By Josh Barro

New York Magazine
February 5, 2019

Historically, it has been a real pain to rent a car with a debit card.

Rental car companies tend to view debit-card customers as riskier than those who pay with credit cards: They take the lack of a credit card as a warning sign of bad credit, and therefore think a renter who wishes to pay with a debit card may beless trustworthy with an expensive piece of equipment like a car. They also worry a debit card may be linked to an account that doesn’t contain enough cash to satisfy unexpected charges a customer might incur, such as for a late return.

So rental car companies force debit-card holders to jump through hoops. They may have to put down extra deposits, prove their travel plans by presenting a return plane ticket, undergo a credit check and demonstrate a credit score of at least 660, provide additional forms of identification, and more.

Many car rental agencies also set a higher minimum rental age if you rent with a debit card: You can rent in your early 20s by paying a young driver fee if you use a credit card, but you must be 25 to rent at any price with a debit card. And at some locations and for some kinds of high-end cars, they won’t accept a debit card at the start of your rental at all.

This is a significant barrier to car rental for a significant fraction of the population. Depending on which survey you read, something like 25 or 30 percent of American adults don’t have a credit card. And many people who do have credit cards prefer to use a debit card for most transactions. Personal finance guru and radio host Dave Ramsey, who advises listeners to avoid debt by abandoning credit cards and paying for everything by debit card or cash, has cited the inconvenience of debit-card car rental as a major complaint among his followers. It will come as good news to them that one of the major car rental companies has changed its policy to start treating renters with debit cards in much the same way as those with credit cards.

Dollar and Thrifty, both units of the Hertz Corporation, now accept debit cards on nearly equal footing with credit cards, effective today. So long as they make their reservations at least 24 hours in advance and aren’t booking specialized car types like convertibles, debit-card customers will be able to rent from Dollar and Thrifty much as though they were using a credit card: by presenting their payment card and a driver’s license, no credit check or extra documentation required. (The new policy is only guaranteed at corporate-owned stores in the U.S. — like all the companies, Hertz has somewhat limited control over policies their franchisees use.)

Susan Jacobs, the senior vice-president and global brand leader for Dollar Car Rental, told me the company looked at data on its customers by form of payment “with more sophisticated analytics than we’ve ever had” and found paying with a debit card wasn’t a good indicator of risk. That is, they decided they had been alienating potential customers for no good reason. So instead, they’ve decided to attract them, including by sponsoring Ramsey’s radio show with a message about being the debit-card-friendly rental car company.

If Dollar and Thrifty are right about debit cards and customer risk — it’s worth noting, the past debit-card-using customers whose behavior they’ve analyzed comprise a specific set of debit-card holders who have been willing and able to jump through hoops like passing credit checks before rental — then they are making a smart play for an underserved market from which they may be able to gain outsize loyalty.

For many customers, rental cars are a commodity service: People are indifferent to which company they rent from, so they go on a site like Orbitz and rent from whichever agency is cheapest. This is especially true for value brands like Dollar and Thrifty, which focus on price-conscious customers. Being the only debit-friendly agencies could give them an advantage with a significant customer segment that would allow them to compete less aggressively on price.

There is also an opportunity to build early loyalty with young customers. Adults under 25 are the likeliest age cohort to lack a credit card, yet many agencies (including Dollar and Thrifty) have historically excluded young customers from renting with debit cards. Now, the minimum rental age at Dollar and Thrifty will be 20 with either form of payment. This expands a youth-friendly policy Dollar and Thrifty already had before today: Their minimum rental age of 20 was already lower than most of their competitors, which generally require renters to be at least 21.

By being the agency with the easiest policies for young, debit-card-holding customers, Dollar and Thrifty may be able to form a positive brand image that persists even after those customers pass the age of 25 or obtain credit cards and no longer need their unique policies.

The company also stands to benefit because the Dodd-Frank bank reform law limits the fees card networks may charge merchants for accepting debit cards, but not credit cards. So, making it easier for customers who carry both credit and debit cards to pay with their debit cards is likely to save Dollar and Thrifty on transaction-processing costs.

Of course, if Dollar and Thrifty have success with this debit-card policy, it may not remain unique for long.

Jacobs told me there’s no current plan to change debit-card acceptance rules at the Hertz Corporation’s flagship name brand. Hertz Rent-a-Car is positioned as a premium brand focused on business travelers who are less likely to care about debit-card acceptance rules. But value brands that compete directly with Dollar and Thrifty — such as Avis’s Budget and Enterprise’s Alamo — may feel pressure to keep up.

It is important to note, some downsides of renting with a debit card will remain, even when a rental car company treats debit cards and credit cards equally. At Dollar and Thrifty, both debit and credit cards are subject to an “authorization hold” at the start of a rental for estimated charges plus $200, but only if you use a debit card will you lock up this amount of funds in your bank account during your rental. Many credit cards provide insurance coverage for damage to a rental vehicle that a debit card will not. Debit cards do not earn reward points for spending. And credit cards put the consumer in a stronger position to contest charges than debit cards do, because a credit-card user does not lose access to the disputed funds during a dispute.

But those downsides are features of debit cards themselves, not of the way car rental firms treat debit cards. And despite these downsides, many consumers prefer to use debit cards, often because using a debit card is a strategy for financial discipline that prevents them from spending money they don’t have. Now, these consumers who prefer debit cards have one less reason to feel the need to get or keep a credit card.