Published May 20, 2014
While gift cards can be a convenient method of payment for all kinds of goods and services, their funds can be subject to holds for a variety of reasons. Knowing about potential roadblocks in advance can help you avoid embarrassing situations at checkout.
Just ask New Orleans writer Craig Guillot. He was planning a trip to Walt Disney World with his wife and daughter and noticed that his grocery store sold prepaid MasterCard gift cards. His American Express card offered him 5 percent cash back on grocery store purchases. So, if he purchased $1,500 in gift cards to use in Orlando, he'd get a $75 rebate from AmEx, plus loyalty reward points from Winn-Dixie that he could use on gasoline.
But when he went to book his Disney trip, he found he could only use 80 percent of the face value of the cards. He objected and was told that such a hold was standard procedure when using gift cards for hotels or travel, to allow for incidentals or tips that might be added to the total.
"I actually had to wait for the payment to fully process weeks later past the cancellation period before I could use the remaining amount on the cards," he says. "It was a hassle."
Before you get caught mid-purchase with a "decline" message, understand these five reasons why your gift card's buying power might not be fully available to you.
1. Service purchases. Like a credit card, when you use a gift card to make purchases, the transaction has two steps. First, the merchant authorizes the card with the issuing bank to ensure it's valid for the purchase. Then, the transaction is settled for the amount of the purchase.
In some cases, such as purchasing services where a tip may be added, the merchant may authorize the transaction for more than the actual amount. For example, a hair salon may authorize a charge for the amount of the service plus 20 percent for the tip. A bar may authorize a certain amount to keep a tab running, says attorney Terry Maher, a partner at Baird Holm, an Omaha, Nebraska law firm, and general counsel to the Network Brand and Prepaid Card Association, a trade organization for prepaid cards.
While transactions are typically adjusted to the final amount by the end of the day, it can take a day or two for the card issuer to remove the hold and adjust your card balance.
2. Travel purchases. If you're using your card to travel, especially for hotels or rental cars, the authorization hold may be longer. Because these companies may not know the amount of the transaction until you check out or return the rental car, they can't settle the account until you end the service.
If you check into a hotel, it's likely the hotel will authorize the amount of the room, plus taxes, plus 20 or 30 percent for any incidentals. This is what happened in Guillot's case and why he couldn't use 20 percent of the face value of the gift cards for his Disney World trip.
Hotels may keep the hold in place for as much as a week after checkout, in order to ensure that all applicable charges have come through. Once the merchant settles the actual amount of the transaction, the card issuer typically removes the hold the following business day. To find out specifics, check with both the hotel and the card issuer about their policies.
Rental car companies follow similar procedures to cover gasoline or other charges you may incur in using the car. But they may take even longer to remove a hold. Maher says he's seen cases where the rental car company hasn't presented the transaction for settlement until a month after the car was returned.
"Let's say somebody decided to use one of the toll passes that came with the car and all of a sudden, the tolls were charged to the car company," Maher explains. "That might not show up for 30 days."
One way around hotel and rental car holds: use a credit card to check in or rent the car, and use the gift card to make the final payment when you return the car or check out of the hotel.
3. Gas station purchases. Paying at the pump for gasoline can also result in a substantial and lengthy hold. Maher says gas stations can authorize up to $150 on your card, even if the purchase is just a fraction of that amount. That's because when you swipe your card at the pump before you fill up, the station doesn't know how much the final purchase will cost -- so it puts a hold on the card for a blanket amount, which isn't removed until the final transaction clears. While some of these holds resolve at the end of the day, others could take a day or two, depending on the merchant and the card company.
You can avoid such holds by paying the cashier in person after you've filled up, rather than paying at the pump.
4. Fraudulent activity. Sometimes, unsuspecting card users get burned by fraudulent activity, says Jeremy Levi, director of marketing at Brick, New Jersey-based CardCash.com, an online marketplace for buying and selling prepaid gift cards. If the card was purchased fraudulently and then sold to someone else, the buyer may find that the card has been invalidated. This often happens with cards purchased through online auctions or classified ads, Levi says.
In addition, some fraudsters peel back the security strip on prepaid cards available in grocery stores and steal the card numbers, then wait to use them until the cards have been purchased and activated by unsuspecting consumers. If you suspect that's happened, contact the card issuer to report the problem and determine how it can be resolved.
5. Refund processing. If you made a purchase with the card and then returned the item, you may find that it takes days, a week or even more time for the amount to be credited back to the card account. Until your card is credited, that amount will be unavailable to you.
In most cases, your funds will become available to you as soon as the transaction has been settled or a credit has been issued. However, if you have questions about the transactions or suspect fraudulent activity, contact the card issuer immediately to report the problem.