Who’s Responsible for Debit Card Holds?

By Jeff Lenard   read

Is it the banking and credit card industry, or the retailer? The answer is obvious.

June 29, 2022

Debit-card-holds_PageImage.jpgDebit card holds placed on fuel purchases are back in the news. These temporary holds of up to $175 (previously $125) are placed on a customer’s bank account when they purchase fuel, regardless of the amount of the fill-up. As the coverage has amped up, so has the misinformation.

Let’s start by addressing the most important question: Who is responsible for the hold? Is it the banking and credit card industry, which has your money and writes and polices the hundreds of pages of rules that dictate credit and debit card usage without much government oversight? Or is it the retailer?

The answer is obvious, but first let’s go through a bit more detail on why holds exist.

What Are Holds?

In most retail circumstances, the payment amount is known at the time of checkout. At the grocery store, a customer pays after all items have been scanned and bagged. It’s the same process at most other retail outlets, whether you are paying for a meal, clothes or some other item either in a store or online.

But there are exceptions. Holds are placed on card purchases when the final amount of the purchase is unknown at the time of card authorization. One situation where that applies is at the pump.

Holds are intended to represent the largest possible fill-up that could occur, and because of higher gas prices, Visa and Mastercard upped the holds to $175 in April 2022, which became the de facto standard at most retail stations in June.

Holds are placed on both credit and debit cards, but because at times people have low balances in their bank accounts, holds on debit cards can have significant ramifications.

Holds also are placed when you check in at a hotel or rent a car. It’s increasingly rare to find a hotel or car rental service company that accepts debit cards at check-in because holds can be $500 or more.

One more point of clarification. There are two charges that hit your account when you purchase gas. One is an “authorization” charge, typically for $1. This charge isn’t permanent and is later removed. Its purpose is to make sure that the card being used is a valid one. The second charge is the “hold,” which is required to make sure you have money to cover the transaction.

How Holds Are Set

If the banks guaranteed that the gas station would get paid, holds wouldn’t be an issue at the pump. But that’s not the case. Both Visa and Mastercard say that if there isn’t a hold placed on the consumer’s bank account, the retailer might not get paid. Cards are used for approximately 80% of payments at the pump, or more than 30 million times every day. So, rolling the dice on losing 80% of sales isn’t a realistic option—at least for retail fueling locations that want to stay in business.

The amount of the hold is determined by the contract between the retail station and its bank. The amount also represents the maximum fill-up. That means that you can’t pump one drop above the amount of the hold, whether you paid by credit or debit card. If a station sets a limit too low, your pump might shut off before you complete your fill-up, which is frustrating, especially with higher gas prices.

While online banking statements look like the hold has been placed by the retailer, the retailer is only responsible for setting the amount of the hold—a decision highly influenced by credit card rules that could later deny payments for some transactions.

Most important, the gas station doesn’t hold the money; it’s held by the bank. Why would a station want your money tied up in your bank? They want you to have sufficient funds in your account so you can buy things.

So, who benefits from holds, especially long ones? The bank that has your money.

Anyone who remembers waiting for a paper check to clear knows how this works: The longer a bank can hold onto your money and make it “work” for them, the better it is for that bank.

What You Can Do About Holds

The retail operator is not responsible for the length of the hold; it is determined by your bank. It should not stay more than a few days, and that’s important to know. If you’re on a long trip and fill up multiple times in a day or two, you could find yourself with a lot of money tied up in holds.

Multiple holds, or even one unexpected debit hold, can begin a cascade of overdraft fees or cause you to be locked out of making other purchases. So, what can you do to avoid these situations?

The length of a hold is affected by how the card is used. PIN-debit transactions are real-time transactions, and holds should be released within minutes, as opposed to hours or days. If there is no PIN-pad at the pump, you can use the one inside the store at checkout, which is not as convenient, but it reduces the length of your hold. Meanwhile, so-called signature-based debit transactions—those where customers do not use a PIN—are processed like a credit card transaction and have longer hold times that could take days to clear.

Signature-based debit transactions holds, like the holds on credit cards that can affect a customer’s spending limit, can remain for 48 to 72 hours, since the processing times are slower. It shouldn’t take that long, but the banks and credit card companies don’t have the incentives or competition to push them to make the system faster.

If you are concerned, you should ask your bank about its policy regarding the length of debit holds. If the hold lasts longer than a few minutes for PIN-based transactions, or longer than a couple days for signature-based debit transactions, you should talk to your bank to learn why the holds are lasting so long.

Unfortunately, the way the debit card system works isn’t likely to change anytime soon. The banking industry that issues cards isn’t motivated to improve its customer service. And that just adds to the frustration we face today at the pump.

Jeff Lenard is the VP of Strategic Industry Initiatives at NACS. Jeff’s favorite card is not a debit card or credit card; it’s his Nolan Ryan/Jerry Koosman “1968 Rookie Stars” baseball card, even if it is a bit worn and far from mint condition.