The Debit Card Block Trap

Pick a card, any card

Over at Blogging Zoom, a user reported a problem using their PayPal debit card to buy gasoline. They found that a $76 block was placed on their account. (I’m not linking directly to their blog post since their blog doesn’t allow open comments). This is something that many debit card users aren’t aware of, blocks on their account when they make certain types of purchases.

The “Block”

When you pay for a car rentals, hotel/motel room or gasoline with a credit or debit card a block for what the merchant and the credit card processor have as a maximum average amount is placed on the account. For a fuel purchase this is usually between $50-$100. For a car rental or hotel room this might be several hundred dollars. They do this because the transaction isn’t complete until the final dollar amount is submitted. Having this extra amount reserved helps insure that any additional charges can and will be paid by the consumer.

The Problem

With a credit card, this blocked amount isn’t a factor unless you’re right at your credit limit. Even then, some credit card issuers allow a bit of leeway on blocks, assuming that if it goes over they can charge you an overlimit fee and so forth.

However, for a debit card, the block puts your money in limbo. You can’t access it until the final amount is processed through. Sometimes this is a matter of minutes but it can be a matter of days depending on how the charge is submitted by the merchant and processed by the banking system. 

The bad part of this is that not only can you not access your money, your bank may charge you for an overdraft as well. For example, if you have $1000 in your account and you rent a car using your debit card. The rental company puts a block of $500 on your account. Then you write a check for $600 for a purchase somewhere. You return the car and pay $200 for the rental. You should have $200 in your bank account right? Wrong! The bank shows that you have a balance of $500 when the $600 check arrives, leaving you with an overdraft of $100 plus fees.

You can fight these kinds of charges and even have blocks removed early in some cases but it is a hassle.

The Solution

You should avoid using debit cards for any purchase that might put a block on your account, particularly large blocks like hotel rooms and rental cars. If you must use one of these cards, ask up front how much of a block they’re going to put on your account. They should be able to tell you this.

If you want to use money in your bank account to pay for a rental or room, use your credit card to handle the block and your debit card to pay the final amount. No block should be placed in that case.

Do you have a debit card block story? Any thoughts on this practice? If so, please leave a comment.

 


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7 Comments »

Comment by Gizmo
2007-11-16 14:21:27

Wow I had no idea. Thanks for the heads up. We don’t rent cars often and we rarely get close to our ridiculous credit limit, but still this is good info to have. I may share it with my readers at some point.

Comment by jfc
2007-11-17 12:03:24

Hi Gizmo,

I got bitten by this myself when I was renting a car a while back. It was quite annoying. I hope it helps you avoid any such problems.

 
 
Comment by alex
2008-08-02 12:21:14

I keep getting blocked when using my debit card on ebay, and it just becomes really annoying, because I’ve already committed to buy and I have to explain to the seller that my card isn’t working and I don’t know when its gonna start workin again.

 
Comment by Cheap GPS Systems
2008-08-12 01:10:12

I really had no idea about this practice. This is very useful information.

 
Comment by TVD
2009-02-12 23:59:08

Yes, this just happened to me today. Rented a car with Enterprise just yesterday, and by the time I made it from the counter down to the car & called the automated banking system, the $350 hold (which, by the way, I had been told the day before would be only $300) was gone from my account. I returned the car early today, and was told around $490 would be refunded to my account. Well, its twelve hours later, and no money back in the account.

This is the main problem I have with financial “gurus” like Dave Ramsey who say that you don’t need to have a credit card these days. Perhaps we all SHOULD have plenty of money lying around so that things like this aren’t a big deal, but most of us don’t, and $490 is a LOT of money. I wonder how long it will take to get it back.

Comment by jfc
2009-02-13 08:24:10

Hi TVD,

If I recall correctly, they can take them up to 5 business days to remove the block. It depends a lot on state banking laws and how good the computer systems the merchant and your bank have and how well they talk to each other.

On Dave Ramsey, I think that he’s got a good plan for getting out of debt that really works from the psychological perspective. However, his plan is geared toward the credit-aholic who’s going to have trouble managing credit no matter what. For them, dumping credit entirely is the best thing to do. If you can manage credit and your money, then it’s not a terrible idea to have a credit card you keep paid off and only used for specific purchases, such as those where blocking might be an issue, and real emergencies. You have to have a lot of financial self-discipline to do this though.

 
 
Comment by snickers
2009-12-18 23:32:53

As gasoline stations, just pay in the store instead of at the pump to avoid the hold.

 
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