Article on 'Pre-authorization holds'


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"One issue that occurs on a regular basis with pre-authorization on a card is the transaction amount changing between when the hold is placed on the account and when the transaction is settled. It most commonly occurs when the final debit amount is uncertain when the authorization is actually obtained.

For example, if an individual makes a petrol/diesel purchase by using a debit card at the pump, the pump has no way of knowing how much fuel will be used. The pump typically authorizes a fixed amount, usually €/£1 but sometimes up to €/£100, to verify that the card is legitimate and that the customer has funds available. When the transaction is settled, it will actually post for the value of the purchase.

Another example can be seen with a restaurant transaction in the USA. If an individual spends $40 on a meal, the waitress does not know how large a tip they will leave if they choose to leave one on the card. The restaurant’s card terminal is typically set to authorize a larger amount, such as 20% above the cost of the meal, but the transaction will settle for the actual total including the tip written on the receipt. Some restaurants will authorize just the amount of the bill but the transaction will settle higher with the actual tip included.

Other businesses that may settle transactions for different amounts than those originally authorized include hotels and car rental companies. The final cost of these transactions can be extremely unpredictable from unforeseen extras such as room service charges, refuelling charges, or longer stays. Those companies typically place a hold on the customer’s card at the beginning of the transaction for the estimated total, plus a percentage or a fixed cash amount (such as the estimated rental charges, plus 15% or £250). The establishments usually do not settle the transactions until after the customer has checked out or returned the rental car. Some hotels and car rental agencies do not accept debit cards, as their authorization holds can expire before the transaction is settled. Additionally, some rental firms use the requirement of a credit card as a tool to screen high-risk customers, as credit cards usually require a good credit history, and all that is needed for a debit card is a checking account.

Another example of a transaction that may settle for an amount different from the amount authorized is a transaction incurred in a currency different from the currency in which the card is denominated. The final, settled, transaction amount will be based on the exchange rate in effect on the settlement date. Since that rate is generally not known at the time of authorization, the banks will use an estimated amount based on the exchange rate at the time of authorization.

On occasion, negligence or computer error may make a merchant attempt to authorize a card twice, creating a double hold on the cardholder’s bank account. That often happens when a processor requires additional security verification such as a Card Verification Value, post code, or address, and incorrect information is provided or is mistyped. Fuel pumps often impose a double hold, one for a standard amount (such as €/£1 or €/£100) and another for the amount of purchase. Though the merchant will clear the transaction only once, the hold will temporarily lower the customer’s available balance, potentially causing declines or, for a debit card, even unauthorized overdrafts."