Increased preathorization holds catch debit card users off guard
Dave West, of Butler, was surprised to see three transactions pending in his debit card statements totaling $450 after his wife scanned her card at two area convenience stores in mid-May, even though she didn’t actually pump any gas.
Upon speaking with his bank, he learned that some businesses put a preauthorization hold on debit card purchases, and while the funds never leave the user’s account, a hold may be placed to ensure the account has enough funds to pay the total.
The preauthorizations also can leave the debit card user in a bind if the account balance is lower than the pending fee, according to Lua Augustin, associate professor of accounting, economics and finance at Slippery Rock University.
Debit card users could see transactions declined or their accounts overdrafted using a card when an existing preauthorization is higher than the account balance. This can depend on the bank and type of card, according to Augustin.
In the Wests’ situation, Dave’s wife had attempted to buy gas twice at one Sheetz, but left when she couldn’t get the pumps to work. She struggled again at a second Sheetz location before returning home with $450 in pending charges and no gas.
“Ethically, that practice should be modified,” Dave West said. “We have computers that can determine this in seconds and return the money for usability.”
The preauthorizations eventually disappeared from West’s debit card statements and $450 was not taken from their account, West said, but he is concerned for people who may be negatively impacted by debit card holds.
“People should understand that if that hold is on that amount of money and then they run to a store where they use their debit card, the money they believe to be usable may not be,” West said.
A statement West received from Sheetz said preauthorizations at gas pumps have increased recently because of fuel prices and “not knowing what size of tank your vehicle is.”
“When you pay at the pump with a card, the total amount of the purchase is not initially known. Therefore, a temporary preauthorization transaction verifies that the account has funds available,” the statement said. “We understand that your purchase may have been less than the amount of the preauthorization transaction, but be assured that you will only be charged for the actual amount of your purchase.”
Augustin said businesses can establish how much they want to hold for preauthorization, but the debit card organizations themselves set limits. She said Mastercard and Visa could set a preauthorization limit.
She also noted gas stations are just one example of a business that might place a hold with a bank on transactions.
Car rental companies and hotels also use preauthorizations that are later removed from debit card users’ accounts.
“It's just really a way for the company to ensure that if someone does do that, they basically locked in the money so when they go to claim it from the bank, they can get it,” Augustin said. “While the money isn't subtracted immediately from your account, the bank does freeze it because the gas station has put that claim on it.”
Augustin also said people can use credit cards or cash to avoid preauthorizations that can be greater than the actual purchase amount.
According to Augustin, credit cards offer an extra level of security compared to debit cards.
“It is generally safer and better to pay via credit,” she said. “Only use debit if you have to go in and you have to get money from the ATM; otherwise, use your credit card because you have that extra protection.”
