While gift cards can be
a convenient method of payment for all kinds of goods and services, their funds
can be subject to holds for a variety of reasons. Knowing about potential roadblocks
in advance can help you avoid embarrassing situations at checkout.
Just ask New Orleans
writer Craig Guillot. He was planning a trip to Walt Disney World with his wife
and daughter and noticed that his grocery store sold prepaid MasterCard gift
cards. His American Express card offered him 5 percent cash back on grocery
store purchases. So, if he purchased $1,500 in gift cards to use in Orlando,
he'd get a $75 rebate from AmEx, plus loyalty reward points from Winn-Dixie
that he could use on gasoline.
But when he went to book his Disney trip, he found he could only use 80 percent
of the face value of the cards. He objected and was told that such a hold was
standard procedure when using gift cards for hotels or travel, to allow for
incidentals or tips that might be added to the total.
"I actually had to wait
for the payment to fully process weeks later past the cancellation period
before I could use the remaining amount on the cards," he says. "It
was a hassle."
Before you get caught mid-purchase with a "decline" message, understand these
five reasons why your gift card's buying power might not be fully available to
1. Service purchases. Like a credit
card, when you use a gift card to make purchases, the transaction has two
steps. First, the merchant authorizes the card with the issuing bank to ensure
it's valid for the purchase. Then, the transaction is settled for the amount of
In some cases, such as
purchasing services where a tip may be added, the merchant may authorize the
transaction for more than the actual amount. For example, a hair salon may
authorize a charge for the amount of the service plus 20 percent for the tip. A
bar may authorize a certain amount to keep a tab running, says attorney Terry Maher,
a partner at Baird Holm, an Omaha, Nebraska law firm, and general counsel to
the Network Brand and Prepaid Card Association, a trade organization for
While transactions are typically
adjusted to the final amount by the end of the day, it can take a day or two
for the card issuer to remove the hold and adjust your card balance.
2. Travel purchases. If you're using your card to travel, especially for hotels or
rental cars, the authorization hold may be longer. Because these companies may
not know the amount of the transaction until you check out or return the rental
car, they can't settle the account until you end the service.
If you check into a
hotel, it's likely the hotel will authorize the amount of the room, plus taxes,
plus 20 or 30 percent for any incidentals. This is what happened in Guillot's
case and why he couldn't use 20 percent of the face value of the gift cards for
his Disney World trip.
I actually had to wait for the payment to fully process weeks later past the cancellation period before I could use the remaining amount on the card.
Gift card user
Hotels may keep the hold
in place for as much as a week after checkout, in order to ensure that all applicable
charges have come through. Once the merchant settles the actual amount of the
transaction, the card issuer typically removes the hold the following business
day. To find out specifics, check with both the hotel and the card issuer about
Rental car companies
follow similar procedures to cover gasoline or other charges you may incur in
using the car. But they may take even longer to remove a hold. Maher says he's
seen cases where the rental car company hasn't presented the transaction for
settlement until a month after the car was returned.
"Let's say somebody
decided to use one of the toll passes that came with the car and all of a
sudden, the tolls were charged to the car company," Maher explains. "That
might not show up for 30 days."
One way around hotel and
rental car holds: use a credit card to check in or rent the car, and use the
gift card to make the final payment when you return the car or check out of the
3. Gas station purchases. Paying at the pump for gasoline can also result in a substantial
and lengthy hold. Maher says gas stations can authorize up to $150 on your
card, even if the purchase is just a fraction of that amount. That's because
when you swipe your card at the pump before you fill up, the station doesn't
know how much the final purchase will cost -- so it puts a hold on the card for
a blanket amount, which isn't removed until the final transaction clears. While
some of these holds resolve at the end of the day, others could take a day or
two, depending on the merchant and the card company.
You can avoid such holds
by paying the cashier in person after you've filled up, rather than paying at the
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4. Fraudulent activity. Sometimes, unsuspecting card users get burned by fraudulent
activity, says Jeremy Levi, director of marketing at Brick, New Jersey-based CardCash.com,
an online marketplace for buying and selling prepaid gift cards. If the card
was purchased fraudulently and then sold to someone else, the buyer may find
that the card has been invalidated. This often happens with cards purchased
through online auctions or classified ads, Levi says.
In addition, some
fraudsters peel back the security strip on prepaid cards available in grocery
stores and steal the card numbers, then wait to use them until the cards have
been purchased and activated by unsuspecting consumers. If you suspect that's happened,
contact the card issuer to report the problem and determine how it can be
5. Refund processing. If you made a purchase with the card and then returned the item,
you may find that it takes days, a week or even more time for the amount to be credited
back to the card account. Until your card is credited, that amount will be
unavailable to you.
In most cases, your
funds will become available to you as soon as the transaction has been settled
or a credit has been issued. However, if you have questions about the
transactions or suspect fraudulent activity, contact the card issuer
immediately to report the problem.
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