Payments

Chargebacks in the Auto Rental Industry

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The auto rental industry understands the pain of chargebacks all too well. Rental companies depend on fees and service charges to cover the many expenses they can incur, but customers often don’t want to pay them. Instead, customers dispute the charges with their bank, sometimes making up false or exaggerated claims to obtain illegitimate chargebacks, a practice known as “friendly fraud.”

Chargebacks that reverse valid, agreed-upon charges deprive rental companies of earned revenue and carry other direct and indirect costs. Understanding the true cost of your chargebacks will help you determine how much you should be investing in a chargeback management strategy, but before you can implement a strategy you need to know what’s really causing your chargebacks. For car rental companies, there are several common scenarios.

Frequent Causes of Auto Rental Chargebacks

Cancellation, Late Return, and No-Show Fees

It’s not unusual for customers to reserve a vehicle and never show up to collect it. Rental companies can charge fees when customers don’t hold up their end of a rental agreement, but customers will sometimes try to dispute them anyway—even when they paid a deposit or provided their card information for exactly this purpose.

Damage Repair Charges

When a customer returns a vehicle with damage that wasn’t covered by a collision or loss damage waiver, the rental company can charge them for the repairs. Some customers will try to dispute these charges, often claiming that they weren’t responsible for the damage.

Fuel or Toll Charges

Per the typical rental agreement, the customer is responsible for paying any tolls incurred while driving the vehicle, and for returning it with the same amount of fuel it had when they received it. Customers who misunderstand these obligations may dispute these charges.

The Costs of Auto Rental Chargebacks

The true cost of a chargeback greatly exceeds the dollar amount of the transaction under dispute. You have to factor in the cost of the goods or services exchanged, including its share of marketing and other overhead expenses.

You also have to add in the chargeback fees, which can run from $20 to $100 per chargeback.

Another danger is that too many chargebacks can land you in the credit card networks’ dispute monitoring programs. If your ratio of chargebacks to transactions exceeds 0.9%, they can force you to go through an expensive and cumbersome chargeback remediation program.

The high cost of chargebacks is why it’s so important to fight and prevent them instead of just treating them as an unavoidable cost of doing business. Next, we’ll discuss the best ways to fight auto rental chargebacks.

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Chargebacks 101