VROA SAMPLE NEWSLETTER - February 23, 2004
SUBJECT: Taking Credit Cards Smells Good, Tastes Bad

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Taking payments by Credit Card is another way to accelerate revenue, right? If that's what you are thinking I'd like to help put the brakes on. Yes, taking credit cards will make you look big time and maybe even increase revenue but it may also subject you to guest stealing money directly out of your checking account.

Some time ago - Carole Smith at Palm Springs Connection who has a number of beautiful vacation rentals (www.PalmSpringsConnection.com) wrote and asked, "How do you take Credit cards? I take Pay Pal only. I don't have a way to take Credit cards myself yet." Carol's comments have been repeated by numerous VROA members so I have been studying some of the various Credit Card purveyors in hopes of recommending a few to our membership.

Personally we have been taking credit cards for some years. It has been a mixed blessing and I am not yet prepared to make a recommendation partly because every program seems to have limitations and because of the danger that credit cards present to vacation rental owners.

INTRODUCTION TO CREDIT CARDS
Forgive me if you already take cards and have a comprehensive understanding of how they work. For those who may be new to the system or haven't yet been burned by them I'd like to provide a brief introduction so everyone knows what they are getting themselves into.

For those of us of baby boomer age or younger its hard to believe that once there was a world without Visa, Mastercard, American Express and their smaller siblings. The first credit card (as we know them today) was started in 1951. Today Mastercard is owned by 22,500 members (ie: financial institutions), is accepted at millions of locations (so they say) and processed an annual volume of 916 Billion Dollars through September 30, 2003.

The Visa credit card brand is owned by 21,000 institutions, accepted in 150 countries and had 2.7 Trillion dollars of transactions in 2003. This card came into its own in the 1960s and 1970s and today is the largest of the companies.

Cardholders (consumers) love credit cards. Everyone agrees that they make buying goods and services across the globe or across the street easier. But they also lure consumers into spending more than they can afford and charging them interest that in former times could have gotten a merchant thrown in jail for charging usurious rates. Consumer credit, especially from credit cards, is at record levels and expected to continue to rise.

The card companies have evolved to the point where they offer other services all marketed to their huge base of card holders. They sell merchandise and financial services and are power players in the comparatively new but evolving Debit card business. These Debit cards represent a significant change in how consumers use cards and, more importantly, how the transaction is accounted for.

Recently Visa & Mastercard were hit with a settlement that will cost them three billion in refunds to merchants. This conflict came about when the Visa/Mastercard duopoly required merchants to "Honor all Cards" or risk losing their merchant status. Retailers reacted violently, filed suit and have now emerged victorious.

WHAT CUSTOMERS THINK:
Most consumers are mistaken in their understanding of how cards work. They realize they are charged interest (usually at very high rates) when they charge something. But they are largely unaware that the merchant also pays a fee on the transaction. That fee may range from 1.5 to 3.0 percent and sometimes up to 7 percent of the charge amount. In short, the card associations are double dipping on the transaction and taking a significant portion of the sale.

Of course consumers could care less. A few understand they can often negotiate a better price from stores if they pay in real cash but most are just so happy to swipe the card and pretend its not money that they will never stop to question the system. Some years ago my best friend Ron wanted to buy a $80,000 motor home. As a long time musician living on the road he has always dealt in cash. Even he was surprised that the dealership accepted his offer of 47 crisp $1,000 dollar bills and didn't even ask for the tax. Amazing how cash works.

This is not to say that the card service is without value or that it should be free or cheaper. In a free market economy anyone should be able to price their services as they see fit. Because the marketplace is dominated but just a few mammoth organizations, however, the merchant is at a disadvantage and the consumer's lack of sophistication is preyed upon.

A CAUTION ON FEES:
By the way, merchant agreements all make it illegal to charge a premium to guests for using their credit card fee. If all merchants did that, fewer consumers would use cards and more would pay by check or cash. Some agreements even make it improper for merchants to offer a discount for cash payments.That would make the issuers unhappy so they have wired the system to their benefit.

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Now nothing prevents you from negotiating rates for your rentals and certainly you can ask a guest who they intend to pay before you quote rate. And some lodging reservations, especially central reservation services, charge a booking fee on all orders in the same way they do if they are also obligated to charge resort fees or special tourist taxes. But be reminded you simply can not tie together a lower rate with the guests agreement to avoid their credit card. Our recommendation is to quote fees based on the net income you hope to achieve after paying taxes, credit card fees and any other costs.

