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Credit and Debit Card Problems: What They Didn’t Tell You

by Dennis DiPaolo

MasterCard and Visa made a change in how they process cards in June that has caused some pretty bad feelings at the registers.  I haven’t seen a warning on my credit card bills, so they probably didn’t warn you, either.     

Visa and MasterCard changed what happens when they decline a card for being over its limit.  It used to be, if you tried to charge $4,000 on a card with a $3,000 limit, they declined the whole thing.  You switched to another card, wrote a check, or we kept trying lower amounts until it worked.  The banks realized that when they declined a card, someone else was getting all of that action.  So starting mid-June, they put a credit hold on the amount you had available, and just declined the rest.  Now, they only miss the action on the balance.

If it’s a credit card, and you don’t have a way to pay the balance on your purchase, we just get out of the sale and you’re not out anything.  If it’s a debit card, they just froze all the money in your account.  We can still back out, and we never saw your money.  But your bank isn’t releasing the hold on your money (or gift card balance) for a week or two.  So if you can’t immediately come up with the balance, you can’t even get to your money until they release it back to you in a week or two.

Debit cards do not have any of the protections that credit cards have  The Visa or MasterCard logo doesn’t make it a credit card if it’s really a debit card.  When we say “Credit or Debit” and you say “Credit” that doesn’t make it a credit card.  It just raises the price we pay to the bank to take it; supposedly because using your PIN reduces the chance of fraud.  So a debit card is always a debit card.  If the money is deducted immediately from your bank account, it’s a debit card.  If the money is loaned to you, for interest, it’s a credit card.        

What’s the down side to you?  When you put a credit hold (like a pre-authorization) on a debit card, the credit hold stays there for a long time.  And if you put a refund on a debit card, it can take up to two weeks to show up on your account, even though it immediately came out of the store or hotel’s account.  By the way, prepaid gift cards or prepaid visa cards are really debit cards.  

The moral?  Be completely aware of the collected funds balance in your account when you use a debit card.  Remember, that if you use it at a gasoline station, hotel, restaurant, or other place where the computer pre-authorizes an amount before they know a total, there’s a hold on more than whatever you charged.