Motorists feel a lot of pain at the pump. As of August 1, the average price of a gallon of gasoline in the United States was $4.21 per gallon, according to AAA. As if that weren’t enough, many Americans are having their cards declined when trying to pay for gas.
Just a few months ago, the two largest payment processing networks, Mastercard and Visa, increased the maximum pre-authorization amount for a debit or credit card transaction at a gas pump by 40%.
For some card-using motorists, the higher pre-authorization limit may result in overdraft fees or even declined purchases.
This spring, Mastercard and Visa raised the cap on a pre-authorization hold for a debit or credit card purchase at a gas pump from $125 to $175. Gas stations and other retailers set their own hold amounts, but Mastercard and Visa set the upper limit. Both payment networks say they have increased the maximum holdback amount to account for heavier gas purchases triggered by soaring gas prices.
Andy Gerlt, a spokesman for Visa, said the higher maximum amount for pre-authorization holds at gas pumps helps protect gas retailers from fraud.
“This increase in the liability limit explains the rise in gasoline prices and encourages fuel merchants to allow larger purchases without any increased risk to them,” says Gerlt.
Financial institutions point out that the higher $175 threshold means some cardholders who drive large vehicles don’t need to make two transactions to fill up on gas.1
Two other major payment networks, American Express and Discover, do not set dollar amounts for pre-authorization holds.
What is a pre-authorization hold?
At a gas station, a pre-authorization hold occurs when you use a debit or credit card to pay for a purchase.
Pre-authorization hold for a debit card
When a PIN is not entered at a pump for a debit card transaction, a gas station electronically obtains authorization for a purchase. The retailer determines the amount of the holdback. Once the transaction is approved, the account balance linked to your debit card is reduced, often by an amount greater than the amount of the purchase.
For example, you might consider purchasing gasoline for $100, but the holdback amount is $175. The higher amount ensures that there is enough money to cover the purchase, as the purchase amount is not final until your gas tank is full. Until the hold clears, you will not be able to access the difference between the hold amount ($175) and the purchase amount ($100).
The hold on a debit card remains until the retailer receives the money from your financial institution or after a certain period (such as 72 hours), whichever comes first.2 While some suspensions may expire in one day, others may take three or more days to be revoked.3
Mastercard and Visa state that a debit card hold for a gas purchase is supposed to be released within two hours of fuel being dispensed, but some holds may last longer depending on the card payment network used for the purchase. purchase of gas.
Keep in mind that while Mastercard and Visa’s upper limit for pre-authorization at a gas pump is now $175, a gas station can hold as little as $1.
Pre-authorization hold for a credit card
Generally, a pre-authorization hold on a credit card is less problematic than a pre-authorization hold on a debit card. Why? Only $1 authorization is typically processed for credit transactions and card transactions that require a signature.4 Also, a person’s credit limit may be more generous than their bank balance.
A pre-authorization hold on a credit card sometimes lasts about five days, but can range from one to 30 days. In this case, the pre-authorization timer stops when the gas purchase is complete, the purchase amount is received by the gas retailer, or the time window for the hold closes.5
The risk of charges with pre-authorization
Consumer advocates complain that the higher limit on pre-authorization holds could cause some consumers to run up a negative balance on a debit card and potentially pay fees. Or, they add, a higher amount for a hold could reduce the available credit on someone’s credit card.
Rachel Gittleman, financial services outreach manager at the Consumer Federation of America, says that for debit cardholders with low balances, pre-authorization holds can be “devastating” when they result in overdraft fees or Insufficient Funds (NSF). Or a transaction may simply be declined if there is not enough money to cover a pre-authorization hold.
“It’s incredibly difficult for low-income consumers to avoid NSF overdrafts and fees, generally,” says Gittleman, “but especially those caused by debit holds, because the time credits and rates are displayed and set is incredibly opaque, complicated and beyond the consumer’s control.
Gittleman notes that financial institutions raked in $15.5 billion in revenue from overdraft and NSF fees in 2019.6
For their part, financial institutions insist that a pre-authorization is designed to ensure that you are aware that you have enough purchasing power – in this case, to buy gasoline. This knowledge helps consumers avoid overdrafts and NSF charges, they say.seven
Legislation pending in Congress would prohibit financial institutions from charging overdraft fees for debit holds that exceed actual transaction amounts. The Consumer Federation of America is among several consumer advocacy groups that have endorsed the legislation.8
Gas retailers fight back
Along with consumer advocates, the largest trade group of gas retailers is also speaking out against the moves by Mastercard and Visa.
“Reservations don’t benefit retailers,” says Jeff Lenard, vice president of strategic initiatives for NACS, a trade organization representing convenience stores. “Customers are losing access to their money, and that’s definitely not good for business. However, the customer’s bank can take advantage of this, especially if it triggers a cascade of overdraft charges.
“Station owners don’t like holdbacks, but they might not get paid for the transaction if they don’t have holdbacks,” adds Lenard. “It wouldn’t be a problem if the banks guaranteed the payments for the transactions.”
According to a spokesperson for a banking association, despite the fact that stickers on gas pumps indicate that financial institutions set and release pre-authorization holds, gasoline retailers set the hold amounts and have the most say in when holds are lifted.
Lenard points out that banks, not gas retailers, determine the duration of a pre-authorization and hold the money held until it’s ready to be released.9
Currently, there is no timetable for reducing the maximum dollar amounts for pre-authorization holdbacks.
“One thing to note is that $175 doesn’t have to be held by a merchant,” says Mastercard spokesperson Will O’Connor. “It is up to the trader to decide how he manages his operations and his potential risks, just as it is up to him to decide on a maximum amount of fuel to dispense.”
How to avoid problems with pre-authorization holds
Although pre-authorization stalls may seem as inevitable as the occasional lack of gas, you can take these steps to avoid them:
- Enter a PIN code when using a debit card, if you have a lot of money in your account. Most PIN-based transactions are processed immediately.
- Choose “credit” when using your debit card. Credit authorizations are often only $1.
- Enter the gas station to pay cash.
- Go to the gas station and ask for a pre-authorization for a purchase of a lower amount, for example $30 instead of $50.
- Use a prepaid card, such as a gift card, to pay for gas.
- Look for a gas station with a low dollar amount for pre-authorization holds.
- Make sure there is enough money in your bank account to cover a gas purchase.
- Set up overdraft protection, so that money can be automatically transferred from one account to another at the same financial institution, when a pre-authorization hold results in an overdraft.