So much has been reported in the media about debit holds, the practice of holding funds on a person's bank account for a
pre-authorized amount, typically when purchasing gasoline in a pay-at-the-pump setting. This article is intended to help distinguish
fact from fiction regarding debit holds.
Why are there pre-authorizations and holds?
First, let's clarify that every card, whether debit or credit, must be pre-authorized before the cardholder can pump gas.
Pre-authorizations occur because pay-at-the-pump transactions, by nature, begin as a mystery. No one, not the merchant, the consumer
or the issuing bank, knows how much the final dollar amount will be until the end of the transaction, when the consumer has finished
pumping gas.
Because the bank is forced to guess what that transaction amount might be, the authorization or hold amount (depending on the
transaction type) is assumed to be about the cost of filling a tank of gas. In the case of a large vehicle, that amount easily
hovers in the $50 to $75 range. In order to estimate the amount a pay-at-the pump transaction might be, Visa and MasterCard created
$1 pre-authorization procedures.
Part I: Credit and Offline Debit Transactions
Pre-authorizations vs. Holds
Both Visa and MasterCard require that merchants pre-authorize a pay-at-the pump sale for $1 if the
cardholder is paying with either credit or an offline (signature) debit transaction. It is important to note here that offline debit
transactions are processed similarly to credit card transactions. Debit cards are typically associated with a cardholder's checking
account whereas credit transactions impact a cardholder's credit line.
After this pre-authorization occurs, the bank that issued the card knows the transaction has originated from an automated fuel
dispenser based on information contained in the transaction message that the issuing bank receives. This information is transmitted
by the payment processor, i.e. Chase Paymentech Solutions, and is a key piece of the debit holds puzzle.
Holds help protect against liability
Visa and MasterCard rules allow the issuing bank to place holds on a cardholder's account for transactions originating from an
automated fuel dispenser. The logic behind this is that, from an authorization perspective, the $1 pre-authorization supports a
transaction for the amount of the transaction up to either $50 or $75 (varies between Visa and MasterCard). Likewise, from an
authorization standpoint, the merchant is not liable except for amounts over these limits. In order
to protect against this liability, an issuing bank may place a hold on the cardholder's account, since (as mentioned previously) the
bank has no way of knowing what the final amount of the sale will be.
Where the time lapse occurs
If a hold occurs on a cardholder's account, it can become an issue because in the signature-based debit process, there is no
automatic message sent back to the issuing bank that provides the amount of the final sale. Instead, it may be 48 to 72 hours,
depending on the financial settlement process between the merchant (petroleum marketer) and the bank, before the issuing bank
actually knows the final sale amount. This is why cardholders can experience holds above the sales amount for a number of days after
the transaction occurs.
Credit holds carry less cardholder impact
When a cardholder uses his credit line to purchase fuel at an automated fuel dispenser, the process is similar to signature-based
debit. The key difference is that the hold placed by the issuing bank is against the cardholder's credit line, not his direct
deposit (checking) account. Because of this, credit sales are typically much less of an issue for cardholders. Most cardholders
have sufficient credit lines (or multiple cards) to eliminate the risk of a fuel purchase tying up all their available credit.
|
back to top
|
Part II: PIN Debit Transactions
PIN debit pre-authorizations and holds
Unlike credit and signature-based debit sales, with pay-at-the-pump online (PIN-based) debit transactions, in which the cardholder
enters his or her personal identification number (PIN) in order to complete the transaction, the merchant has flexibility in setting
the pre-authorization amount for that transaction. Here's why:
With rising gasoline prices, the pre-authorization amounts set by merchants have risen to account for the higher transaction amounts.
Prior to the gas price hikes, pre-authorization amounts were as low as $35. But today, consumers swipe their card at the pump, and
the transaction is pre-authorized for levels typically ranging from $50 to $75. Merchants have implemented these higher levels for
PIN-based debit transactions because they are liable for the full transaction amount - unless that amount has been authorized.
However, with PIN-based debit, the issuing bank (for the card) is notified immediately after the completion of the sale of the final
transaction amount. This is part of the PIN-based debit transaction process and occurs automatically. With this process, the issuing
banks typically release any hold on the account above the final sale amount almost immediately.
|
back to top
|
Frequently Asked Questions
What should consumers do if funds are not released?
Consumers who feel their funds are being held too long should contact the bank that issued their card. The phone number is generally
located on the back of the card.
What role does the processor play?
The payment processor is the middle man between the merchant (gas station) and the consumer (cardholder). The processor facilitates
the transaction (purchase) by sending information to the cardholder's bank after the card is swiped and back to the merchant during
and after the transaction. Payment processors do not play a role in determining whether funds will be held on a cardholder's account.
Who regulates debit holds?
Visa and MasterCard issue regulations regarding what merchants are permitted to do with cards carrying one of their logos. PIN-based
debit transactions are governed by the debit networks (Star, Pulse, NYCE, etc) as well as general banking regulations issued by
federal and state regulatory agencies.
|
back to top
|
|
Partial Debit Authorization Answers Need for Exact Authorization Amounts
In a pay-at-the-pump environment, pre-authorization amounts that are set before customers swipe their cards can be a little tricky.
For instance, the customer who drives a compact car might only need $30 to fill his tank. But because the pre-authorization amount
for PIN debit transactions actually determines whether or not the customer is allowed to pump gas, if he does not have $50 to $75
in his bank account, it doesn't matter that he only needed $30. That transaction will be declined, due to insufficient funds. The
cardholder is forced to go inside and pay at the counter in this case, but oftentimes, the sale is lost, since the cardholder
simply leaves - disgruntled, confused, or both.
For this reason, Chase Paymentech Solutions developed a technology for petroleum merchants called Partial Debit Authorization.
Simply put, if a cardholder swipes his card and does not have sufficient funds in his account (ex: $75), Partial Debit
Authorization allows the cardholder to be authorized for a transaction amount based on the funds available in his account. For
instance, if he has $12 in his checking account, the sale is authorized for this amount, and when he reaches the limit, the pump
automatically shuts off, and the sale is closed for $12.
|
|
|
