Cards can make you see red
Practice of placing ‘holds’ on accounts ties up consumers’ credit or balances
Updated: 07/20/08 8:42 AM
Just as people are finding ways to avoid burning so much gasoline, they may soon decide that paying for that fuel with credit cards or debit cards isn’t so convenient after all.
The outfits that process those transactions — Visa, MasterCard and the rest — will have to decide, and decide quickly, whether they want to change their practices, wait for the government to force changes or slowly wave bye-bye to an increasing number of their customers.
The perfect storm of soaring demand, tight supply, monopolistic control of the supply chain and, maybe, increased speculation in the commodities market have pushed gasoline prices well above $4 a gallon.
As reported recently by The Buffalo News, people have been absorbing the shock of high prices only to be whacked again by the realization that the credit and debit card processing system has been getting its hooks into even more of their money.
When you insert your card into a gas pump and “withdraw quickly,” the card processing system quickly places a hold of maybe $100 on your card’s line of credit or, if it’s a debit card, your bank account. That’s to cover whatever amount you may be about to spend on gas, a transaction the pump has just decided to permit even though neither the computer nor the retailer — nor, often, the customer — knows how much is about to be spent.
Even if you spend only a quarter of that $100 on gas, the hold can remain on your account for up to three days. As customers go blithely on to buy everything else they buy, a lot of it similarly more expensive by the day, they are likely unaware that they are mysteriously less solvent than they thought. They may find themselves with unexpected, arguably unjustified overdraft or over-limit fees, or face the embarrassment of having their card rejected.
Meanwhile, gas retailers are getting pretty sick of dealing with those credit cards, too. The percentage fee that the companies charge retailers for their services can cut into a gas station’s slim profit margin to the extent that it loses money on every gallon sold. The National Association of Convenience Stores says that its members paid roughly $7.6 billion in credit card fees last year. That’s more than twice the members’ reported $3.4 billion in profits.
Some retailers are offering discounts, or free soda and coffee, for customers who pay cash. A few others are refusing to accept credit cards at all.
Some relief is in sight. Visa has announced that it will ease the hold requirements this fall, clearing purchases “in real time” so that a customer’s account won’t be tied up for days. (MasterCard hasn’t yet followed suit.) Both card companies say they will cap fees charged to retailers so that they won’t profit — as much — from sky-high gas prices.
Congress and the New York Legislature have made noises about cracking down on all of these practices, and it’s worth a hard look. But there’s a better way, an old way, to get the purveyors of plastic to change their ways:
Pay cash, or do without.
