Bamboozled: Debit card ‘holds’ a danger

Jack Harper did some early Christmas shopping on Cyber Monday, Nov. 26.BB branding

He visited the Best Buy website and selected a few items for his siblings. The bill came to $117, and Harper, 18, paid for the purchases with his debit card.

“I didn’t really think twice about using my debit card,” said Harper, an environmental science freshman at the County College of Morris. “I used it because it’s the only card that I own and I figured that Best Buy would be safe … and I didn’t think that they could go in and freeze my money like they did.”

Best Buy put a $117 “authorization hold” on the Long Valley man’s account, a common practice when debit cards are used.

When a merchant places a “hold” on the amount of the purchase, it basically puts that money to the side, on reserve and out of your checking account, until the purchase is finalized.

It’s a common practice for restaurants. Eateries do this because when you present your card and the business runs the transaction through, it’s often not the final amount of the bill, as many consumers choose to add a tip to the card.

Gas stations do it when the attendant swipes your card before turning on the pump.

Hotels do it too, to cover incidentals a customer may charge to a room, or to cover potential damage.

121712Back to Jack Harper. Later on the day of his purchase, he received notification that one item had been shipped, and his account was debited $101.63.

But the $117 hold on his account was not removed.

This was a potential problem. Now $218.63 was unavailable from his checking account, even though the purchases only totaled $117.

“Thank goodness he had enough money in his account so that he could get gas,” said Holly Harper, Jack’s mom. “It could have easily overdrawn him and then he would be slapped with overdraft charges on top of all of this.”

The elder Harper tried to help her son by calling Best Buy.

“After three hours on the phone, I was told this is Best Buy’s online purchase practice,” Harper said. “Basically, if they don’t send the whole order at once, they recharge your bank account for the remaining items.”

If I want to buy something online, I guess I need to wait and get a credit card so that something sketchy like this doesn’t happen again

She next contacted Bamboozled to learn more.

Debit transactions are typically a two-step process. First, an authorization hold for a transaction is placed on the account at the time of purchase. Later, usually at the end of the day, for purchases that are completed, the merchant processes a batch transfer and funds are actually transferred, said Tom Feltner, director of Financial Services for Consumer Federation of America, an association of nonprofit consumer organizations.

“It can take around one business day for the authorization hold to fall off the account balance,” Feltner said. “While this temporarily reduces the availability of funds, the authorization hold doesn’t mean that those funds were transferred to the merchant.”

But they’re not available for the account holder, either. Subsequent transactions could be rejected or result in an overdraft, as the Harpers feared.

Linda Sherry of the nonprofit consumer advocacy group Consumer Action said what happened to Harper sounds like a glitch.

“Account deductions may not be cleared immediately when the final amount is not known, but mostly those holds last only until accounts are rectified by the bank each day,” Sherry said. “Typically funds are not ‘held’ for retail purchases past the first day, or settlement.”

Plus, she said, Visa requires that merchants remove all holds within 72 hours.

Authorization holds can spell trouble for consumers who frequently use their debit cards.

Federal Reserve rules governing overdrafts do not prohibit a bank from charging an overdraft because of a hold that was later released, Feltner said. For now.

In May, Rep. Carolyn Maloney (D-N.Y.) introduced legislation that would address this and other overdraft issues.

“HR-5691 would prohibit financial institutions from charging an overdraft fee if the overdraft is caused by debit hold that exceeds the actual dollar amount of the transaction,” Feltner said.

Generally, experts say credit cards are a safer bet for online purchases. While both offer certain protections, authorization holds are not an issue with credit cards.

And with a credit card, if there is a problem with merchandise, you may be able to withhold payment and dispute the charge through your card issuer, said Gerri Detweiler of You don’t have that same protection if you use a debit card.

“Of course, if your goal is to keep your spending in check, or if you don’t have a credit card — or have a balance already — then using a debit card can make sense,” she said. “Just make sure you try to ascertain what the hold policy is, and make sure you have enough money in your account to cover that.”


Back to the Harpers.

Holly Harper called Best Buy again the day after the first item was shipped and charged to her son’s debit account, hoping to find out when the hold would come off the account.

Wednesday, Nov. 28, she was told. That would be the third day after the initial purchase.

She wasn’t happy, so the rep sent her case to the legal department.

“The legal department will not take the authorization off of the account,” she said. “They did this because I said I had contacted the newspaper. (The rep) said that I had threatened the company with contacting you, and legal now had to take over.”

We reached out to Best Buy for clarification on its policy, and a spokeswoman said Harper’s accounting of the hold doesn’t match the company’s policy.

We went over a hypothetical example of an online purchase totaling $175 for three items with a cost of $100, $50 and $25.

“An authorization would be placed on the card for $175,” spokeswoman Elizabeth Marson said. “When the first item — in your example, the $100 item— is shipped, the authorization of $175 would be removed, the card would be charged $100 and a new authorization of $75 would be placed.”

The same process would happen again when the next item is shipped.

“This is how the system operates and it occurs quickly, like all digital transactions. It is then the responsibility of the bank to update the account accordingly as I’m sure you understand that Best Buy cannot directly manipulate customer’s bank accounts,” she said.

But the Harpers said that’s not what happened.

Holly Harper checked in with Best Buy again on Wednesday, Nov. 28, and then e-mailed Bamboozled to say the hold was at last off the checking account.

“I don’t know if they did it or if it just rolled off as they said it would. They are sending (Jack) a $30 gift card,” Harper wrote in an e-mail. “At 18, my son could have been a customer for a very long time. Not now though.”

Jack Harper said he learned an important lesson about debit cards.

“If I want to buy something online, I guess I need to wait and get a credit card so that something sketchy like this doesn’t happen again,” he said. “I guess I won’t be shopping online until that happens.”