Personal Finance

Using credit, debit card to buy gas now a major financial decision

Almost every week, swiping your credit or debit card at the gas station gets a little more financially painful. Standing at the pump and watching the numbers sail past $50 can be a grim exercise. But it's a process that's also far more complex than you might imagine.

Behind the scenes, as you stare at that "authorizing" message on the pump, computers are whizzing and buzzing and talking to each other about you and your credit or debit card. Those conversations could be complicating your financial life.

"I don't think the average consumer has any idea what goes on behind the scenes when they swipe a card ... ," said Jeff Lenard, vice president of communications for the National Association of Convenience Stores, which represents most gasoline retailers. "The credit and debit card system is incredibly complex."

  • Complication No. 1: The station could be imposing a credit or debit transaction limit that is too low. At a time of sky-high gas prices, these limits could prevent you from filling up your tank -- at least on the first try.
  • Complication No. 2: The computers could be imposing a "block" or a "hold" -- reserving a larger portion of your available credit card or debit card balance than you really need to complete the gasoline purchase. If you're already running close to the edge on those accounts, this could trip-wire additional fees or embarrassing and inconvenient bounced transactions.

"That's the one that really causes consumers a lot of angst," Lenard said.

With everyone concerned about gas prices, Lenard is a busy man these days. The association represents more than 146,000 U.S. convenience stores, which in turn, sell about 80 percent of the gasoline purchased in the United States each year.

Many consumers blame those stations for the higher prices, which is not really fair, he said. "You still hear and see a lot of comments about 'price gouging' by the stores," said Lenard, who tries to set those people straight. "Our members are probably losing money now when customers use plastic to buy gas, but I guess it's job security when my phone is ringing off the hook."

Gas prices spiking Consumers surely have reason to be angry at ... somebody. The national average for regular gasoline reached $3.77 per gallon Monday, according to the AAA's Daily Fuel Gauge Report. That's an increase of 30 cents per gallon in just a month.

In 2011, gasoline spiked to $3.94 per gallon in May before settling down. Experts predict the 2012 run-up in prices may shoot beyond that, due to rising demand in China, tumult in Iran and Syria and the usual domestic demand increases in the summer. Some experts see the possibility of gas at $5 a gallon.

Though plenty of people have been numbed to the rising numbers at the pump after years of volatility, others gamely try to find the best possible deals. "I pay attention, and when prices drop, I fill up," says Megan Nelson, a marketer who lives in Rogers, Minn. "I know I can't do much about it, but I try to save at least a few cents."

Filling up and your finances So, once again, gasoline is a major purchase, carrying with it big questions and consequences: Debit card or credit card? Which credit card has the most available balance? Which card has the lowest interest rate?

Another issue: Should you use or apply for one of the new hybrid gas cards -- a breed of cards that are issued by banks but co-branded with an oil company and carrying a conventional Visa or MasterCard logo? These can offer deeper discounts on gas purchases, though usually only for fuel sold by that particular oil company.

Setting that one aside for now, here is what Garfield and all of us need to know about gas pump transactions:

Limits: Visa and MasterCard require retailers to place a "preauthorization" of $1 on credit card and many debit card gas purchases. This is simply to ensure that the card is live and, given that it's only $1, generally doesn't pose any problems for consumers.

But here comes another hurdle. When the transaction is authorized, many gas stations impose a limit on the size of the purchase that is under way. This could happen under any circumstance, but it is a nearly automatic and universal response when the customer swipes the card at the pump.

Matthew Towson, a spokesman for Discover, said this process is intended to at least partially protect the station from losses. "Since for pay at the pump there is no signature required, there could be an increased risk of fraud," Towson said.

That said, such limits are not inevitable, says Lenard. "With real-time clearing [which processes payments immediately, instead of at the end of the day], there are no limits, as long as the bank and merchant support it," he says.

But while it's technically possible not to have such limits, they're typically still imposed. Before the first round of gas-price spikes a few years ago, station owners often set limits around $50. However, high prices have encouraged station owners to increase that amount to a range between $75 to $125. Still, even at $75, some trucks and SUVs will find that they're cut off before the tank is full.

"Two things happen and they're both bad," Lenard said. "The customer comes into the store and goes from being just annoyed about the price to being outraged. 'I'm trying to fill up. Why did you do this to me?'"

The solution: Go back to the pump and initiate a second transaction. This, of course, is an inconvenience for the convenience store customer.

But for the retailer, it brings about that second bad thing mentioned by Lenard -- an additional cost for the station owner, who gets dinged with a second transaction fee from the credit card company or the bank.

(This is not the place for a discussion about the fees charged to retailers by credit card companies or banks -- or the difficulty gas station operators have in adhering to the various rules -- but just take it on faith that the rules are complex and the costs can add up quickly, taking a deep bite out of gas station profits.)

Blocks or holds: They may sound like something out of a football game, but aren't nearly as entertaining. Because gas station operators and, often, hotel owners, restaurant managers and some other retailers may not know at the outset exactly how much you may be spending, credit card companies and banks block or hold a higher amount than you may end up needing.

In the gas station world, these blocks typically range from $75 to more than $100. In the summer of 2011, Visa raised its limit from $75 to $125. Blocks can last for up to 72 hours, but are typically much shorter.

This only is a problem for credit card users if they already are nearing the limit of their available balances. If you have $10,000 in available credit, a $100 hold isn't going to materially affect your life.

But this more frequently can be a problem for debit card users, who typically carry relatively low balances in their linked bank accounts, so here's an important tip:

If you use a debit card to buy gas, try to do so at a place that requires PIN numbers. This will -- or at least should -- wipe out the hold within seconds of the completed transaction.

Experts also advise consumers who may have questions about holds to check with their banks or credit card issuers, especially if a hold is lingering on their account for more than three days. And if you are unsure about the effect of holds, blocks or limits, just use cash for your transaction -- if you still have any, given the high prices we all are confronting.

In any case, it is important to keep in mind the various, modern day complexities of buying gasoline at the pump, aspects that have been kept out of sight, retailers say, more as a matter of convenience than conspiracy.

"We don't sell just gas or snacks or drinks," Lenard said. "We sell convenience. Our jobs are to provide service that gets you in and gets you out fast, if that's what you need."

Freelance writer Erin Peterson contributed to this story.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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