Gas buyers fume at credit, debit card limits, 'blocks'

High prices, issuer practices run consumers afoul of rules

By Emily Starbuck Gerson and Carol Vinzant

Consumers already frustrated by the high price of gas may also be hit with a couple of nasty surprises at the pump: Their credit cards may turn stingy, imposing limits that leave unfilled tanks, or they may get greedy, "blocking off" more of your credit or debit card limit than needed for a fill-up.

gas buyers credit card limits and blocks cause problems

Jeff Lenard, spokesman for the National Association of Convenience Stores, sympathizes. Of the group's 145,000 stores, 80 percent sell gas. "Consumers are already pretty ticked off" over gas prices, he says. "Then they get hit with one or both of these things."

"These things" are:
Credit or debit limits too small for a fill-up
For years, thieves have tested stolen cards at gas stations because they may remain anonymous by paying at the pump. To combat that fraud, stations have imposed limits of $50 to $75. When gas prices were lower, that was no problem. Today's high gas prices cause law-abiding consumers to be cut off in midpump.  

'Blocking off' more than needed
Card issuers' policies allow merchants to temporarily lay claim to -- "block off" -- a larger-than-needed chunk of consumers' credit limits or debit card balance when the final purchase price is uncertain at the time credit is authorized.

Holding patterns
"Blocks" or "holds" assure merchants -- not just gas stations -- they'll get paid in full in cases when a transaction is authorized before a final amount is owed. It doesn't just happen at the pump. For example, the practice lets a restaurateur accommodate an extra-generous tipper or secures a hotelier against guests suddenly infatuated with the minibar. It applies at gas stations too, because the station doesn't know how much will be pumped when it OKs a sale by credit or debit card.

"If you're running low on funds and only want to pump $20 of gas, your account could be dinged $75, and then a cascade of fees could start," says Lenard. "Guess who benefits from that? Not the convenience store."

Your account could be dinged $75, and then a cascade of fees could start.

-- Jeff Lenard    
National Association of Convenience Stores    

At gas stations, the hold should only last a few moments -- until the final real amount is processed -- but for signature debit transactions, this may take up to three days. Gas stations have even received complaints from customers when the bank has held the money for a week, Lenard says. "When you look at the electronic statement, it looks like the gas station is holding your money. If you pay by PIN debit, that hold should be done instantly. If it takes significantly longer, someone is messing with your money."

Why are holds allowed? Jay Hopkins, a spokesman for Visa, says they're needed when cardholders use their cards "in places where the exact amount of a transaction may not be known when the merchant first requests an authorization for a purchase.  This feature enables cardholders to take advantage of such services as express or video checkout at hotels, pay-at-the-pump fueling and one-swipe payment at restaurants."

Hopkins also says the payment network has rules set up to prevent consumers from being too far down and out: "To help ensure that holds do not disrupt cardholder access to the funds in their accounts, Visa requires that card issuing financial institutions release all holds within three business days of the authorization request or when the transaction clears, whichever is earlier," he says.

Where consumers can be hurt, though, is that rules are unclear about how much can be blocked off, and how soon the unused portion of credit is "returned" to a consumer. The "blocks" can push consumers over credit or debit card limits, forcing them to pay fees.

Blocks, limits vary
Each card has its own rules on limits. Corporate credit cards typically have higher limits than personal cards, and fleet cards, used by corporations and other groups managing multiple vehicles, can go as high as $150, a limit that will probably not be questioned until gas prices double again. Discover, however, specifically limits gas pump purchases to $50.

The limit system, notes Jordan, protects merchants from fraud, which lowers the cost for consumers. Merchants may opt out of the system by signing on to programs such as "Verified by Visa," in which consumers set up passwords for their cards. Merchants pay more for the program.

Card issuers, retailers spar
Retailers and credit card issuers, already locked in a battle over interchange fees paid by merchants to process credit card payments, differ over who is to blame. Retailers say the pump limits and hold times are another way that issuers are controlling the system to the disadvantage of store owners and customers. Issuers and payment networks disagree.

The merchants themselves make the decision.

-- Tristan Jordan

With pump limits, for example, "There is no policy that limits transactions at the pump from MasterCard," says MasterCard spokesman Tristan Jordan. "The merchants themselves make the decision."

While that's true, the card processors heavily influence the merchants through their policies. Most credit card companies say that the merchants opt to put the pump limit at exactly the "charge-back" limit -- the highest amount the credit card company will pay a merchant if the transaction turns out to be fraudulent. In other words, they claim merchants cut off customers at the amount the bank will pay if the customer doesn't pay the bill. Visa and MasterCard set their limits at $75 (Visa raised its limit from $50 in April 2008).

Hopkins says it is usually the issuing banks that place holds. "Visa does not issue cards, and thus, it does not place 'holds' on cardholder funds," he says. "The financial institutions that issue Visa cards decide whether to place holds on cardholder funds. Some card-issuing financial institutions, in order to protect themselves against the risk that cardholders will spend more money than they have in their accounts, place a 'hold' on funds in anticipation of the final transaction amount."

Hopkins also says debit cards and credit cards work similarly with holds because the mechanics and purpose are the same. With debit, the point is to ensure you don't spend more than you have in your account; with credit, it's to ensure you don't go above your spending limit.

What consumers can do about limits
Consumers standing at the pump have two ways around the problem.

1. Start a second transaction. The limit system is designed to cut fraudulent charges, but it's a ham-fisted tool. The limit is per transaction. You can just start pumping again in a new transaction. Starting a new transaction is an annoyance for customers, but it can become a burden for retailers that pay a per-transaction fee.

2. Go into the store to pay, where the limit is likely higher because it will be a face-to-face transaction.

What consumers can do about blocks
Some gas station owners have tried to find a way around the system by lowering the per-gallon price for purchases made with cash, which may be the only way consumers can benefit from using cash over plastic.

The Visa and MasterCard standard agreements with merchants, in a flourish of semantics, forbid credit card "surcharges," but allow cash payment "discounts."

Because holds and blocks are generally initiated by the issuer and not all issuers use holds and blocks, you should call your credit or debit card issuer to find out their policies.

See related: Coping with the gas pump, Compare gas cards

Updated: June 11, 2008

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