I managed billing and payments systems for a while for my company, and thought that the associations (Visa, MasterCard) required merchants to honor an association-branded debit card exactly as though it were a credit card. Actually, the difference is transparent to the merchant–you can’t tell unless you read the card. We were an online business so we didn’t know and we didn’t care. (Completely different story if you want to use it as a card where you have to enter your PIN.) The transaction, fee, and everything else cleared the same.
When I rent a car–every agency I’ve used does this–I cannot use my Visa-branded debit card upon arriving. They will let me pay my balance with it at the conclusion of the rental, but I am required to have a credit card to get the car. I’ve argued about this but the people at the desk are just following orders. One of them once tried to give me the explanation that with a debit card, your bank account would have enough money in it when you check the car out but when you check it back in you might not have enough money. Well, that’s crap since the same thing can happen with a credit card.
BTW I checked into a hotel two nights ago and was asked for picture ID to confirm identity for my credit card, which is also forbidden by the associations (if your card is signed).
Visa and MasterCard lost a lawsuit over this. They charge higher fees to merchants accepting the debit cards and tried to force merchants into accepting anything with a Visa or MasterCard logo.
Some merchants didn’t want to pay the higher transaction fees. The merchants won the lawsuit.
This may be true but doesn’t jive with my question. The car rental companies all accept the debit cards for payment–just not when you pick up a car. So it can’t be an issue of the fees.
The lawsuit you’re talking about may be about using the same card as a credit card vs. an ATM card. When using as a credit card, the transaction flows through the association just like a credit card transaction, with comparable fees. When punching in your PIN, it flows through the network management company (like Honor) and the fees are significantly lower. Exact same card.
I know that Wal-Mart, IIRC, stopped allowing customers to process a debit card as a credit card, requiring them to enter their PINs, to get the lower fee. I think that the associations tried to sue them over this, or vice versa, fuzzy on the details. Wal-Mart is probably the single biggest credit card merchant in the world and can get away with more than the little guy.
Presumably it’s because if you make off with the vehicle, it’s far too easy to empty the checking or savings account a debit card is tied to, thus avoiding the payment of any charges. It’s easier to collect on a credit card payment than a refused debit card payment, I’m thinking.
I think you are missing the completely different nature of the transactions. In a debit transaction the card company just shuffles money around from your bank account to the vendor’s account. That’s all. While with a credit transaction the issuer is guaranteeing payment. If you default the vendor still gets paid. They may seem similar but they are very different in nature and legally. I can understand a car rental company wants to see a credit card because you sign that you will pay for the car if you wreck it. With a credit transaction they are covered but not with a debit transaction.
Here is what I thought happened. Tell me if this is way off-base:
When you reserve a car or hotel room (or even pay for a meal), they actually reserve a higher amount than you’re quoted. That way, if you incur additional expenses, they are still covered. Or, in the case of the meal, the higher amount is to allow for a possible gratuity. Then, when the transaction is completed, the actual amount is charged, and if there was any overage in the original reservation, it is returned.
If this is the case, it (the refusal) might be to protect you. You could conceivably be bouncing checks left and right because they reserved a higher amount than you’ll end up paying.
I have read merchant agreements and at the last place I worked it SPECIFICALLY applies to CREDIT CARDS. A debit card isn’t a credit card. We have NO agreement with VISA DEBIT. It says we must accept VISA CREDIT cards. Contrary to belief one can easily tell a debit from a credit by the numbers. There is a matrix to read them.
At hotels you can CERTAINLY ask for ID. I see in our merchant agreement we can ask for as much ID as we want. I don’t know what is in your agreement. I have worked for 20 years with Visa, MC, Discover, etc and we not only can but have a responsiblity to firmly establish the idenity of the person.
When you rent a car you are not being billed. They simply authorize your card for an amount to cover the estimated charges. For instance if you have 5,000 credit limit. You rent a car. The rental company says OK you will probably owe us 500.00 for the car. So they run the AUTHORIZATION for 625.00 (that is estimate plus 25%) This takes 625.00 out of your limit of 5,000 and sets it aside. You are not being billed at that time.
When you return the car they take the card and CHARGE it. Let’s say you only use 400.00. It charges the 400.00 at the time you return and releases the difference 225.00 back to your credit limit.
If you used a debit card it would literally take 625.00 out of your bank account. Then at return put 225.00 back into it.
That being said I can tell you the real reason they don’t take them. Car rental companies are notorius for maxing out your credit limit. I was in Florida with a brand new MC. 5,000 limit. I rented a car, and went to the hotel to check in. Credit card declined. I was like “How?” Well the car rental place authorized my card for 5,000.00. I was livid. It took them a day and 1/2 to reverse the authorization.
I worked many years in credit dept of hotels. I would get calls from irate people about auth charges. I would always say “Did you rent a car?” Yes they would say. And it always turned out that the car rental place overauthorized.
Your second paragraph is correct. The merchant submits a pre-authorization request. This effectively reserves that amount of money for that merchant. It lowers your open-to-buy on your credit card (i.e. your available credit is lowered). Car rental companies, hotels and restaurants will all submit an authorization request for the expected amount plus extra to cover likely additions. In the case of a meal it is, as you say, the tip or gratuity. The restaurant will typically submit a pre-authorization request for the price of the meal plus 20% I don’t know how much rental companies and hotels add.
Your third paragraph is not correct - the companies are doing this to protect themselves, not you.
And on preview I see that Markxxx has also answered this. Oh well - I must learn to type faster.
Actually, I stopped doing business with Budget many years ago because they accepted my debit card for a rental pickup, and without telling me, put a $250 hold on the account. This caused an overdraft and my bank hit me with an overdraft charge, for which Budget refused to accept responsibility. Haven’t gone back to them since.