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A Look At Debit Card Authorization Holds

If there's an imperfection in the signature debit card - and in the open loop prepaid cards that basically mirror signature debit cards - it's in the area of so-called authorization holds. The basic problem is that these debit card products "ride the rails" of the original credit card system - when used as signature debit cards. As a result, some merchant locations will submit authorizations on the cards for amounts that are higher than the actual purchase amount - for example, for a gasoline purchase where the authorization must take place before the purchase can be completed. The holds result in cardholders not being able to spend all of the money that's actually in their account. I came across a credit union today who has made a good effort at explaining all of this to their debit card customers. Read on to see their approach.

Special Notice for Visa Check Cardholders

You must have a valid Credit Union checking account to be considered for a Visa Check Card. Purchases and cash advance transactions from merchant locations will only be debited from your designated checking account.

Your Visa Check Card may be used with your PIN as an ATM card to perform transactions at ATM locations. Your Visa Check Card may also be used to pay for purchases and services, or to obtain cash advances at merchant locations that accept Visa debit cards.

Transactions will be authorized at the time of purchase based on the available balance in the primary checking account plus any amounts available to the account from overdraft sources.

If you use your Card to purchase good and services, including Internet purchases (POS transactions), you authorize us to debit your checking account and you agree that your authorization may result in an immediate withdrawal from the account, even though the transaction may not actually be posted to that account until a later date.

The merchant may attempt to obtain a pre-authorization for the transaction. The pre-authorization amount may be the transaction amount estimated by the merchant, which may be more or less than the final transaction amount authorized by you. Restaurants, hotels and motels, car rental agencies, and gas stations regularly submit estimated transactions to us on our member’s account. We cannot determine in advance whether a pre-authorization amount will exceed the amount of the final transaction amount authorized by you. However because we are obligated to pay the pre-authorization amount submitted by the merchant if we accept it, the available balance in your primary checking account will be reduced by the amount of the pre-authorization submitted by the merchant.

A hold will be placed on your account even if the final settlement transaction has not yet been received or processed by us. This hold, which may be more or less than the final transaction amount, may affect the availability of funds in your account to authorize and pay checks and electronic transactions. As a result, checks or electronic transactions may be declined, dishonored, or not paid which can result in NSF fees and/or other charges against your account.

We are not responsible if we do not authorize or pay electronic funds transfers, or if we dishonor checks drawn on your checking account while such a hold is placed on your account. Your account will be debited when the settlement transaction corresponding with the pre-authorized amount has cleared through us, or the hold on your account will be released in three (3) business days, whichever occurs first.

Additionally, you should know that a merchant may reverse the pre-authorization at your request, and/or extend or modify the amount of the pre-authorization in certain circumstances, such as an extended hotel stay. If an extension or modification is submitted by a merchant, the hold on your account will be extended or modified. No cash refunds will be made to you by the Credit Union on Card purchases. Any claim or dispute regarding goods or services purchased with your Card or pre-authorizations submitted by merchants must be directed to the merchant or other business establishment at which you made the purchase. The amount of the credit, if any, will be reflected on your monthly statement.

Note that this is but one credit union's approach to explaining how these cards work. Other financial institutions may well have very different policies.

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