Q. I went out to dinner last night with some friends and paid my meal with a credit card, but left the actual tip on the table in cash. Checking my account though it looks like the restaurant put an additional "authorization hold" for about 20 percent of the price of my meal. How can the restaurant charge or place a hold on my money?
A. Credit is a convenience; it allows you to charge a meal on your credit card, pay for an appliance with an installment plan, or take out a loan to buy a house. With credit you can make a purchase when you lack ready cash, and you can enjoy the purchase while you are paying for it.
However, when dining out at a fancy restaurant or spending the night away in a hotel, it's important to take notice of what the banking industry calls an "authorization hold."
Here's an example of how it works: Let's say you have a restaurant bill that comes to $100 and you give the server your credit card. When they run it through, they put an authorization hold on your account for $120, assuming you are going to add a nice tip to the bill. But you leave the tip in cash on the table instead. Still, your bank or credit card company "holds" that $120 for a couple of days until the actual amount of your charge is processed...and that means you do not have access to that $20. If you are close to your credit limit, it could mean a purchase is declined. If you used a debit card, it could mean a bounced check and overdrafts fees.
Now imagine it's a hotel stay. You have checked in and given a credit card at the front desk. They put an authorization hold on your card for what they think your total bill will be (room charge, taxes, incidentals, etc). If you are staying for several nights, this could amount to a lot of money that you no longer have access to; and when you are traveling, that can be a huge problem. You will also encounter authorization holds if you are renting a vehicle on your trip.
Consumers have also shared with the BBB that authorization holds have also occurred after filling up their tank at local gas stations with average holds ranging from $50-$75. Consumers also need to watch for small holds too. Sometimes when you run the card as credit at gas stations, they will put a hold on $1 in your account instead of posting the full amount of gas you paid. After a few days, the transaction is processed, but in the meantime if you do not take the whole amount into account when looking at your balance, you may have an issue overdrawing on the account and being charged the related fees that go with it.
While some credit card processors discourage vendors from doing these kinds of holds, as long as the vendor notifies customers of the practice they are allowed to perform them. To avoid being taken by surprise, BBB offers consumers the following tips:
• Keep track of your credit and bank accounts online, especially when traveling.
• Read the fine print on hotel agreements.
• Pay your check and tip together with either credit or cash, but do not use both when dining out.
• Keep a "cushion" of available funds on credit cards by paying off the balance regularly.
• Whenever in doubt, ask whether a hold will be placed on your card, especially when pumping gas or renting a car.
Jim Winsett is president of the Better Business Bureau of Greater Chattanooga.
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