Paying by Plastic at the Gas Pump

There is a lot of complexity related to payments at the pump. 

May 19, 2022  read

With nearly 40 million Americans refueling their cars every day, there’s a good chance they’re paying with a debit or credit card.

In early 2020, 77% of drivers paid by plastic (44% by credit and 33% by debit card) but by May 2020, when coronavirus-related concerns emerged and consumers sought to minimize personal contact, a whopping 86% of fuel customers paid by plastic.

An average fill-up takes 3 to 5 minutes and is relatively simple. But there is a lot of complexity behind the scenes related to payments and how paying by cash, credit or debit affects the refueling experience. Here’s some common topics related to payment cards and fueling.

Credit Card Payment Limits at the Pump

Most retailers have authorization limits on the dollar amount of fuel that can be pumped for any one transaction, usually $75. This limit is based on Visa’s and Mastercard’s operating rules that dictate that retailers who exceed a predetermined limit for fueling risk not getting paid for the entire transaction. The credit card companies say that the limit is set to minimize fraud, but these credit card policies don’t recognize today’s environment when it has become much easier to hit that limit with the higher prices and with vehicles that have larger gas tanks, especially RVs.

This situation forces retailers to select one of two bad options. One choice is to adhere to this authorization limit, recognizing that it could likely create frustration for some consumers who can’t get the amount of fuel that they want unless they either begin another transaction and reinsert their cards or go inside and authorize the payment there. Neither option is convenient for customers who are already frustrated by high gas prices.

The other option is to allow customers to exceed this authorization limit. Retailers who choose this option risk having the charge denied by the bank (known as “Reason Code 96”), even if the card is not fraudulent, and lose getting credited for the entire amount of the sale. (Note: Customers are still assessed the full amount if the retailer is denied payment in this situation, but the bank issuing the credit card keeps the money.)

Both Visa and Mastercard announced in early April that they would increase their limits to $175.

Cash Discounts

With the overwhelming percentage of payments at the pump by plastic, there are incentives for offering discounts to customers who pay by cash. Processing payments by plastic carry significantly higher costs than cash payments and the discounts are a way for retailers to reward customers who help reduce operating costs.

Here are the typical fees assessed to retailers for a 10-gallon fill-up, assuming the price is $3 per gallon.

  • Cash: No fees
  • Debit: Roughly 2.4 cents per gallon* in additional expenses. Debit fees are 21 cents per transaction plus other costs, with a maximum charge of 24 cents for the transaction. (*This is only true for the 60% of debit cards that are regulated. The other 40% of debit cards carry fees that are closer to those for credit cards: around 2%.)
  • Credit: 7.5 cents per gallon in additional expenses. Credit card swipe fees include both fixed and variable costs. Combined, they average about 2.5% at the pump, or about 7.5 cents per gallon.

 Amounts for the discount vary, but most retailers offer approximately 5 cents off per gallon to customers paying by cash. Some retailers offer significantly higher discounts for cash, particularly if the gas purchase is tied to another purchase, such as a car wash.

Nearly one in four (23%) of consumers surveyed by NACS in 2019 said they had paid by cash to receive cents off per gallon. Some retailers prefer not to offer these discounts, as the discounts could be misconstrued by customers paying by debit or credit as “surcharges.”

Requirements for how retailers offer cash discounts are set by the state department of Weights and Measures. Typically, retailers must most prominently post the higher (credit) price. Some retailers also have dispenser pumptoppers and advertising billboards that rotate between the cash and credit price.

Debit Holds

Holds are standard practice for any business that accepts plastic as a form of payment in a situation where the final dollar amount that will be assessed is unknown in advance. Holds placed on gas purchases are like credit card pre-authorizations at hotels at check-in or at car rental counters.

Although most car rental agencies and hotels discourage or don’t allow customers to use debit cards because the hold would be large, debit cards are permitted at the pump and can cause problems—especially for those who carry low balances in their checking accounts. An unexpected debit hold can begin a cascade of overdraft fees or cause a customer to be locked out of making other purchases.

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.

Both Visa and MasterCard require that retailers place holds, or pre-authorizations, on debit and credit card gas purchases. Most consumers don’t notice holds on their credit cards because they have enough credit that they don’t exceed, even with holds.

One more point of clarification. There are two charges that hit a customer’s account when they 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 card.  The second charge is the “hold,” which is required by card network rules. The bank issuing the debit/credit card is responsible for the length of the hold.

The amount of a hold varies. A retailer can set the limit based on a variety of factors. Most commonly, holds are between $75 and $125 and designed to cover the maximum cost of a fill-up. Retailers with higher hold amounts may have more traffic from larger vehicles, such as trucks.

The retailer is not responsible for continuing the hold, since credit/debit card network rules make it impossible to extend the hold. Also, retailers have nothing to gain from holding onto their customers’ money. Ultimately, the banks can reap added benefits from holds, such as assessing overdraft fees that happen as a result of unanticipated holds.

The amount of the hold and the time of a hold may vary, but the length of a hold is significantly 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. However, 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 several 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 to72 hours, since the processing times are slower.

Consumers should ask their 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 three days for signature-based debit transactions, consumers should discuss the matter with their bank to learn why the holds are lasting so long. Most banks print their phone numbers on the backs of their cards.

Entering ZIP Codes

In some areas, retailers may ask customers to enter a 5-digit ZIP code associated with their credit card before fueling. The idea is that someone trying to use a stolen card won’t know the ZIP associated with the card.

If customers do not enter their ZIP code or enter an incorrect one, the card will be declined and, as a result, the pump will not dispense fuel.

Unfortunately, this adds a level of inconvenience for law-abiding customers. And it can be even more inconvenient for visitors travelling from other countries, especially Canada, which has a 6-digit postal code that is a combination of letters and numbers. But there are some workarounds besides going inside to get the pump authorized. One other option suggested by some experts is for Canadians to enter the numbers in their Postal Code, plus an additional two zeroes. So, if a Canadian billing address is H2W 1L2, the customer would enter 21200.

Payments by Phone

Many retailers give consumers the option to pay for fuel via mobile device, whether from a loyalty app or options like Apple Pay or Google Pay. From the retailer’s perspective, these payments work just like a credit or debit card and essentially carry similar expenses as card payments at the pump.

From a consumer perspective, app payments are faster and more convenient. They also can be more secure, since they avoid contact with the dispenser and the likelihood of skimming. However, it’s important to note that no single technology is bulletproof or perfect.

Paying by phone also is safe, even though signs at the pump had discouraged being on the phone while fueling. These signs were related to ensuring that customers paid attention and weren’t distracted. It’s almost certain that anyone who drives away after fueling with the gas nozzle still attached to the car was using his or her phone while fueling. Snopes debunked the myth that cell phones cause fires at the pump.