Automatic Credit-Card Payments

Automatic Credit-Card Payments
To take or not to take them... that is the question

By Pamela Alton

When a tenant first rents a unit from us, we often ask if he would like to pay his rent automatically each month by credit card. If he says "yes," we proceed to have him sign a form designated to authorize a charge to his account when rent is due, usually through our management software. In addition to being processed monthly, credit-card payments can also be accepted on a one-time basis when a tenant is in the pre-lien or lien status. This lowers our risk of having to conduct lien sales or auctions. I have found that tenants who pay with a credit card each month usually rent longer and are less resistant to rate increases. They may also be more willing to pay for more than one month at a time, increasing our pre-paid rents. And accepting credit-card payments is convenient for our customers.

On the other hand, credit-card payments can have their drawbacks. For example, in our self-storage operations, late fees are part of our budget--at least they should be. We all collect late fees at our facilities each month, and these fees could actually accrue enough to pay a relief manager's wages. With automatic credit-card payments, however, we forfeit those fees as we always receive our rental income on time. Accepting automatic credit-card payments has become the norm at many self-storage facilties, but you should also consider the risks of this practice.

Be Aware of the Risks

The biggest risk involved in accepting automatic credit-card payments is that the tenant can contact his credit company and deny the charge, leaving you, as the owner/merchant, with a "chargeback." If the tenant does not physically sign an electronically or manually imprinted credit-card slip, you could lose out.

Let me recant for you the tale of what recently occurred at one of the facilities I manage. There was a customer who had been a "problem tenant" for some time. He was running a moving business out of his space, and we'd had numerous complaints about--and run-ins with--this tenant. He was asked to vacate his space, and we tried our best to accommodate his moving requirements. We let him vacate on the 9th of the month and pro-rated rent for him instead of charging for a full month as stated in his contract. We even waived his late fees.

Because this particular facility was not set up to accept credit-card payments at the time of the incident, I was approached by the tenant with a request to process his credit-card payment through my personal company. I honored the request with a faxed letter from him, printed on his company letterhead, with his credit-card number, expiration date and signature. I ultimately processed the payment via telephone.

Two months later, I was notified by Visa that this tenant had denied the charge on his bill and the money had been deducted from my account. After several rebuttals and presentation of all the proper documentation, we still lost the battle. Why? Because "no signed electronically or manually imprinted draft had been provided" (to quote Visa's response). We were told, in addition, that the cardholder had "denied authorization" and that "without an imprint as well as a matching signature," we had no further recourse. If we wished to pursue the matter, it would be necessary for us to "contact the cardholder directly." The facility owner paid the debt to my company and will now proceed through small claims court to recover rent due from this ex-tenant.

The question then arises: What does this mean to our industry as a whole? Most of us accept automatic credit-card payments via phone, fax and signed authorization forms, don't we? The aforementioned incident suggests that if a tenant wants to stop payment on his credit-card, he easily can. Unless you have an actual signed credit-card slip, you will have no recourse, and the forms we all use for this method of payment are about as worthless as the paper they are written on.

The only solution I can think of is to have the tenant sign an actual credit-card slip for each month they plan to rent at the facility and place these slips in his file. Perhaps one signed slip will suffice. Rest assured, I'll be certain to have a signed credit-card slip on file along with authorization from every tenant who wishes to pay by this method.

Electronic Authorization--Wave of the Future?

Many of us have begun using the Internet to purchase airline tickets, toys for the kids, clothes--you name it. How will the credit companies' regulations effect the way we use our credit cards? What if we were to book a flight, go on vacation, and upon return deny the charge because we did not physically sign a credit-card slip? How can we protect ourselves from the sort of situation I encountered with that problem tenant?

We will obviously continue to process automatic credit-card payments; but we should be aware that this convenience involves certain risks. Each owner must ask himself whether these risks outweigh the benefits. How will credit-card companies and their card users fare in the wave of the future? Perhaps only time will tell. Until then, I will continue to accept automatic credit-card payments, knowing that it is risky at best and part of conducting business in today's world.

Electronic Signatures Act and E-Commerce

More and more businesses--including self-storage facilities--are utilizing the Internet, not only as a means of marketing, but as a means of commerce. Like airlines that offer the convenience of faster confirmation and cheaper fares if customers purchase travel through their websites, other trades are discovering that in utilizing this tool, they can be making money over the Internet even in their sleep! For self-storage, the possibilities include the rental of units directly over a facility's website with the use of a customer's credit card. The dilemma then becomes, how do you get a tenant to sign an authorization/release form for automatic credit-card payments, a customer storage insurance contract and the standard rental agreement? The answer was given recently when Congress enacted the Electronic Signatures in Global and National Commerce Act.

The Electronic Signatures Act--dubbed the E-SIGN law--was signed into existence on June 30 and takes effect on March 1, 2001. The law, part of Capitol Hill's "eContract 2000" program intended to modernize the nation's laws in accordance with advancing technologies, was designed to validate electronic contracts entered into over the Internet. The measure requires that consumers consent to conducting business online.

What this ultimately means for our industry is that potential tenants, when renting self-storage over the Internet, can be asked to click a button or check a box that indicates their agreement to your rental contract. It will be considered a legally binding agreement. It is still advisable, however, to seek legal counsel before implementing an electronic contracting system.

Pamela Alton is the owner of Mini-Management®, a nationwide manager-placement service. Mini- Management also offers full-service and "operations-only" facility management, training manuals, inspections and audits, feasibility studies, consulting and training seminars. For more information, call (800) 646-4648.

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