Taking Credit Card Numbers to Ensure Payment

June 2, 2011

The Wisconsin Builders Association Hot Line is a service provided for the Wisconsin Builders Association by Axley Brynelson. Legal Hot Line answers should be considered a general statement of applicable legal information. Given this format, it is impossible to fully address all potential legal issues which might apply in any particular situation. A determination of any individual’s legal rights in a transaction can only be obtained after a complete analysis of the law and its applicability to the particular fact situation. Please contact the author of the article if additional information is needed, or private counsel, if legal advice is needed.¬†

Are there specific consumer protection laws that apply when a builder obtains a credit card number from a customer to ensure payment for services?

A: As a practical matter, many businesses, including hotels, rental car agencies and restaurants will require a customer to provide a credit card and authorization when they reserve a room, car or restaurant. This is known as “credit card blocking.” The merchant will take the credit card number in advance and then contact the credit card company to have the amount blocked (or “reserved”) on the credit card. At the appropriate time, the customer will either pay using the credit card or other means. After the business receives payment, the credit card block will be released; however, if the credit card company is not notified that the amount has been paid, the block may linger for 72 hours or longer, depending on the policies of the credit card company. If a merchant takes a credit card number from a customer, but does not block the desired amount with the credit card company, the merchant runs the risk that the credit card will not provide the insurance of payment that is desired by the merchant.

There are no federal or state laws that would prohibit a builder from taking a credit card number and authorization prior to commencing its work and then charging the credit card if the customer does not pay. If a business is going to take a credit card number to ensure payment, it must have authorization from the customer, which it should obtain in writing when it receives the credit card number. If your business accepts credit cards, you will have to comply with most consumer protection statutes and rules that generally prohibit fraud, deception, abuse or other unfair trade practices. There are many consumer laws like the Fair Credit Billing Act that address the use of credit cards; however, these rules do not prohibit taking a credit card number with authorization for payment in the event that the customer does not pay for the services and materials when payment is due.

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