Neb. lawmakers to scrutinize credit, debit holds

LINCOLN, Neb. (AP) -- Companies that temporarily inflate charges to credit and debit cards for purchases at gasoline stations, restaurants and other businesses will face scrutiny from Nebraska lawmakers later this year.

The Legislature's Banking, Commerce and Insurance Committee will conduct a study this summer of the regulations in place for the temporary extra charges that can be applied to credit and debit card purchases when the total bill isn't immediately known. The practice is intended to protect merchants from fraud and loss.

The committee's findings and recommendations are due before Dec. 31.

The temporary extra charges often apply to customers who use credit or debit cards at gas stations, hotels, restaurants or other business where the total bill isn't immediately known. The extra charges are later removed at no cost to card owners, but the higher bills can remain for two to three days.

The hold renders that money inaccessible to a cardholder until the charge clears. For buyers who are close to their credit or debit limit, the additional charge could lead to overdraft fees, a bounced check or a purchase getting declined.

Sen. John Harms of Scottsbluff said he introduced the legislative study after talking with a constituent who worked at a local grocery store. A young couple tried to buy diapers and baby food with a credit card, but was denied because a gas station had placed a $75 hold which pushed their credit to its limit. Without the hold, Harms said the couple could have afforded the items.

"I think it's wrong," Harms said. "We just need to have a public discussion about this. A lot of people have no idea about what's happening to them, and the people who get hurt in this are the middle- and lower-income families."

Harms said he plans to introduce a bill in some form after lawmakers reconvene in January. The summer study will include a hearing to gather input. Harms said he has also met with business groups, who acknowledged that the holds can create problems but disagreed on the best approach.

Legislatures in at least a dozen other states have introduced bills to regulate the credit holds since 2003 but few have passed, according to the National Conference of State Legislatures. Groups that represent convenience stores and other businesses in other states have argued that the hold amounts are out of their control, because they contract with credit card processing companies that set the terms of how the technology is used.

In 2006, Maine approved a law that prohibits merchants from placing holds on credit or debit cards beyond the purchase cost, unless the merchant reduces the hold within one hour of making the sale. A violation carries a $250 fine for the first offense, and $1,000 fines for subsequent violations.

Tennessee passed a law in 2006 that requires merchants to notify customers about any hold that exceeds 25 percent of the transaction amount or $50, whichever is greater.

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The study is LR233