The driver of a Mazda Miata pulls up to a gas pump at the beginning of a 500-mile journey and uses his debit card at the pump to fill up the gas tank. Even with rising gas prices, he’ll get by with $25 for a fill-up. Halfway through his journey, he stops for gas again, needing only $20 to complete the trip. Again, he pays at the pump.
The Miata owner may not realize that in some areas around the country, by using his debit card at the pump, he has just tied as much as $140 on his checking account, even though he only charged $45. The “authorization hold” mechanism on debit card usage is most prevalent among travel-related businesses, such as convenience stores, hotels, restaurants and car rental agencies.
“Some gas retailers have bumped up authorized holds from $20 and $30 to $75 and $80,” said John Hall, spokesperson for the American Bankers Association. “If you had $100 in your account, $20 wouldn’t make much of a difference and most people wouldn’t even notice, but $80 makes a huge difference.”
Hall pointed out the retailer and the card processor (Visa or MasterCard, for example) — not the bank — determines whether there will be an authorization hold and how much. The retailer often sets the authorization amount based on fuels costs for gas-guzzling SUVs, not fuel-efficient economy cars.
“You must understand there’s a risk involved because you haven’t paid for the merchandise first,” he explained. “The hold is usually for conveniences where you get the product before you pay. The money stays in your account, but it’s blocked. It’s not being used by the merchant, the card company or the bank for any nefarious reason.”
Most holds drop within 24 hours, and Visa rules call for hold removal within 72 hours.
“For consumer convenience and competitive reasons, it generally drops within two or three hours,” said Hall. “Otherwise, there may be a glitch in the system.”
Jeff Jaggers, senior vice president of BancorpSouth in Tupelo, pointed out the 72-hour timeline ticker doesn’t start until the merchant decides to settle up a batch of transactions.
“It’s just like making a deposit with checks,” he said. “Convenience stores usually do it at least every day. Some merchants settle up twice a day and others only do it once a week.”
One way to avoid an authorized hold at the gas pump is to always use a PIN number for debit-based transactions, said Jaggers.
“By using a PIN number, the exact amount of money comes out right away,” he said. “So during the holidays, it may be very beneficial, but perhaps a tad inconvenient, to go into the gas station and use the PIN pad.”
That trick doesn’t work with hotels and car rental companies, said Jaggers.
“You have to plan for that,” he said. “If I have $400 in my checking account when I check into a hotel for a three-day stay, and the hotel authorizes $360 even though it’s traditional business practice to pay when you leave, I may not have enough funds to go to a restaurant that night to pay for a business dinner. The hotel doesn’t know that I plan to make a deposit before I check out. They’re safeguarding themselves. Rental cars typically hold out a higher amount because of gas, overages and taxes. They’re trying to guesstimate a reasonable number of the bill so they can get paid when you bring back the car.”
When you use a debit card in PIN-based retail settings, the money is immediately deducted from your checking account. However, credits to a debit card account may take up to two weeks to post. Clerical errors can also be costly. Last month, after a cashier rang up $513.50 instead of $51.35, she immediately credited the higher amount and charged the correct amount, apologizing profusely. However, both transactions — $51.35 and $513.50 — remained on the books for several days.
“A credit is a much more difficult transaction,” said Hall. “To have something removed is not how the system is set up.”
Despite this downside, debit card usage is not losing its appeal.
“Debit cards are growing by leaps and bounds,” said Hall. “People are using them more often and for smaller purchases.”
If a debit card user is concerned about keeping a low balance because of sizable holds and delayed credits, he should sign up for overdraft protection, suggested Hall.
“If a genuine mistake is made, he can talk to the institution and they’ll probably waive bounced check fees the first time around, but it can’t be habitual,” he said. “Keep a padding of at least $80 to cover these situations or use another form of payment — cash, check or credit card. You are in the driver’s seat.”
Contact MBJ contributing writer Lynne Jeter at firstname.lastname@example.org.
An “authorization hold” placed on your account will reduce the balance available to authorize other transactions with your debit card. This hold will be removed from your account either when the actual transaction amount is debited from your account in posted transactions, or approximately three business days after the authorization, whichever occurs sooner. While this hold will reduce the balance available to authorize subsequent debit card transactions, it will not affect the payment of other withdrawals such as checks, electronic funds transfers or previously authorized debit card transactions.
In some cases, the amount of the pending transaction may not match the actual amount of the transaction. This is common. Some merchants, including restaurants and hotels, will place an initial hold, known as an “authorization hold,” on the account for a higher or lower dollar amount.
Purchases for airline, hotels, car rentals, travel, and mail or telephone orders are only subject to the initial “authorization hold,” and the funds will be credited to your account by the next business day. Once these types of transactions are processed, which may take several days, the actual amount of the transaction will be posted to your account.
SOURCE: Bank of America