Credit card 'block,' 'hold' can catch users unaware

Consumers who operate close to the limit on their debit or credit cards could find themselves in trouble when they travel this summer. That's because banks and other financial institutions that issue the cards may put "blocks" or "holds" on the cards to ensure payment when they're used for hotels and motels, car rentals and gasoline purchases.

Because the blocks are sometimes larger than the actual purchase price, unwary consumers can find themselves over the limit on their credit cards or overdrawing the checking accounts their debit cards are linked to.

Blocking is used to make sure consumers have the funds to pay the merchant for goods or services, generally when the actual payment amount isn't known upfront.

The Federal Trade Commission, which has a fact sheet about credit and debit card blocking on its Web site at www.ftc.gov, gives this example:

Suppose you use a credit or debit card when you check into a $100-a-night hotel for five nights.

At least $500 would likely be blocked. In addition, hotels and rental car companies often add anticipated charges for incidentals such as food, beverages or gasoline to the blocked amount.

The block, which makes that money unavailable for other debits or credits, stays in place until the final bill is paid with a card or the payment clears the bank, which can take several business days.

When it comes to gasoline, holds are likely to be between $50 and $100 per fill-up, up from $35 a few years ago, according to the National Association of Convenience Stores.

Most people don't notice the holds on credit cards because they have sufficient credit lines to cover them, the association said. But a debit card user who swipes a card at the pump and takes $22 worth of gas is likely unaware that there's a $50 hold on funds that could last for several days, and could make bad spending decisions as a result.

How large the holds are and how long they last varies from one card-issuer to another, but the payment card industry in general tries to limit the negative effect on consumers.

For example, Visa USA, the nation's largest card association, says the blocking systems make it possible for such consumer-friendly services as express checkout at hotels, pay-at-the-pump fueling and single-swipe payments in restaurants. Visa also says it has rules to limit how long blocks last.

"Visa requires that card-issuing financial institutions release all holds within three business days of the authorization request or when the transaction clears, whichever is earlier," according to a statement by vice president Rosetta Jones.

Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a consumer advocacy organization based in Washington, D.C., said he believed consumers were becoming more aware of blocks and holds because so many check their bank account balances online, so they can see that some funds are not available to spend.

"The real issue to me isn't the blocking as much as it is the enormous number of over-limit and bounced-check fees that consumers are paying when they use their debit cards and don't have enough money in their accounts," he said. "Blocking can make this worse, because you think you have it in your account, but you don't."

For example, he said, "Someone who bought $20 worth of gas and didn't know he was blocked for $100, and then went to a movie and bought a latte, could end up paying huge fees for overdrawing the account, as in that $5 latte could trigger $35 in penalty fees."

Mierzwinski said hotels and rental car companies "realized they had such a bad PR problem" with holds on some cards that many now have signs at their desks saying they won't accept debit cards to hold rooms or cars.

His advice to consumers: "Presume there is blocking of your account in any hotel, rent-a-car or gas purchase. Never reserve a hotel or car with a debit card, and always make sure you're nowhere close to your limit on your credit card."