, because the car rental floor limit is zero. U.S. merchants should use the $0 Account Number Verification Service if they want to verify that an account is in good standing, instead of a $1 authorization status check.

   
   Each authorization approval is valid for the estimated duration of the car rental period. If the rental period is extended, you will need to obtain an incremental authorization for the expected additional transaction amount.

2. Obtaining an incremental authorization approval. Follow standard authorization procedures to obtain an approval for the incremental amount. If you receive a decline, request that your customer use an alternative form of payment.

   
   If the car rental period extends for longer than two weeks, you need to settle the original transaction and obtain an authorization approval for whatever the estimated balance is.

3. Final authorization and 15% rule. When your customer returns the vehicle, the following authorization procedures should be implemented:
   1. If you had not previously obtained an authorization approval (which you should have done), authorize the total transaction amount.
   2. If an authorization approval was initially obtained, apply the “15% rule” to estimate whether or not an incremental authorization is needed. Here is how to do this:
      1. Add 15% to the original authorization amount.
      2. If the final transaction amount is greater than the sum you received above, an incremental authorization is needed for the difference between the initial authorization amount and the actual transaction amount.
4. Processing an authorization reversal. If the final transaction amount is lower than the initially authorized one, you need to process an authorization reversal for the difference.
5. Billing for additional charges. After a car is returned, you may discover that there are additional charges (for example, gas or mileage, traffic or parking violations, etc.) or calculation errors. You can bill your customer for these charges if your car rental agreement states that you can do it and your customer has agreed to it. Additional charges must be processed within 90 days of the vehicle’s return. Here is how to do it:
   1. Create a separate or amended car rental sales agreement for the additional charges, obtain an authorization for it and deposit it.
   2. Write “Signature on File” on the cardholder signature line, if using a separate agreement.
   3. Mail a copy of the agreement to your customer with a detailed explanation of the additional charges within 90 calendar days of the transaction date.

   
   The additional charges are the ones that are most likely to lead to a customer dispute, even if completely legitimate. You need to document them carefully and be ready to provide all requested documentation to your processor per request. For example, if a customer disputes a charge related to a parking ticket, you will need to produce the following information:

   • A copy of the car rental agreement.
   • Documentation from the authorities that issued the ticket.
   • The rental vehicle tag number.
   • The place, date and time of the violation.
   • The law that was violated.
   • The amount of the fine.

The Takeaway

The payment card industry is not going to change the high risk classification of car rental companies any time soon. However, if you implement the above guidelines in your credit card processing procedures, you will help maintain the good standing of your own company’s merchant account. You will still be getting customer disputes and will have to deal with the occasional chargeback, but it’s a numbers game. Your goal should be not to eliminate these, but to keep them to a minimum that both you and your processor can live with.

Image credit: Wikimedia Commons.