Sep. 21--Many of us learned the hard way that when we use a debit or credit card to fill up our cars, many banks and credit card companies will automatically put a freeze on $75 of your funds even if you only pumped $10 worth, limiting your credit line and possibly penalizing you if your checking account is on the edge.
Thanks to an Avon man who keeps close track of his finances, I am learning that this troubling practice extends far beyond gas stations. Hotels, restaurants, car rental companies, hair salons and other service companies also have the power to freeze your funds at amounts much larger than you are spending.
Jim Brady, the Avon resident, went to Cugino's restaurant in Farmington on Sept. 4 and used his Bank of America Visa debit card to pay for his $86.92 meal. He did not leave a tip on the card, instead leaving a cash tip.
The next day, Brady went on the Internet to look at his on-line banking account and discovered that $104.30 was listed as a pending charge and his available funds were reduced by that amount. A few days later the actual amount was processed and only $86.92 was deducted.
He called one of the owners who insisted that only a $86.92 charge was sent for collection. The manager, Giovanni Cirikovic, told me he served Brady and he, too, swears he only put through a debit of $86.92.
He said his restaurant does not put holds on credit or debit cards larger than what was authorized but remembers that once in New York he used a card to pay for a $100 bill and discovered that $120 was put on hold.
Bank of America says it doesn't know what happened in this case but suspects that a 20 percent tip was tacked on in case Brady later changed his mind and decided to include the tip on his card.
James Pierpoint says it's not unusual for service businesses to put holds on accounts at a large enough level to cover all potential charges.
Pierpoint says this is well known by consumers since it is disclosed in the fine print one receives when they receive their debit cards and is standard practice by banks and credit card companies.
He said if someone's account is overdrawn because of this issue they can ask that the $29 to $35 penalty for each bounced check be waived. There is no assurance that the request will be granted.
I hate to contradict the spokesman for the institution where I have all my accounts and where I am a tiny stockholder, but Pierpoint is wrong.
Most people are not aware of this practice, and including it in fine print is not fair disclosure as far as I am concerned. Fine print is used by too many institutions to cover their butts legally without really disclosing anything to the vast majority of customers.
Bank of America and other financial institutions spend hundreds of millions of dollars in marketing and advertising. I am not aware of any of that money used to disclose this little wrinkle which allows banks to collect millions in undeserved fees in the form of penalties. It also reduces the amount of money that is available to spend in cases of emergency.
Judge for yourself the following section that Pierpoint says is included in bill stuffers intended to explain or remind customers of this issue:
"Statement Reminder -- March 2008 Reminder. When you use your debit card for a purchase, in most cases your account balance is immediately reduced by the amount stated by the merchant.
"Please remember to keep enough money in your account to cover your purchase plus all your other transactions, like checks, ATM withdrawals and online bill payments, or else you may incur overdraft and returned item fees. For information on how to avoid fees please see bankofamerica.com and click on Fees and processes."
The Federal Trade Commission has a little more direct warning explanation if you know where to look for it on the Internet:
"Have you ever been told you were over your credit card limit, or had your debit card declined, even though you knew you had available credit, or money in your bank account? If this happened shortly after you stayed in a hotel or rented a car, the problem could have been card "blocking."
"What's Blocking?
"When you use a credit or debit card to check into a hotel or rent a car, the clerk usually contacts the company that issued your card to give an estimated total. If the transaction is approved, your available credit (credit card) or the balance in your bank account (debit card) is reduced by this amount. That's a "block." Some companies also call this placing a "hold" on those amounts.
"Here's how it works: Suppose you use a credit or debit card when you check into a $100-a-night hotel for five nights. At least $500 would likely be blocked. In addition, hotels and rental car companies often add anticipated charges for "incidentals" like food, beverages, or gasoline to the blocked amount. These incidental amounts can vary widely among merchants."
Go to
www.ftc.gov/bcp/edu/pubs/consumer/credit/cre11.shtm
to get the full report.
FTC Tips to reduce problem
--Before turning over your credit or debit card to a service company ask about their blocking policy: how much will be frozen and for how long.
--Use the same debit/credit card to pay your bill as you did when you checked into a hotel or rented a car.
--If you make your final payment by cash, check or a different card ask the clerk to immediately remove the excess amount frozen.
--Ask your current debit card issuer if they permit blocks, for how long, and from what types of merchants. If they do, you may want to consider getting an overdraft line of credit from your bank.
Bank of America, the largest bank in the U.S., still can't give me precise answers to those questions despite having asked those questions several days ago.
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