Credit Card and Debit Card Blocking

Sometimes, businesses will charge more on your credit card or debit card than what you actually authorize. If you have ever been told shortly after you stayed in a hotel or rented a car that you were over your credit card limit or had your debit card declined (although you knew you had available credit or money in your bank account), you could have encountered what is known as card "blocking." With blocking, a merchant does not actually take out all that money, but does prevent you from spending it in order to make sure they get paid. A block essentially reserves funds available through a credit or debit card to make sure cardholders do not exceed their credit limit, or, for debit cards, their bank account balance, before checking out of a hotel room or returning a rental car.

Usually, card blocking remains unnoticed -- but that could change if you have a card balance near your credit limit or have a low checking account balance when paying by debit card. If you are away from home on a vacation and without access to the Internet, you may have trouble figuring out how all your charges add up to an exceeded credit limit.

Credit card blocking generally takes place when a consumer checks into a hotel or rents a car, instances where a credit card or debit card is needed prior to actual payment. In such cases, the clerk usually contacts the company that issued your card to provide an estimated total. Once the transaction is approved, your available credit (when a credit card is used) or the balance in your bank account (when a debit card is used) is reduced by this amount. Hotels will estimate on the high side and can lock in the hold for three days or more, until your actual charges clear and are posted. This is a block, which some companies refer to as placing a "hold" on those amounts, and can quickly eat up your credit limit.

While some hotels will add a percentage of the room rate onto the hold, other will tack on a set dollar amount. For example, use of a credit card or debit card upon check in to a $100-a-night hotel room for a planned stay of five nights could mean that at least $500 would be blocked. Additionally, hotels and rental card companies often add anticipated charges for "incidentals" like food, beverages, or gasoline to the blocked amount. These incidentals can vary greatly among merchants. Meanwhile, restaurants run your credit or debit card before you tip and usually add on what they expect you to give. If they guessed too high, the amount is adjusted, although it can take a few days. Merchants set the hold amount, but banks choose whether to hold the funds and for how long.

Visa requests that financial institutions issuing its cards release all holds in under three business of the request or when the transaction clears, whichever comes first.

If you pay your bill with the same credit card or debit card you initially used when you checked in to a hotel, the final charge or amount on that card will likely replace the block in a day or two. However, if you pay your bill with a different card, or with cash or a check, the company that issued the card you used at check-in might hold the block for as long as 15 days after you've checked in. That happens because they were not informed of the final payment and did not know you paid another way.

Blocking is perfectly legal and does not require any disclosure. Sometimes blocking is also used by gas stations, by companies cleaning your home, and other businesses to make sure credit or account money will be available to complete payment.

Holds at self-service gas stations can be especially troublesome for debit card users, since they are not removed for up to three business days, until the gas station carries out a "batch" transaction that gives the bank the actual amount. According to the spokesman for the Consumer Action activist organization, oil companies vary in the hold amount, from $1 to $100.

If you are either nowhere near your credit limit or have plenty of money in your bank account, blocking is unlikely to be an issue. But if you are nearing your credit limit of have a low balance in your account, be careful. Not only can it be embarrassing to have your card declined, it can also be inconvenient, especially when you need to make an emergency purchase with insufficient credit or money in your bank account. With debit cards, depending on the balance in your bank account, blocking could result in charges for insufficient funds while the block remains in place.

In order to avoid the trouble that can result from credit card and debit card blocking, you can take the following steps:

• When checking into a hotel or renting a car (or if another business asks for your card in advance of service) find out if the company is "blocking," how much will be blocked, how the amount is determined, and how long the block will remain in place.
• Use the same credit card or debit card at the start of the transaction that you plan to pay with for hotel, motel, rental car, or other "blocked" bills. Find out from the clerk when the prior block will be removed.
• If you do pay with a different credit card or debit card, by cash, or by check, remind the clerk that you are using a different form of payment and ask them to remove the block promptly.
• Call your current card issuer to inquire if they allow blocks, for how long, and from what types of merchants. If they do, you may want to think about getting an overdraft line of credit from your bank. Ask about a plan that always automatically covers the overdraft and does not involve a separate bank decision on whether or not to pay it each time. Although you could incur some interest on this plan if you don't pay off the amount fairly quickly, you would not have an overdraft that goes unpaid. Talk to your bank about an overdraft line of credit, how it would work, and how much it costs.

To reiterate, when looking for a credit or debit card, it's important to consider whether the issuer permits blocks, for how long, and from what types of merchants. You may want a card from an issuer that uses shorter blocks.