Debit card pre-authorization rules

Written by craig woodman
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Many consumers are using their debit cards for everyday transactions, citing the convenience of having the money withdrawn directly from their account. Just as they have done with credit cards for years, merchants often pre-authorise debit cards either for the amount of the purchase, or for an extra amount when the exact purchase amount is unknown. Each merchant's rules vary concerning pre-authorisation depending on the individual credit card processor and the type of merchant.

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Holds

When a merchant accepts your debit card, it may use two steps to charge the card for your purchase. Before the card processor withdraws the money, it may place a pre-authorisation hold on your card. When a cardholder reviews his bank statement, he will see the available balance in his account less than the actual balance. In most cases, the actual charge is made within a couple of days. This is more common when a merchant runs the card as a credit card, as well as with smaller merchants who may not close the purchases as often. PIN-based debit transactions often post immediately.

Unknown Purchase Amount

When the merchant does not know the exact amount of the purchase, it may place a pre-authorisation hold for a specified amount to reserve the funds. Hotels and rental car companies do this, as well as pay-at-the-pump gas stations. These types of pre-authorisation holds are regulated by the merchant's agreement with its credit card processor and varies by the merchant's policies. Rental car companies are notorious for holding larger amounts from cardholder accounts, often up to £325 or a certain amount over the expected purchase.

Hold Problems

Basic pre-authorisation holds for the exact amount of the purchase rarely cause a problem for card holders. The purchase posts to the account relatively quickly and matches the hold amount. The unknown transaction amount causes more problems. If a rental car company places a hold on a debit card for £325, and the bill is only £195, the cardholder may think that the £130 surplus is available immediately. It may take several days for the hold to expire, causing bounced checks and other problems in the meantime.

What You Can Do

Avoid using a debit card with merchants when you do not know the exact amount of the purchase. When renting a car or a hotel room, use a regular credit card to secure the room or car. When you return the car or check out of the hotel, you can use a debit card to pay for the bill. Since this is a transaction where the exact amount is clear, the merchant should not place an extra hold on the card. When purchasing fuel, avoid paying at the pump and pay with your debit card inside. Always ask merchants about holds when in doubt.

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