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Consumer Report : Tourists Finding Surprises in Card Tricks

February 19, 1989

Imagine trying to use your credit card and finding that you can't because a hotel, car-rental company or restaurant has reserved the money.

Establishments that accept your credit card are allowed to reserve the amount you plan to spend. And sometimes they add more than that amount.

With a car rental, the extra money is to cover possible damages to the car. At a hotel, the extra might cover meals, phone calls and other services.

Many travelers have discovered, often at inopportune moments, that such a hold has been placed against their credit-card limit. But there is a trend toward discouraging this procedure.

As of Jan. 1 in New York City, credit on a card can't be reserved for amounts over the cost of the services unless the credit-card owner is notified in writing of the amount to be blocked and he or she agrees.

No Complaints Yet

In California, Herschel Elkins, deputy state attorney general, said: "We haven't received any complaints about this practice in hotels, though we have gotten some about car-rental companies."

As of Jan. 1 car-rental companies were precluded from the practice in California. Regulations governing such pre-authorizations against credit-card limits may spread to other states.

"We know that other states are looking at comparable regulation, and we expect some will pass similar laws," said Larry Chervenak, president of a hotel consulting company. "Most hotels just reserve the amount of room nights plus a reasonable amount for other hotel services. But they don't necessarily tell the guest what this pre-authorization is, which they should do. And a minority of hotels have overdone their pre-authorizations."

Meanwhile, Visa is issuing new regulations to member banks that call for them to prohibit car-rental firms from adding estimates to Visa charge cards beyond the basic rental cost.

Right to Make Estimates

Even though merchants have the legal right to make estimates, card users often don't realize that these pre-authorizations reduce the amount they can charge against their credit-card limit. Cases have been reported where the car-rental cost was $100 but the pre-authorization was for more than $1,000 to cover possible damage to the car.

Hotels establish credit before handing over a key to a guest who uses a credit card. Some hotels simply total the room nights, plus tax, and get pre-authorization for that amount. Others add a contingency sum for incidental tabs.

Policies vary on how hotels handle the pre-authorization procedure. Some hotels may negotiate agreements with credit-card companies on what limit the credit-card firm will be responsible for if the cardholder doesn't pay.

"We have an agreement with every credit-card company whose card we accept, whereby if the card is valid, our hotel is protected up to a certain floor limit," said Dennis Koci, vice president of front desk and guest services of Hilton Hotels. "If the card is valid, the floor limit is the amount for which the credit-card company will guarantee payment, whether or not they get paid."

Hotel Options Listed

In general, Koci said, if a hotel doesn't have such an agreement with a credit-card company, the hotel has other options.

"A hotel can validate the card and then create an internal floor limit and monitor this limit. This is at the hotel's risk and not the credit-card company's. If the guest's charges start to reach this limit, the hotel would then seek a pre-authorization. Another option is to pre-authorize when the guest checks in."

Most hotels just validate credit cards, establish internal floor limits and then watch a guest's bill closely, Koci said.

At the Hollywood Roosevelt Hotel, pre-authorization is sought for the amount of the room, plus tax, said John Eleftheriou, the Roosevelt's director of finance.

"We advise the guest verbally of this amount and ask if he expects to use other services, and what extra amount can be held for this purpose."

The guest's credit limit is then monitored, and if a charge takes the guest over the limit, the guest is contacted about means of payment, which can mean another pre-authorization against the credit-card limit, according to Eleftheriou.

"Even at restaurants, a waiter may put down a greater amount than the bill in expectation of a tip," he said.

Protecting Yourself

"Your tip may be much less, but the amount processed to the credit-card company still goes through and can be held against your credit-card limit for a number of days, until it's matched up with the expenditure. Meanwhile, you're stuck with reduced use of your credit card."

To protect yourself against excessive pre-authorizations and simply to keep in touch with your credit-card limit, always ask what amount is being held or blocked.

"This is a good policy to follow any time the final price of what you will pay for is not known at the time you present your card," Koci said.

However, disclosure of pre-authorization amounts doesn't necessarily prevent problems with your credit card limit.

"Vendors don't always release the unused amount of the pre-authorization, which should be done when the expenditure is known," Koci said. "If every vendor processed the specific charge properly, there wouldn't be any difficulties with the credit lines of card-holders."

When you settle your bill, ask any vendor who has made a pre-authorization against your credit-card limit if he or she has released any amount over the specific charge.

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