As if prices at the pump weren’t bad enough ...
Credit card companies and banks put a hold on money you haven’t even spent yet
When you go to the gas station to fill up, watch out if you’re paying at the pump.
Gas retailers and banks have sharply increased how much they put on “hold” on customers’ credit and debit cards when consumers use plastic without going to the register.
The retailers and banks say such “holds” are intended to prevent fraud and losses by guaranteeing the money is reserved for them upfront. They say the extra charges are released as soon as the final purchase amount is processed, usually in about three days. But few Americans even know about the practice.
Consumers, though, are crying foul because the holds mean up to $100 can be frozen from their bank account or credit line for a few days even when they didn’t spend that much on gas.
It’s particularly onerous when the hold causes someone to overdraw their checking account or exceed their credit limit.
Take T. J. Rebmann. When the Hamburg resident took his BMW SUV and his wife’s Ford Edge to the nearby Sunoco station, he spent $114 on his Discover Card to fill up the two cars. But when he got home later and checked his credit card balance online, he found $200 in charges from the gas station.
“To me, with the price of gas the way it is, I don’t think it’s fair for a lot of people who are barely getting by,” said Rebmann, 60, a disabled Vietnam veteran.
As the price of filling up a tank of gas has skyrocketed past the $4-per-gallon mark, consumers are increasingly aware of every penny, and are closely monitoring accounts.
Some are scraping up against credit limits or checking account balances because gas and other costs have grown while many banks tighten on credit limits to control their losses in a weak economy.
In the process, consumers are discovering the downside of paying at the pump — the dirty secret that gas retailers and banks aren’t readily disclosing.
“Holds or blocks are a big problem. They’re a worse problem than they used to be,” said Edmund Mierzwinski, consumer program director at U. S. Public Interest Research Group. “Nobody seems to know what’s going on in this system.”
And as the problem has grown, consumer groups are demanding the hold practice be abolished. In the meantime, they are encouraging consumers to go inside to the register to pay. Holds are not an issue at the register, where you pay after you’re done buying gas.
“Of course we understand that the merchant needs to find out if the card is valid, but to hold up any amount of money beyond what is being spent, Consumers Union would like to see that eliminated,” said Michelle Jun, senior staff attorney at the Yonkersbased group.
For their part, the retailers, oil companies, transaction processors, credit card companies, and bank card issuers blame each other for the holds.
“It’s not the retailer. It’s either the oil company or the processor who puts the hold on,” said Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops.
“Sunoco does not place holds on customer credit or debit cards,” said Thomas Golembeski, spokesman for the Philadelphia-based oil company. “It’s the bank that issues the card that places the hold.”
“Visa does not issue cards and, thus, does not place ‘holds’ on cardholder funds,” the California-based credit card company said in a statement. “The financial institutions that issue Visa cards decide whether to place holds on cardholder funds.”
“It is the merchant who sets the hold charge,” said Discover spokesman Matthew Towson. “They basically ask the credit card issuer to put a hold of a certain amount.”
“The merchant, not the bank, determines the dollar amount that comes through for authorization,” said Betty Riess, spokeswoman for Bank of America Corp., the No. 1 credit card issuer. “We place a hold on the amount that comes through from the merchant.”
The problem stems from the unique nature of pay-at-the-pump procedures, in which the credit or debit card is run through the card reader to activate the pump even before the final purchase amount is known. That means the bank must “guess” how much it will be, according to payment processing firm Chase Paymentech Solutions LLC.
As part of that initial swipe, the retailer is required by the credit card companies to send a request to the bank for a “pre-authorization,” to verify the card is legitimate and ensure funds are available. Without that, the customer can’t pump gas.
That pre-authorization is often for as little as $1, but “supports” much larger transactions of $50 or $75 and protects merchants from liability up to those amounts, under credit card company procedures. Those amounts are based on the potential cost of a full tank of gas for a large vehicle.
But some banks, either at the behest of gas retailers and oil companies, or on their own initiative, also place a “hold” on the cardholder’s account for the larger sum to protect themselves against loss. That’s allowed under Visa and MasterCard rules for pump purchases, again because the bank doesn’t know the final amount.
“Until the actual transaction comes through, we don’t know what the final amount will be,” Riess said. “All we have is the amount that came through for the authorization.”
That may seem odd, since the purchase is completed in just a few minutes. But pay-at-the-pump purchases by credit or debit card are both processed the same way — like a credit card. That means it’s not settled for a few days, in contrast to a debit card purchase when you enter your PIN, where the withdrawal is immediate.
The hold amount is in place of the actual transaction amount, not on top of it, and when the transaction is finally completed and processed, the hold is automatically released. But in the meantime, the extra money over and above what the consumer actually bought remains tied up for three days or more, depending on the bank, credit card company or merchant.
“We have heard from a number of consumers who have complained about the debit hold, particularly when it puts them into overdraft and they incur fees,” Jun said. “Their money remains frozen in their account.”
The practice of putting “holds” on a certain amount of money to ensure the money is available isn’t new, and isn’t limited to gas stations. Hotels, restaurants and rental-car companies also do it at the beginning of a transaction for the same reason: The final amount due isn’t known until later. Hotel guests and rental car drivers could incur other fees, while restaurant patrons haven’t yet added the tip.
And all sides insist that the holds are cleared quickly. Under current Visa rules, for example, holds must be cleared within three business days or when the transaction is settled, whichever comes first.
But the practice is getting much more scrutiny now. Democratic Assemblywoman Catherine T. Nolan of Queens and Republican State Sen. William Larkin of Orange County introduced legislation in Albany that would prohibit placing holds in excess of the amount actually billed without the cardholder’s consent. The bill never moved out of committee.
In the meantime, Visa late last month announced new “real-time clearing” rules for pay-at-the-pump purchases, which means that gas purchases will be settled within two hours or even 15 minutes of a purchase, instead of over several days. That means holds clear faster. But MasterCard, American Express Co., and Discover Financial Services haven’t followed.
Finally, the Federal Reserve Board, in its pending proposed rule dealing with unfair and deceptive credit card and overdraft practices, has proposed making it illegal to charge an overdraft or over-the-limit fee if the only cause is a hold.
“I’ve always known that it’s a problem, but when the Fed agrees that it’s a problem, it’s a big problem,” Mierzwinski said.
In the meantime, consumers can contact the merchant and ask them to call the bank to remove the hold if it’s still in place after a few days. And they can avoid the problem altogether by going inside to the register.
But for Rebmann, who spent 11 years in the Air Force and fought in Vietnam, that doesn’t help. “I’m disabled. I have a hard time getting around. To me, that’s a lot of work.”
