High prices, issuer practices run consumers afoul of rules

By Carol Vinzant
Published: August 20, 2007

Consumers already frustrated by the high price of gas may also be hit with a couple of nasty surprises at the pump: Their credit cards may turn stingy, imposing limits that leave unfilled tanks, or they may get greedy, "blocking off" more credit than needed for a fill-up.

Jeff Lenard, spokesman for the National Association of Convenience Stores, sympathizes. Of the group's 145,000 stores, 80 percent sell gas. "Consumers are already pretty ticked off" over gas prices, he says. "Then they get hit with one or both of these things."

"These things" are:

Credit limits too small for a fill-up. Thieves often test stolen credit cards at gas stations because they may remain anonymous by paying at the pump. Years ago, stations imposed limits of $50 to $75 to combat fraud. But high gas prices and larger gas tanks on popular SUVs caused law-abiding consumers to be cut off in mid-pump.

"Blocking off" more credit than needed. Card issuers' policies allow merchants to temporarily lay claim to -- "block off" -- a larger-than-needed chunk of consumers' credit limits when the final purchase price is uncertain at the time credit is authorized.

Where consumers can be hurt, though, is that rules are unclear about how much can be blocked off, and how soon the unused portion of credit is "returned" to a consumer. The "blocks" can push consumers over credit limits, forcing them to pay fees.

Card issuers, retailers spar

Retailers and credit card issuers, already locked in a battle over interchange fees paid by merchants to process credit card payments, differ over who is to blame. Retailers say the pump limits and hold times are another way that issuers are controlling the system to the disadvantage of store owners and customers. Issuers disagree.

With pump limits, for example, "There is no policy that limits transactions at the pump from MasterCard," says spokesman Tristan Jordan. "The merchants themselves make the decision."

Most credit card companies say that the merchants opt to put the pump limit at exactly the "chargeback" limit -- the highest amount the credit card company will pay a merchant if the transaction turns out to be fraudulent. In other words, they claim merchants cut off customers at the amount the bank will pay if the customer doesn't pay the bill.

Chargeback limits vary

Each card has its own chargeback limit. Corporate cards typically have higher limits than personal cards, and fleet cards, used by corporations and other groups managing multiple vehicles, can go as high as $150, a limit that will probably not be questioned until gas prices double again. Discover specifically limits gas pump purchases to $50.

The limit system, notes Jordan, protects merchants from fraud, which lowers the cost for consumers. Merchants may opt out of the system by signing on to programs such as "Verified by Visa," in which consumers set up passwords for their cards. Merchants pay more for the program.

What consumers can do

Consumers have two ways around the problem.

1. Start a second transaction. The limit system is designed to cut fraudulent charges, but it's a ham-fisted tool. The limit is per transaction. You can just start pumping again in a new transaction. Starting a new transaction is an annoyance for customers, but it can become a burden for retailers that pay a per-transaction fee.

2. Go into the store to pay, where the limit is likely higher because it will be a face-to-face transaction.

Holding patterns

"Blocks" -- which are sometimes called "holds" -- assure merchants that they'll get paid in full in cases where a transaction is authorized before a final amount is owed. That lets the restaurateur accommodate an extra-generous tipper, and secures the hotelier against guests suddenly infatuated with the minibar. The situation applies to gas stations, too, since the station doesn't know how much will be pumped when it OKs a sale by credit card.

"If you're running low on funds and only want to pump $20 of gas, your account could be dinged $75, and then a cascade of fees could start," says Lenard. "Guess who benefits from that? Not the convenience store."

The hold should only last a few moments -- until the final real amount is processed -- but for signature debit transactions, this may take up to three days. Gas stations have even received complaints from customers when the bank has held the money for a week, Lenard says. "When you look at the electronic statement, it looks like the gas station is holding your money. If you pay by PIN debit, that hold should be done instantly. If it takes significantly longer, someone is messing with your money."

What to do about blocks

Some gas station owners have tried to find a way around the system by lowering the per-gallon price for purchases made with cash, which may be the only way consumers can benefit from using cash over plastic.

The Visa and MasterCard standard agreements with merchants, in a flourish of semantics, forbid credit card "surcharges," but allow cash payment "discounts."