Fuel industry hikes amount of money frozen on purchases

GANNETT NEWS SERVICE

Paying at the pump can be a great convenience for on-the-go motorists, but Bruce Badgley didn't consider it convenient when a $25 fill up temporarily cost him $200 because he used his debit card to pay it.

And Gina Baarda still cannot figure out why her bank briefly froze $50 in her account when her husband, Ryan, spent $6 at a gas station's car wash.

"This money was meant for day care this morning," Baarda said of the short-lived crimp the situation put in the Des Moines, Iowa, couple's finances.

Long a standard practice with this form of bank card, such "holds" on bank accounts are becoming more common as people use debit cards, rather than credit cards, to pay for purchases.

When people use credit cards, the card issuer grants miniature loans to the customers. Those loans incur interest charges if the consumers do not pay off their balances every month. Debit cards do not require interest payments because these cards link to consumers' bank accounts and take money directly from them.

Debit cards are easy to use. In 2003, the latest year for which statistics are available, debit cards accounted for one-third of all purchases in stores, according to the American Bankers Association.

To ensure payments for services, account holds are used widely in hotels and car rental agencies nationwide. Now the tactic is being implemented in the fuel industry, consumer advocates say.

After Hurricane Katrina hit the Gulf Coast and disrupted fuel production in August, many oil companies across the country increased the amount of money they would hold on debit-card transactions.

"The problem is consumers were caught unawares," said Russ Haven, legislative counsel at New York Public Interest Group. "This is an unwelcome byproduct of spiking gasoline prices and can leave consumers unable to withdraw cash at an ATM, bouncing checks or paying overdraft fees."

Most transactions made at the pump are considered "offline" transactions because they don't require a personal identification number, known as a PIN, and aren't processed until later in the day when an entire batch of transactions runs at the same time.

Debit transactions usually clear in a few hours, said John Hall of the American Bankers Association. But they can take as long as three business days.

According to the U.S. Public Interest Research Group, a $75 hold assumes the customer drives a large truck with a 30-gallon gas tank. But for owners of economy cars, the disparity between the hold amount and the actual value of the transaction is significant.

"The big problem is the hold has no rational relationship with the amount of the purchase," said Jeff Webb, legal counsel to the Alabama commissioner of agriculture and industries. "That's where from a legal standpoint the consumer has a place to complain."

Badgley, of Grimes, Iowa, worried that people with few financial resources might find themselves in a financial bind if their money gets locked up.

The American Bankers Association admitted that could be a problem.

"For people who keep very low balances, it can put them in an awkward situation," said Hall. He suggested that consumers have backup forms of payment, such as cash, a check or a credit card.

The practice of holds is legal, and Badgley and Baarda illustrate the only real options consumers have in dealing with holds: They can frown about the practice and continue to use their debit cards or they can change buying habits to avoid using a debit card in instances when holds typically occur.

"I watch when things get taken out," said Cheryl Davitz, of Montgomery, Ala., whose bank put a $74 hold on her account for a $20 tank of gas.

"But if you don't do that on a daily basis, and you think there's $75 in your account, and you go write a check somewhere else, well, then you might bounce a check — and bouncing checks is not cheap."