PREPOSTEROUS MYTH:
But the biggest problem with credit cards is the "big lie" that issuers have sold to consumers. A prominent "benefit" that they offer is to act as intermediaries between consumer and merchant in the event that the consumer is defrauded. While that sounds like a reasonable idea it has been misinterpreted by some consumers to mean that they can return any goods, at any time, in any condition, without sufficient cause and in regardless of a contract they signed - and that card company will require the merchant to refund their merchant.

Worse yet, credit cards have become so ubiquitous that the issuers know full well most merchants must accept cards just to stay in business. That, in turn, allows the issuers to play judge and jury in the event of disputes. They know full well that consumers can move from one issuer to another but that all Merchants are stuck in the system. Hence, when disputes arise the merchant often gets shafted even when the consumer is at fault. The associations utilize a system that is short on legal compliance and long on making consumers happy - even the crooked and self serving ones.

And it is this preposterous myth that vacation rental home owners must avoid or learn to control if they want to accept credit cards as payment for rentals.

HORROR STORIES
In one case, a woman reserved a home for 16 days on a non-cancelable contract. The day after arriving she decided she didn't like the home and asked for a cancellation. The owner refused. The next day the woman decided the home was dirty. The owner authorized a cleaner to visit but the guest refused them entrance. On the third day she vacated and a month later the credit card company debited the owner's checking account for $3,300. This process is called a "Chargeback" and the issue will put it through the system without almost no documentation from the cardholder. They will not ask for the rental agreement.

The woman had no legal right to the refund and had conveniently forgot to tell her issuer that the owner had already refunded her $500 damage deposit by check. So now she was in possession of $3,800 of the owners money. The owner can submit a request for reversal that, with the rental agreement, may be reversed. If so, the guest can put the chargeback through repeatedly and it will be handled the same way every time. The Owner gets debited, is forced to respond again and may be reversed again. Eventually the issuer may decided on behalf of the cardholder because in most Merchant Agreements there is language that says a cardholder can get their money back if they are simply "unhappy with their lodging." And they can do this even if they stayed the entire contracted period.

GUEST AGREEMENTS:
As you may remember we recommend that all guest agreements be non-cancelable. It is wise for owners to offer to resell booked dates for a guest who wishes to get out of their contract. But renting your expensive home on a cancelable basis would be as risky as renting that home to along term tenant and allowing them to move out in the middle of the night without paying. Owners have the right to determine the terms and conditions on which they offer their home for short term rental. Most states and countries have statutes defining the rights and privileges of lodging operators. These have come about over many decades, and in some cases centuries, because short term tenants are prone to defrauding Inn keepers.

So if you have a non-cancelable agreement and the guest pays by credit card is the agreement still valid? Maybe. In signing up for a merchant account you the merchant area agreeing to abide by the Visa or Mastercard rules. Most merchants never read those rules and if they do they will be shocked. In short, the associations deed themselves the right to decide whether the cardholder gets their money back - regardless of the agreement the consumer signed.

And what about if the guest breaks things inadvertently or knowing damages furniture or other expensive items. Your Guest agreement may say you can take it out of their damage deposit and charge overages to their credit card. But can you? Most of us know that hotels will charge you in the blink of the eye for charges but they know what they are doing. Have you ever noticed that hotels require you to present your card at checkin so they can swipe and leave the blank but signed receipt in your file. When you charge something they then just simply put it on your card.

Are you also aware that when you check in they get an "authorization" on your card that essentially holds the money for them until you check out? Don't ever check into a hotel where you think the charges will be $500 and have only $1,000 left on your card limit. They frequently put a hold on far more than the anticipated charges knowing that you may well run up the bill.

HOW TO TAKE CREDITS CARDS:

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INPUT:
As always I seek your input. Please share your tips, techniques, compliments, and complaints on this or any other subject by writing me at Director@VROA.org.

HOME OF THE WEEK:
I love creativity. Jimmy & Joanne Dunaway have a home at Paw Paw's Landing and their website says "snorin and explorin at the Ultimate Cabin Getaway." (Great name. Great slogan). See www.PawPawsLanding.com. (If you want your place considered for Home of the Week please drop me an email.)

FEEDBACK:
Nice newsletter! regards - the team at ovrentals.com http://www.ovrentals.com

Short and sweet. But I appreciate all feedback especially from everyone in the industry working hard to make it more fun and more profitable.
- Wm. May

ONLINE:
Please see these websites for fun:
- Sample Guest Booking Agreement
- Sample Booking Confirmation
- Sample Terms & Conditions

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VROA OWNER NEWSLETTER
Published weekly for all Members
Copyright - Vacation Rental Owners Association
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Director & Editor - Wm. May Director@VROA.org
Membership - Penny Taylor Membership@VROA.org
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