Pre-Authorization: Credit Card Companies Cause More Headaches at the Pump

Person Refueling Green Car at Gas Station - Pre-Authorization for Credit Card Payment

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Credit Sesame on pre-authorization of debit and credit cards at the gas pump and the challenges this may cause for consumers.

As if buying gas isn’t expensive enough, drivers nearing their credit limit may have their credit card denied at the pump after a 40% jump in pre-authorization holds was made this spring.

Visa and Mastercard, the two largest payment processing networks, increased the pre-authorization hold for a debit or credit card purchase at a gas pump from $125 to $175. Gas prices were rising dramatically and the hold increase was meant to allow larger purchases without putting merchants at higher risk for fraud.

The temporary charges can take at least a few days to be removed after payment is made. Credit card users nearing their credit limit may have the gas purchase and other transactions declined. Debit card users who don’t have enough money in their account to cover the purchase could also be declined, and could be charged overdraft fees.

What is a pre-authorization hold?

A pre-authorization hold occurs when you use a debit or credit card to pay for something. It can be used to hold hotel rooms and rental cars, and is common at gas stations. The temporary hold is meant to protect the merchant in case the credit card charge doesn’t go through.

When a card is swiped at the gas pump, the credit card issuer is sent a request for a predetermined amount that may be more than the purchase amount. The amount is set by merchants, though the processing networks set the maximum amount. The fee can be as little as $1, as some gas stations do for credit cards, or can now be up to $175. 

Just buying $20 of gas can mean a hold of $100 or more. The purchase amount isn’t final until your gas tank is filled, which is why a high hold amount is charged. You won’t be able to access the difference between the hold amount ($100) and the purchase amount ($20) until the hold disappears.

The hold amount is usually the highest purchase amount, meaning that a $20 hold would only allow you to buy $20 worth of gas. Higher holds make it easier for customers to fill up their vehicle without the gas pump stopping and requiring they can initiate another hold.

How long does the hold last?

While gas stations set the pre-authorization amount, card issuers set the hold timeline. A hold of 72 hours is common, which is three days, but holds can last from one to 30 days.

The pre-authorization clock stops ticking when the purchase is completed and the merchant has been paid by the card company, or the window of time for the hold ends.

Credit cards versus debit cards

Credit cards have a few advantages over debit cards when dealing with pre-authorization holds.

Credit cards usually have lower hold amounts, sometimes as low as $1. They may also have holds lifted in as little as two hours, though the payment network can require them for up to 30 days.

Credit card users are likely to have higher credit limits than they need to buy a tank of gas. Debit card users may have lower bank account balances, which can make a $175 hold tie up their finances for three days until a retailer is paid.

Challenges for consumers

Lower-income consumers who use debit cards to buy gas may have the biggest problems from the higher hold amounts. 

High pre-authorization holds can lead to a negative balance on a debit card and possibly a fee. Overdraft fees average around $30, according to the FDIC, and are imposed when a bank decides it will cover the transaction.

Overdraft fees used to be more common because banks regularly approved purchases for accounts that end up being overdrawn. 

Federal regulations in 2010 allowed customers to decide to opt-in to a bank’s overdraft program. For customers who don’t opt in, the bank will decline the debit card transaction and an overdraft fee can’t be charged.

Credit cards can also be denied if a credit limit is about to be exceeded, though no overdraft fees are charged. Besides not being able to put gas in their cars, credit card users who are nearing their credit limit but may still have enough to buy gas can then be pushed to their credit limit. The hold can make future credit card purchases difficult until the hold is removed.

Alternatives to pre-authorization

There are ways to avoid or minimize pre-authorization holds when you pay at a gas pump. Here are some ways to avoid or at least lessen them:

  • If the gas station has a store with a cashier, go inside and pay with your debit card’s PIN. This hold clears immediately once the transaction is complete. However, if the hold amount is too high, you may still be prevented from getting gas.
  • Pay with cash.
  • Use a credit card, which usually have lower authorization hold amounts.
  • Choose “credit” when using a debit card, which can lower the hold to only $1.
  • Ask the cashier for a low pre-authorization hold, such as $30, if you’re only going to buy $30 worth of gas.
  • Use a gift card or prepaid card.
  • Avoid overdrafts by checking your bank account balance to ensure there’s enough money in your account to cover a gas purchase.
  • Set up overdraft protection to automatically move money from one account to another if the pre-authorization causes an overdraft.

Are gas prices still rising?

Without a crystal ball this is hard to predict, but gas prices often rise around vacation time, such as Labor Day, and then drop. 

As of August 24, 2022 the national average for regular unleaded gas was $3.88 per gallon, compared to $3.15 a year ago, and $4.36 a month ago, according to AAA. The highest recorded average for regular unleaded was $5.06 per gallon on June 14, 2022.

What now?

A pre-authorization hold now be as high as $175 when you buy gas with a debit or credit card at the pump can pinch your budget for the week. When a gas station holds that much of your credit limit or checking account balance for three days or longer, your already thin margin for error on your family budget can be a tough balancing act. Your gas purchase could be denied if you’re hitting your credit limit, or with a debit card, you could face overdraft fees if the purchase isn’t denied. Take the right steps to reduce or avoid pre-authorization holds.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Aaron Crowe
Aaron Crowe is a freelance journalist who specializes in personal finance topics. He has written for Wise Bread, AOL, AARP, Bankrate and other websites that focus on financial literacy and saving money. He has also worked as a newspaper reporter and editor. You can follow him on Twitter @AaronCrowe.

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