How do 'credit holds' work?

Where Did All My Money Go?

by Daree Allen


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I'm trying to live a credit-less lifestyle these days, and save before I spend. $400 should have been plenty for a weekend trip to Houston, TX, where I was excited to have my second speaking engagement at a conference. After all, my hotel stay was taken care of with my rewards program, and I had a nice corporate rate on my compact car rental. But apparently, $400 was not quite enough. Within an hour of arriving in Texas from Virginia (after two flights and a lengthy layover in between), and without any shopping or dining out, I had less than $40 available in my bank account. Where did all my money go? Credit holds.

At the car rental desk at the airport, I presented my debit card, so they ran my credit as per their policy (which I was unaware of), then put a hold on the card for $273 (the rental itself was only $73). At the hotel, they tried to charge me $100 for incidentals, but since I no longer had $100 available on the card (it was being "held" by the car rental transaction), they settled for $50. They assured me that if I didn't incur any charges during my two-night stay, they would issue me a refund on the next business day.

However, once I returned home, it took two days for the car rental refund to reach my bank account and four days for the hotel to do the same. Having my funds held as well as waiting for the credit holds to be refunded was really a pain for me. This situation could have been avoided if I knew the merchants' policies, and used a credit card for those transactions (even though that was the goal was to not incur debt).

So when is your money really available? Here's some insight to various aspects of using debit and credit transactions based on my story, as explained by Crystal Rivenbark, Assistant Vice President and Branch Manager at Farmers Bank in Suffolk, VA.

Q: Why does it take so long to get a refund on your credit or debit card? At the hotel, I was told to wait two business days, but once I was home and called, they told me to wait three to ten business days.

A: An authorization is a temporary hold. The receipt you sign when you use your card gives permission for the merchant to receive those funds. The bank is waiting for the paper transaction to be received to confirm the purchase and settle the account before they release the hold.

Terminals are not set up to process credits. There is a manual component to processing a refund. This also explains why we as consumers cannot see pending credits with online banking the way that we can see pending debits. It would be a cost to the merchant to credit accounts immediately. The same paper trail is needed to confirm the credit and issue a refund to your account.

Q: Why does a hotel or car rental agency need to hold so much money over your expected purchase amount when you use a debit card?

A: Using debit is a risk to some merchants. Because debit uses actual funds, and you could also write checks that could be processed around the same time, which would result in non-payment for their goods and services, they hold an extra amount on your debit card, similar to a security deposit. Each merchant processes checks at different speeds based on their processing system.

The funds are also held just in case you incur additional charges. The merchant wants to make sure they get paid. Worst-case scenarios are set in policies by each individual merchant and compiled into their own formula used to determine the amount of the hold.

Q: Why do you only need a $1 authorization at a gas pump? Online banking statements will show a $1 pending purchase until a few days later, when the full amount appears.

A: This $1 authorization is a universal rule where the system searches the card you use, whether debit or credit, for an available balance over $1.

The availability of deposits and funds are governed by Regulation CC of the Federal Reserve Board and are spelled out in the terms you receive whenever you open a bank account, debit card, or credit card (usually an insert or pamphlet entitled "Cardholder Agreement," "Cardmember Agreement" or "Credit Card Agreement"). You implicitly agree to these terms when you create transactions on these accounts, so be sure to read the fine print that comes with your new cards and financial accounts.

Rivenbark recommends that consumers planning a trip pay in full as they book their hotel, car rental, and airfare to avoid the surprises I experienced in Texas. I will most certainly have more padding available, but carrying a credit card "in case of emergencies" is still just too tempting for me.


Daree Allen resides in the Virginia Beach area where she is a technical writer, freelancer, and motivational speaker. She is writing a self-help book for teen girls. Her website is DareeAllen.com and she blogs here.

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