Auto Rental ChargebacksCan Cardholders Dispute Car Rental Transactions?

Auto Rental Chargebacks Can Make it Costly to Keep Customers on the Road

Auto rentals can be a difficult space to operate in.

You hold a fleet of expensive, depreciating assets that are vulnerable to damage. You deal with frequent turnovers, and incur maintenance costs that routinely take portions of your fleet out of service.

Beyond these operational challenges, you also deal with chargebacks, which auto rental merchants are especially susceptible to.

Auto rentals require upfront payment. The cardholder signs an agreement for what they often assume is the total price of the rental. But the contract will also have what’s called a payment authorization hold, stating that the agency has the right to charge other fees after the fact, at least under certain circumstances. 

This can create substantial challenges for rental providers. So, how do auto rental chargebacks work? And, how can you prevent them? Let’s take a look.

Why Do Auto Rental Chargebacks Happen?

In an abstract way, most renters are probably aware that charges may be added to their bill after the fact. Often, however, they believe it means they’ll only be charged for catastrophic damage to the vehicle. In reality, there are a number of reasons a rental agency might tack on additional charges which a customer may try to dispute. For example:

Any of these situations can easily result in a cardholder being shocked when they receive their monthly statement. They discover they owe more than expected, and file auto rental chargebacks in response. 

Another issue is that the renter may honestly believe they have been cheated, which could also lead to a customer dispute. In more and more situations, however, the cardholder simply doesn’t want to pay the additional charges, instead filing a chargeback by misrepresenting the circumstances. Both of these scenarios are examples of a practice called friendly fraud.

How Do Chargebacks Impact Auto Rentals?

Auto rental disputes are far more damaging than mere cancellations, because the latter can result in a potential double whammy.

When a customer files a chargeback on a car rental, you lose out on revenue, incur costs associated with vehicle maintenance and overhead, and will get hit with a chargeback fee. There’s also the opportunity cost to consider; you could’ve let that vehicle to an actual paying customer.

Car rental disputes are bad for the industry as a whole. Travel agencies and rental services — those with merchant category codes 3300–3499 and 4722 — are already deemed to be “high risk” by many processors. When you face chargebacks, you reinforce that reputation, exposing yourself to higher payment processing costs and the risk of potential account closure.

Further consequences include:

Learn more about chargeback costs

How to Prevent Auto Rental Chargebacks

You must proactively address chargeback issues. The keys to this are improved communication, and enhanced customer satisfaction measures, coupled with effective dispute resolution when necessary.

You need to embrace a customer-centric approach focused on transparency and satisfaction. This proactive approach fosters trust, prevents misunderstandings, and ensures customers make informed decisions about purchases.

To that end, here are ten chargeback prevention best practices that we recommend to decrease your overall chargeback issuances:

#1 |  Require Pre-Rental Walk-Arounds

Before handing over the keys, conduct a mandatory vehicle inspection with the customer present. Use a standardized digital form or paper checklist to note any existing scratches, dings, or interior wear, and then have the customer sign or initial the inspection report.

This interactive step can help create a shared understanding of the vehicle’s condition from the outset. It also makes it more difficult for a customer to dispute a legitimate damage claim after they return your car.

#2 |  Collect Time-Stamped Documentation

Equip your staff with tablets or smartphones to take time-stamped photos and videos of every vehicle before and after a rental. Focus on high-risk areas: bumpers, windshields, wheels, and interior upholstery. You should also get a picture of the gas gauge, verifying the amount of fuel in the tank at the time the customer takes possession of the vehicle.

To “kill two birds with one stone,” you should collect this documentary evidence as part of your pre-rental walk-around.

#3 |  Obtain Specific Permission for Post-Rental Charges

Don’t rely on generic, blanket clauses in your rental agreement. Instead, obtain explicit permission from the customer, agreeing that you can charge a post-rental fee for incidental events like damage, excessive cleaning, or unpaid tolls.

