Authorization Chargebacks in the Car Rental Industry

Authorization chargebacks are a growing problem for car rental companies. For an industry built on variable pricing and delayed billing, authorizations create a tricky set of compliance demands that few other sectors face.

To manage authorization chargebacks, rental companies must understand not just how card authorization works, but how card network rules limit their options. A mistake in the process can result in a chargeback, but failing to capture payment can also affect the bottom line. That makes finding the right strategy particularly daunting.

Understanding Authorization in Car Rentals

Every card transaction starts with authorization. When a customer presents a card, the merchant’s payment system contacts the issuing bank to confirm that the card is valid and that there are enough funds or credit available. If the bank approves, it sends back an authorization code.

The transaction isn’t complete yet, though. The merchant must still capture the funds by submitting the transaction for settlement using that code.

Car rental transactions rarely follow the simple pattern of authorization followed by immediate capture. A customer may book a vehicle online days or weeks in advance, pick it up later, and return it even later still. Final charges may not be known until the end of the rental. Additional charges for fuel, tolls, or damage can push the total amount well beyond the original estimate.

If a rental company captures funds after the original authorization has expired or tries to collect more than was authorized without getting a new approval, they can be hit with an authorization chargeback.

Authorization Windows: Know the Limits

Different card networks have different rules around how long an authorization remains valid:

• Visa typically allows 30 days for lodging, cruise lines, and vehicle rentals.
• Mastercard also allows 30 days, but the time limit resets if an incremental authorization is approved.
• American Express doesn’t set a strict time limit for authorizations.

For rental companies, the 30-day window under Visa and Mastercard may sound generous—but it can close fast. If the rental is extended, if fees are added late, or if system delays prevent timely capture, merchants can run afoul of these limits.

What Triggers an Authorization Chargeback

Authorization chargebacks are technically based on rule violations rather than cardholder disputes. This means they typically can’t be reversed through representment. Authorization violations that can lead to chargebacks include:

• Expired authorization: The merchant processed the transaction too late.
• Missing authorization: The merchant processed a payment without authorization.
• Declined authorization: The card was declined, but the merchant forced through the transaction.
• Exceeded authorization amount: The charge exceeded the approved limit without a new authorization.

That said, most banks will only investigate the authorization in response to a complaint from a customer. Customer disputes that lead to authorization chargebacks are typically driven by additional charges for things like tolls, fuel, extending the rental period, or repairing damage to the vehicle.

There are some banks that automatically check for valid authorizations for all transactions. In those cases, an authorization chargeback can occur even when the customer is fully satisfied.

The Car Rental Challenge

In the car rental industry, final charges can include unpredictable extras such as toll charges, cleaning fees, or damage assessments.

Rental companies try to manage this by requesting incremental authorizations when charges increase. But not all customers have enough available credit. When that happens, the rental company faces a choice—and none of the options are great.

How Rental Companies Respond

When incremental authorizations are declined, rental companies tend to pick from three main responses:

Retrying the Authorization Later

This is often used in subscription models but is less common in rentals due to timing complexity. Card networks prohibit retrying an authorization for the same amount within 24 hours. Gradually reducing the amount to find one that goes through is also prohibited.

Force Posting

Some merchants attempt to settle the full amount using the original authorization code. This violates card network rules and will nearly always lead to a chargeback if the customer disputes the charge. However, rental companies report that this is typically the most successful option when it comes to obtaining payment.

For overages under about 20%, merchants may be able capture the full amount without an incremental authorization and avoid a chargeback. But beyond that threshold, the risk of a chargeback rises sharply.

Capturing the Authorized Amount and Billing the Rest

This is compliant with card network rules, but rental companies report that this strategy has a low success rate. Many customers ignore the invoice, leaving the merchant with unpaid balances.