Automatic Credit-Card Payments

October 1, 2000

6 Min Read
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 topay his rent automatically each month by credit card. If he says"yes," we proceed to have him sign a form designated to authorize acharge to his account when rent is due, usually through our management software.In addition to being processed monthly, credit-card payments can also beaccepted 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 foundthat tenants who pay with a credit card each month usually rent longer and areless resistant to rate increases. They may also be more willing to pay for morethan one month at a time, increasing our pre-paid rents. And acceptingcredit-card payments is convenient for our customers.

On the other hand, credit-card payments can have their drawbacks. Forexample, in our self-storage operations, late fees are part of our budget--atleast they should be. We all collect late fees at our facilities each month, andthese fees could actually accrue enough to pay a relief manager's wages. Withautomatic credit-card payments, however, we forfeit those fees as we alwaysreceive our rental income on time. Accepting automatic credit-card payments hasbecome the norm at many self-storage facilties, but you should also consider therisks of this practice.

Be Aware of the Risks

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

Let me recant for you the tale of what recently occurred at one of thefacilities I manage. There was a customer who had been a "problemtenant" 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 wasasked to vacate his space, and we tried our best to accommodate his movingrequirements. We let him vacate on the 9th of the month and pro-rated rent forhim instead of charging for a full month as stated in his contract. We evenwaived his late fees.

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

Two months later, I was notified by Visa that this tenant had denied thecharge on his bill and the money had been deducted from my account. Afterseveral rebuttals and presentation of all the proper documentation, we stilllost the battle. Why? Because "no signed electronically or manuallyimprinted draft had been provided" (to quote Visa's response). We weretold, in addition, that the cardholder had "denied authorization" andthat "without an imprint as well as a matching signature," we had nofurther recourse. If we wished to pursue the matter, it would be necessary forus to "contact the cardholder directly." The facility owner paid thedebt to my company and will now proceed through small claims court to recoverrent 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 signedauthorization forms, don't we? The aforementioned incident suggests that if atenant wants to stop payment on his credit-card, he easily can. Unless you havean actual signed credit-card slip, you will have no recourse, and theforms we all use for this method of payment are about as worthless as the paperthey are written on.

The only solution I can think of is to have the tenant sign an actualcredit-card slip for each month they plan to rent at the facility and placethese 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 withauthorization 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, toysfor the kids, clothes--you name it. How will the credit companies' regulationseffect the way we use our credit cards? What if we were to book a flight, go onvacation, and upon return deny the charge because we did not physically sign acredit-card slip? How can we protect ourselves from the sort of situation Iencountered with that problem tenant?

We will obviously continue to process automatic credit-card payments; but weshould be aware that this convenience involves certain risks. Each owner mustask himself whether these risks outweigh the benefits. How will credit-cardcompanies and their card users fare in the wave of the future? Perhaps only timewill 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'sworld.

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.

PamelaAlton is the owner of Mini-Management®, a nationwidemanager-placement service. Mini- Management also offers full-service and"operations-only" facility management, training manuals, inspectionsand audits, feasibility studies, consulting and training seminars. For moreinformation, call (800) 646-4648.

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