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Disclaimer: This is a question of "How is this technically possible in the banking/credit system", NOT "Why is this happening to me".

I bought some blinds off costco.com recently. Let's say they cost $200.

Jan 28: I was charged $200 to my CITI card, marked as "pending". This is the PREAUTH.

Feb 08: The order SHIPS.

Feb 09: I was charged $200 to my CITI card. This is the actual charge, and goes through.

Feb 11: The goods were delivered.

It is now Feb 15, and the PREAUTH is still holding credit on my CITI card.

YES this is very annoying because I've already received and paid for the goods, yet the PREAUTH is still bringing my credit down $200.

The next section is CONTEXT, not essential to my stackexchange question:

I have called BOTH Costco and CITI.

Costco says to wait it out and call CITI.

CITI says it can take 30 days and there's nothing I can do. But COSTCO can cancel it.

I call COSTCO back and they call CITI and tell them to remove it.

I am wondering HOW in our credit/banking system is it possible for a PREAUTH to stick on your card 3 weeks after you've already received and paid for your goods - and ADDITIONALLY the Credit and the Merchant can do "nothing" except wait?

What system is in place that forces the Creditor and the Merchant to wait?

  • 10
    Sounds like a glitch in the system that neither company is willing to be responsible for, nothing more. – Daniel Anderson Feb 15 '17 at 20:21
  • This is the 2nd time it's happened so I'm not sure if it's a glitch or what it is that nobody seems to have power over. – Vigrond Feb 15 '17 at 20:26
  • 1
    What happened the first time? Did it drop after 30 days, or did someone have to do it manually? – Daniel Anderson Feb 15 '17 at 20:51
  • 3
    This is just data stored in some system somewhere. (Most likely a database of some kind nowadays; 70 years ago, maybe it was written on paper somewhere.) When you say, "How is it technically possible this happened?" the answer is obvious: some data got fouled up. It could be the software, it could be some clerk, it could be anything. "How is it technically possible?" doesn't make for a good financial question anymore than, "Why is Facebook giving me an error?" does for SO. There's no way for anyone here to give an actual answer. – jpmc26 Feb 15 '17 at 23:47
  • Why is this even an issues, all of my credit cards have credit limits that are at least 10 times as much as I spend each month. (We all know it is unthinkable to spend money if you can't pay the credit card off before you get charged interest.) – Ian Feb 16 '17 at 15:20
27

It is barely possible that this is Citi's fault, but it sounds more like it is on the Costco end.

The way that this is supposed to work is that they preauthorize your card for the necessary amount. That reserves the payment, removing the money from your credit line. On delivery, they are supposed to capture the preauthorization. That causes the money to transfer to them. Until that point, they've reserved your payment but not actually received it. If you cancel, then they don't have to pay processing fees.

The capture should allow for a larger sale so as to provide for tips, upsells, and unanticipated taxes and fees.

In this case, instead of capturing the preauthorization, they seem to have simply generated a new transaction. Citi could be doing something wrong and processing the capture incorrectly. Or Costco could be doing a purchase when they should be doing a capture. From outside, we can't really say.

The thirty days would seem to be how long Costco can schedule in advance. So the preauthorization can last that long for them.

Costco should also have the ability to cancel a preauthorization. However, they may not know how to trigger that. With smaller merchants, they usually have an interface where they can view preauthorizations and capture or cancel them. Costco may have those messages sent automatically from their system.

Note that a common use for this pattern is with things like gasoline or delivery purchases. If this has been Citi/Costco both times, I'd try ordering a pizza or some other delivery food and see if they do it correctly. If it was Citi both times and a different merchant the other time, then it's probably a Citi problem rather than a merchant problem.

  • Is it also possible to capture less than the preauthorization. For instance, could a gas station preauthorize $50 even if you end up getting only $20 worth of gas? – stannius Feb 16 '17 at 1:06
  • 5
    @stannius In the US, at least, most gas stations pre-authorize $75 on your card when you "pay at the pump", which is usually tied up for 1-3 business days. This is why it is often advised to pay inside, because when you pre-pay, only the amount put into the register is actually held. I actually had this bite me once when I drove across the country, making about 12 stops to fill up for about 15 dollars each, and I got stranded overnight when my card declined because I had $900 held for $180 in gas... – phyrfox Feb 16 '17 at 1:36
  • @phyrfox for me it's always been $100, but it goes away anywhere from ~1 hour to, like you said, 3 days. – Eric Lagergren Feb 16 '17 at 7:02
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This is not a normal occurrence, and you have every right to be annoyed, but the technical way it usually happens goes like this:

  • Merchant requests pre-authorization (sometimes called a soft hold) for $200, receives confirmation code #P101 (made this code up, of course)
  • When the purchase is to be completed for real (complete the transaction, not just holding the money) what is supposed to happen is the merchant is to reference pre-authorization code #P101 that they received earlier, confirming the completion of the purchase (transferring the actual funds) and thus releasing the hold.

What can happen is when the merchant incorrectly completes the transaction without referencing the pre-authorization transaction. The bank effectively doesn't "know" this is the same transaction, so they process it the same way they process any other purchase, and it has no effect on the pre-authorization and related held/pending transaction. As far as the bank knows, you purchased a second set of blinds in the store for $200 and are still waiting on the first order to come in, they have no idea the store screwed up.

The reason this is possible is the purpose of the pre-auth in the first place is that it is a contractual agreement between the bank (credit card) and the merchant that the funds are available, will be available except under rare special circumstances, and thus they can go ahead and process the order. This lets the merchant be secure in the knowledge that they can collect their payment, but you aren't paying interest or monthly payments on something you haven't even gotten yet!

This system works reasonably well for everyone - right up until someone screws up and fails to properly release a hold, makes a second transaction instead of properly referencing the first one, or the bank screws up their system and fails to correctly match referenced pre-authorization codes to purchases.

The problem is that this should not be a normal occurrence, and the people you are speaking with to try to sort out the issue often do not have the authority or knowledge necessary to properly fix the issue, or its such a hassle for them that they hope you just go away and time fixes the issue on its own.

The only sure-fire solution to this is: make sure you have so much extra credit line that this doesn't effect you and you can safely let it time out on its own, or stop doing business with this combination of merchant/payment that creates the problem. Back when my credit limits were being pushed, I would never pay at gas pumps because their hold polices were so weird and unpredictable, and I would only pre-pay inside or with cash to avoid the holds.

3

The answer to your question is very simple:

  1. The preauth and the shipment of the goods have no connection within the credit card system.

  2. It is possible to process a payment that does not cancel a preauthorization. This is needed for the case where you place two orders and the one you placed second ships first.

  3. A preauth can remain active for some time unless it is captured or cancelled.

So in your case a preauth was placed and remained active. That you were shipped and billed for some goods had no effect on the preauth because one side or the other failed to attach them.

1

Open a dispute for the preauth. It is effectively a double charge, since you have already paid for the item. You can provide evidence of the other transaction.

This forces them to go through some hassle and waste some time on the issue.

  • 3
    At least with my bank, pending charges can't be disputed online until they become cleared charges. You could try to submit your dispute in writing, but by the time your letter got there and they read it and respond, the thirty days might be over. – Ben Miller Feb 16 '17 at 14:16

protected by Chris W. Rea Jan 22 at 1:33

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