Don’t Get Blocked!
I’ve been a fairly loyal fan of Good Morning America for years. Over coffee, yogurt, and email, it’s been a light, entertaining and often informative, means of greeting the day before switching to MSNBC for market reports. Exciting, I know.
One of my favorite contributor’s is Mellody Hobson, President of Aerial Capital Management in Chicago. Married to film director, George Lucas, she covers personal finance for GMA with a clear, concise and relatable style. Hers is an impressive story. While attending Princeton University, Mellody was hired at Aerial as an intern and just ten years later, became President.
About a month ago, she discussed the long-debated question of when it’s best to use “debit or credit.” The scope of that argument falls well outside this column but one particular piece of her report stood out, especially since it’s happened to me and possibly many of you.
If you’ve ever been told you’re over your credit card limit even though you’re certain you have credit available, or had a debit card declined when you know there’s money in your bank account, the problem could have been “blocking.”
If it’s happened to you, try to remember when. If you can, chances are good that it was shortly after you’ve stayed in a hotel, rented a car, or filled your car with gas.
What is blocking?
Because these types of retailers don’t know exactly how much you’ll ultimately end up spending, they put a “hold” on your debit or credit card for an amount that will most definitely exceed the actual final charge. This protects the retailer just in case you spend that much, but normally that’s not the case.
The result is that your available credit (credit card) or the balance in your bank account (debit card) is reduced by this amount. That’s called a “block” (and I don’t mean the SPF kind you should be wearing now if you’re reading this on the beach).
For example, if you use a credit or debit card upon check-in at a hotel charging $250 per night for a three night stay, chances are great that at least $500 additional, or $1250 total, would be blocked.
Compounding the confusion, inconsistency, and frankly, unfairness, is that the blocked amount can vary widely, depending on the vendor. Plus, anticipated charges for incidentals such as food, beverages, or gasoline are used to determine, or justify, the blocked amount.
The effect on the consumer is greatest when a debit card is used because it freezes the money available in your account. You wouldn’t be able to use that money during the time it’s blocked.
Continuing the hotel example, if you pay your bill with the same card you used when you checked in, the final charge/amount will probably replace the block in a day or two. But if you pay your final bill with a different card, or with cash or a check, the company that issued the card you used at check-in might hold the block for up to 15 days after you’ve checked out. This happens because the hotel wasn’t notified of the final payment and didn’t know you had paid another way.
Blocking is used to make sure you don’t exceed your credit line (credit card) or overdraw your bank account (debit card) before checking out of a hotel or returning a rental car, leaving the merchant unpaid.
Blocking is also used by restaurants for large parties, by companies cleaning your home, and other businesses to ensure credit or account money will be available to complete payment.
If you know that you’re nowhere near your credit limit or don’t have a low balance in your bank account, blocking probably won’t be a problem. But if you’re reaching that point, be careful. Not only can it be embarrassing to have your card declined, it can also be inconvenient, prevent you from making a subsequent or emergency purchase, and lead to charges for insufficient funds while the block remains in place.
Tips to avoiding blocking…
For credit card transactions, before making payment to reserve a hotel room or rent a car, or if a restaurant or other business asks for your card information in advance of service, your best defense is to ask if the company uses “blocking.“ If they do, ask how much will be blocked, how the amount is determined, and how long it will remain in place.
If making such reservations over the internet, call first to ask. It may take a few minutes but could save you a lot of aggravation.
Whenever possible, use the same card to make final payment that you used at the beginning of the transaction. And always ask when the prior block will be removed.
If you do pay with a different card, or by cash or check, remind the employee that you’re using a different form of payment and ask them to remove the prior block immediately. If doing so over the phone, request some type of confirmation be forwarded to you once it’s been removed.
Regarding debit cards, ask your bank the same questions about permitting blocks. If they do, consider getting an overdraft line of credit from your bank. Ask about a plan that covers the overdraft automatically and doesn’t involve a separate bank decision on whether or not to pay it each time.
For more information, the Federal Trade Commission works to prevent fraudulent, deceptive and unfair business practices in the marketplace and provides information to help consumers identify, stop and avoid them. Check out their website at ftc.gov or call 877-FTC-HELP.
Chris is a regular contributor to Letters from CAMP Rehoboth and can be reached at firstname.lastname@example.org