Requiring a customer to sign or initial a statement that reads “I authorize [merchant] to charge my card for any tolls, fines, or damages incurred during my rental period” can provide stronger evidence in a dispute.

#4 |  Communicate Proactively Before Billing for Additional Charges

If you plan to bill for post-rental charges, don’t make it a surprise for the customer. Instead, immediately notify the customer by sending an email. Include a clear explanation of the charge (e.g. “Post-Rental Refueling Fee” or “Rental Toll Charges”) and attach supporting evidence, such as a photo of the fuel gauge or a copy of the toll invoice.

This transparency gives the customer a chance to understand the charge before they see it on their statement. This can help prevent knee-jerk chargebacks that result from a customer seeing an unfamiliar charge, assuming it’s fraudulent, then panicking and filing a dispute.

#5 |  Use Crystal-Clear Billing Descriptors

Adjust your billing descriptors to be as specific as possible so that customers don’t misidentify legitimate charges. Instead of a generic descriptor that uses your legal name, use a format like “[Doing-Business-As Name] Rentals [City/Airport Code]” (e.g. RentalCars LAX) so that your transaction isn’t forgotten or mistaken for fraud by a cardholder scrolling through their billing statement weeks after a trip.

You can also use more detailed dynamic descriptors for incidental charges. For example, including “toll fee” or “cleaning fee” in the descriptor.

#6 |  Detail Your Authorization Hold Policy

Card authorization holds are a major source of confusion and disputes. But, you can alleviate some problems by clearly explaining the hold amount and the release process both verbally and in writing on the rental agreement.

Realistic timelines for the release of an authorization hold, like 7 business days, can help manage expectations and prevent customers from filing chargebacks because they think their funds are being held unfairly.

#7 |  Create a “Key Terms” Sheet

Your full rental agreement is often drafted in legalese. Because customers want to get on their way, they probably don’t have the patience (or the legal knowledge) to read and understand the contract in full while at the counter.

For this reason, supplement your agreement with a one-page summary that highlights the policies most likely to cause disputes, such as fuel return options, mileage limits, late return fees, and your damage waiver policy. Ask the customer to sign this summary sheet so that you have evidence they were made aware of the most critical terms in plain English.

#8 |  Screen High-Value Bookings Carefully

Not all rentals carry the same risk. High-value luxury vehicle rentals, one-way rentals, and last-minute bookings all carry a greater level of risk than a standard rental; so, you should implement stricter identity verification measures in response.

In practice, stronger verification for targeted bookings could mean requiring a secondary form of identification, or larger authorization holds from customers who book these rentals.

#9 |  Send Pre- & Post-Rental Communications

Keep customers informed both during and after the rental. For example, an automated pre-rental email can confirm reservation details and remind them of what to bring (e.g. license and credit card). A post-rental email can thank them for their business and provide a final, itemized receipt.
Clear communication before and after a vehicle rental can help build trust and reduce ambiguity. It also establishes a paper trail that you can leverage, if necessary, for transaction representment.

#10 |  Streamline Your Cancellation and “No-Show” Process

Make your cancellation policy impossible to miss during the booking process. For prepaid reservations, send reminders before pickup that clearly highlight your “no-show” and cancellation fees. This can help mitigate disputes from customers who simply forgot about their reservation.

A good practice here is to make your “no-show” and cancellation fees as non-punitive as possible. To avoid angering customers and provoking disputes, offer generous cancellation windows, provide fee-free booking modifications, and keep your “no-show” fees reasonable.

Learn more about chargeback prevention

Chargebacks Require a Better Solution

Any combination of the best practices outlined above can help you create a solid framework to minimize chargebacks. You can also enhance customer satisfaction and ensure a smooth and secure experience for customers in the process.

All that said, a piecemeal strategy won’t be effective. True fraud prevention and risk mitigation requires a more comprehensive approach. Fortunately, we can help.

Chargebacks911® offers a true end-to-end technology platform that prevents more disputes, wins more reversals, and maximizes your ROI. Contact us today for more information on how to improve customer service to prevent chargebacks.