Archive for Thursday, January 3, 2008

Holds sideswipe card users

Practice means more money is initially charged from accounts

January 3, 2008

A few days before Christmas, Joanne Cravens got a holiday surprise that she's not likely to soon forget.

When her husband, James, pre-paid for $40 worth of gas at a local filling station, the Cravenses soon discovered that $60 had been charged to their account.

"You go in there, you pay for your gas : you've got what you want," she said. "They charge you more. I don't get it."

It's a common practice, known as "blocking" or "holding," where financial institutions that issue credit and debit cards charge more than a consumer actually pays to ensure that a sale is completed. Essentially, businesses want to make sure they get paid in case a customer exceeds his or her credit limit or overdraws from a bank account.

Blocking is common with rental car and hotel reservations. The merchants want to recoup any charges for damages or other incidental costs.

Many people also have experienced blocking in restaurants, where, for instance, a gratuity is added to a large party's bill.

"They reserve the right to do that in case somebody damages something or steals something. It's a temporary amount that's put on there and once the transaction is complete, they take it off," said Jeff Witherspoon, director of Consumer Credit Counseling Inc. in Wichita.

Robert Baker, a credit counselor with Housing and Credit Counseling, Lawrence, said blocking also can be used as a deterrent to fraud.

"Let's say you charge reservations at a hotel and now that card number is being used to reserve plane tickets somewhere else; the (card issuer) puts a hold on it," he said.

'Shocked'

It can come as an unwelcome surprise to consumers who think they have funds in their account - only to find their debit accounts are overdrawn or their credit cards are maxed out.

"I think sometimes people are shocked. There are a lot of credit cards that willingly let you go over the limit and continue to charge," Baker said.

Baker said consumers with low-limit credit cards should be wary of their purchases.

"First of all, if you have a low-limit credit card, chances are good it has lots of subprime features that aren't desired by a consumer in the first place," he said.

He cited monthly costs for credit insurance, activation and cancellation charges, and membership fees as features that could snowball, putting consumers in a bind.

Mounting charges from overdrafts are an added difficulty for people, especially those who live on a fixed budget and whose funds are affected by blocking.

Cravens, 64, said her daughter's bank account was hammered by extraneous fees after blocking charges began adding up. She said she and her husband were lucky because they had enough money in their accounts to soften the blow.

"I don't think a lot of people know (about blocking). They don't check their bank accounts for days, and by the time they check it, (the money) is already back in there," Cravens said. "If it's on the weekend, it doesn't get done for several days. In the meantime, they've used their card and maybe been denied."

It can be a confusing two-step for consumers, especially if they don't pay for an item with the credit or debit card they first presented.

If, for instance, a customer reserves a hotel room with a credit card, and then pays for the room with that same card, the block usually disappears in a matter of days.

But for purchases where consumers might use a different method of paying - with another card, with cash or a check - it could take up to 15 days for the card issuer to recognize that the transaction has been completed. That means unsuspecting card holders can experience unwelcome charges that can pile up.

'We prefer cash'

Barbara Coleman, a spokeswoman for MasterCard, said that neither credit card companies nor merchants put a hold on customers' accounts. Rather, when a customer pays with a credit or debit card, the merchant decides if it needs additional authorization. This can lead to card issuers - such as banks - putting a hold on customers' funds. It is at the discretion of these financial institutions whether to block funds.

Blocking is a fact of life for merchants, such as Faisal Absar, who manages the BP at 1900 Haskell Ave. in Lawrence, where the Cravens first discovered the extra charges to their account.

"When you pre-pay on the pumps, it holds (between) $50 to $100. It depends on what credit card they have," Absar said. He said his store recently installed a new system that eliminates such charges when customers pre-pay for gas inside his store.

To deter phantom charges, Absar said, "We prefer cash."

But cash isn't always an option for consumers on the go. Baker suggested consumers look for alternatives to low-limit credit cards.

He said a new type of card, called the RevolutionCard, is designed for people who are fed up with traditional credit and debit cards. The card allows users to purchase items through debit, credit, checking and even PayPal.

"Consumers don't have a lot of choice, so they're trying to find a way where consumers can have a choice," Baker said.

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