A debit card looks like a credit card, but works like a check. Instead of the issuer "loaning" you money to pay for a purchase, payment comes from the available balance in a linked bank account. Although most payments occur in real-time, some transactions, such as paying for gas at the pump, do not. Many users find these transactions frustrating, as they often result in a debit hold that can tie up more than the purchase amount for days.
A debit card hold, also called a pre-authorization hold, is a way for merchants to verify that the card user has sufficient funds to pay for goods/services. A hold reduces the balance in the account by the amount of purchase, and in some cases by more than the amount of purchase, until the funds are actually transferred.
Current vs. Available Balance
When you use debit cards, pay attention to your current and available bank account balances as these may differ. This is because the option you choose when swiping a debit card matters. Debit holds do not apply to payments you make using a personal identification number as these transactions post to your account immediately. However, if you choose the credit option on a swipe machine, it can take up to two days for the transaction to post. In the meantime, your bank will subtract the amount from your current balance and hold it in reserve.
Preauthorization Debit Hold
A merchant will often create two separate transactions when you use your debit card to pay in advance. For example, when you pay for gas at the pump instead of inside, the first transaction places a hold on an estimated purchase amount before you start pumping gas. When you finish, the second transaction places a hold on the actual charges. The same thing can happen if you use a debit card to reserve a hotel room or rent a car.
Read the Cardholder Agreement
Review the cardholder agreement for your debit card to get important information about debit holds. For example, the PayPal cardholder agreement states that a gas station merchant can place a preauthorization hold on your card for $100 or more. If you use a debit card to reserve a hotel or rent a car, the merchant can place a hold on your card for the estimated purchase amount plus an additional 20 percent or more. While the hold time depends on how long it takes the merchant to process the transaction, PayPal says this can take up to 10 days.
Tips and Options
You cannot prevent a merchant from placing a debit hold on your card or speed up the time it takes to clear. However, you can take steps to prevent one from happening and to minimize the effect. To prevent a debit hold, always select the debit option and use your PIN when making purchases. If you want to use your card to pay at the pump or make a reservation, ask the merchant if he will request a preauthorization hold, and if so, the amount. In addition, the State of Maine Bureau of Financial Affairs recommends you use the same card to make a reservation as you do at checkout time. By doing so, you can often decrease the time it takes to reverse the debit hold.
- Washington State Department of Financial Institutions: Debit Cards Frequently Asked Questions
- Forum Credit Union: ATM and Debit Card Preauthorization Holds
- Federal Trade Commission: When a Company Blocks Your Credit or Debit Card
- PayPal: PayPal Business Debit MasterCard Cardholder Agreement and Privacy Notice
- State of Maine Bureau of Financial Affairs: Debit Card Holds
- PayPal: Cardholder Agreement