Rent Payment Chargebacks: How Property Managers can Fight, Win, and Prevent Chargebacks

Learn how to reduce the number of rent payment chargebacks you receive from residents and prospective renters and how to protect against and recover application and rent payment chargebacks. 

“Put it on my card” has become a moot statement. What else would you pay with? Sure, digital wallets like Apple pay have gained momentum. Bitcoin is going through its ups and downs. But cash? Paper checks? Forget about it.

A survey by Money magazine¹ found that 72% of people carry less than $100 in cash on a daily basis, and only one out of every five Americans carries a checkbook anymore. The need to tote around chunky change, paper bills, or a checkbook has been almost eliminated by the credit card industry. That’s because credit cards build credit, help users afford big-ticket purchases, and offer exciting rewards programs including cash back or frequent flyer miles. Since credit cards have taken the payment method spotlight, why would any business choose not to accept all major credit cards? Even parking meters in most urban areas accept credit cards.

As a property manager, you can increase resident satisfaction by offering the convenience of multiple payment options. However, allowing credit card payments will inevitably lead to the incurrence of application and rent payment chargebacks. And chargebacks add up. They cost multifamily portfolios ten of thousands of dollars each year.

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What is a Rent Payment Chargeback?

A rent payment chargeback is a bank-initiated, forced reversal of funds back to a consumer because they have claimed a rent transaction to be fraudulent. In the world of e-commerce, this is sometimes referred to as ‘friendly fraud.’ A customer will use their credit card to purchase an item either in-store or online and after they have received the item, ask their bank to cancel the transaction. This not-so-‘friendly’ process now holds the merchant accountable, regardless of any steps they may have taken to verify the transaction.

In the property management industry, chargebacks are most often associated with rent payments and application fees. Let’s examine a few chargeback scenarios, and the steps property managers can take to reduce them.

Types of Application and Rent Chargebacks in the Property Management Industry

• Rejected Applicants. A rental applicant pays their application fee via credit card. The property manager orders a credit report and a background check. The applicant’s credit score and/or rental history is not up to par, so they are denied the apartment. The rejected applicant receives their credit card statement a month or so later, notices the application fee charge, and decides to call their bank to report it as fraud. If we give them the benefit of the doubt, it’s also possible that after applying for multiple properties, this person did not recognize the application fee charge and assumed it was fraudulent.
• Freeloaders. Unfortunately, residents who lose their job, or for whatever reason can’t afford their rent, late fees, ancillary charges, etc. will use their credit cards. They stay at the property for the majority of the month, move out, and then issue a chargeback.
• Unknown Charges. Typically younger residents, like those living in student housing, will use a family member’s credit card to pay their rent. The student’s grandma, grandpa, aunt, or whoever owns the credit card doesn’t recognize the charge and files a chargeback.
• Lovers’ Quarrels. A young couple who live together shares a payment portal account, which has both of their credit card information stored. They break up on bad terms, and the boyfriend moves out of the apartment. The girlfriend could easily pay the rent online using her ex-boyfriend’s saved credit card information. The ex-boyfriend will likely decide to file a chargeback because he never authorized his card to be charged.

No matter the reason for the application or rent payment chargeback, you’ll still have to sacrifice your time and efforts to fight and resolve it. And losing chargeback disputes could make a notable dent in your bottom line. So how can you reduce the amount of application and rent payment chargebacks you receive, and win the ones you have to fight?

How to Reduce the Amount of Rent Payment Chargebacks you Receive

1. In reference to scenario #4, Lovers’ Quarrels, make sure you have the name and signature of every single person living in each apartment on each official lease (including anyone who may claim to be “crashing” for a while).
2. Have a blanket electronic payment authorization form in your lease packet. Even though residents click the “I agree to the terms and conditions” button during the online payment process, it’s best to have a tangible agreement with their signature on it as a backup.
3. Along the same lines, ensure that residents know their application or deposit payments are non-refundable. Also, have that in writing with a signature or initials.
   Pro tip: In the case of a chargeback, the credit card company will ask for proof that the cardholder/applicant was made aware of your no-refund policy.
4. Recognize potential fraud. If you receive an insufficient funds notification from a resident’s eCheck payment, do not let them pay with a credit card. Or if you do, be on high alert for a chargeback from that person. Be on the lookout for residents whose names don’t match the credit cards they are using. Also, keep an eye on residents who add more than two or three credit cards to the saved payment methods section of their account.
5. You can only do so much to reduce the number of chargebacks you receive. But if you are skeptical of a resident, the surefire way to avoid a chargeback is to only allow payments in the form of verified funds. Meaning cash or money orders.

The good news is that accepting cash or money orders doesn’t mean you can’t accept 100% of your rent payments digitally. Look for an online payment provider that can convert paper transactions into digital transactions. For example, at Zego we have a CashPay system to help with this. Our CashPay solution lets residents electronically pay rent with cash at participating retailers nationwide. Once the payment has been made, there is no way for the resident to dispute it.

You’ll benefit when you follow these best practices to reduce chargebacks. But like we’ve said, chargebacks come with the territory. Chargebacks shouldn’t deter you from accepting credit cards though, as long as you have the right partner with the right tools to go to war for you.

How to Win Application & Rent Payment Chargebacks with the Help of your Payment Solution

The best way to reduce rent payment chargeback is to avoid them altogether. If and when they do happen, it can be incredibly helpful to have a payment provider that specializes in chargeback protection and recovery to help you through the process. At Zego, we have a dedicated team to help protect our multifamily clients against application and rent payment chargebacks. Our team focuses on avoidance, protection, and recovery:

Here are some additional steps you can take to win chargeback battles:

1. Be Prepared. Always have the right documentation easily accessible in case you ever need to challenge an application or rent payment chargeback. These are the documents typically needed to win a chargeback:
   1. Applications
   2. Credit reports
   3. Leases
   4. Resident ledgers
   5. Copies of driver’s licenses and/or paystubs
   6. A signed letter from the resident authorizing that they made the payment
2. Don’t Cut Refund Checks. Never refund a credit card transaction with a refund check. If the bank rules in favor of the resident, they will look for a refund in their client’s credit card account. So if you’ve already sent them a refund check, you’ll essentially have to refund them twice.
3. Get Notified Fast. Cardholders typically file a chargeback within 3 or 4 days of their transaction. But depending on the bank’s rules and regulations, the consumer generally has up to 120 days to file a chargeback. That’s a broad time limit. Your staff might not be paying close attention to older transactions, which is why it’s imperative that your payment solution notifies you right away so you can immediately begin to fight and resolve it.
4. Work With An Expert. A chargeback specialist will help assist you throughout the entire process. This includes collecting, gathering, and reviewing documentation that will help assist with the rebuttal. The best payment solutions will have a dedicated chargeback team to fight for you around the clock and handhold through the entire process.
5. Don’t Pay Fees. Some payment solutions charge you for handling your chargebacks or assess general monthly fees that cover chargeback assistance. Find a solution that has a specialized, in-house team handling these cases for you, but doesn’t assess any chargeback fees. *Cough, Zego, cough*
6. Work With A Winning Team. Make sure the team you choose to fight for you has a high chargeback winning success rate. If you need a point of reference, the Zego chargeback team has a win rate of 98.6%. Of course, we cannot guarantee any chargeback outcome, good or bad, because it’s solely dependent on the credit card company’s ruling. But from our experience, we can suggest how property managers might be able to avoid, protect against, and recover application and rent payment chargebacks.

Sources

¹ https://www.mmhayes.com/infographic-how-much-cash-do-you-carry/