Twenty years ago, ATM cards could only be used in ATM machines. In the 1990s, banks started replacing ATM cards with debit cards, which could be used in either online (with a PIN) or offline (no PIN, sometimes a signature) transactions at a merchant's or over the phone, just as if they were credit cards. (Actually, a plain old ATM card can still be used in PIN-based or online transactions at merchants, but not in offline transactions-- some merchants do not allow online transactions because they do not have the technology.)

Banks have always looked at use of debit cards as a gold mine. Banks have two goals-- first, to get you to stop using cash and use debit instead; second, to get you to stop using PINs. Why do banks encourage offline transactions with various rewards? Easy: Banks take a larger skim off the top from merchants when the transaction is offline. The offline gold mine has a higher grade ore than the online mine. Of course, all of us, cash customers too, pay more in our basic prices because the massive bank fees are included in the cost of the goods we all buy.

But the immediate consumer problem is the block, or hold. These offline transactions are not immediately reconciled when you hang up the pump. Instead, lax VISA/MC rules give merchants up to three days to complete your transaction. Those rules are archaic in the computerized system we have today. While it is typical that at the end of each business day most merchants complete a batch transaction of all the day's receipts-- the geniuses at Mastercard and VISA not only allow them to take the full 72 hours they also allow their member banks to pummel the victims of blocks with bounced check fees or denials of other transactions, based on the unfair block until it is removed.

When you actually swipe your card before your gas transaction, they save time and computer resources by merely "authorizing" use of the card instead of authorizing it and then running a second transaction when you hang up the pump. (You swipe before they know how much you are spending). The catch? The gas station (or increasingly also, the restaurant) is allowed to place an automatic block for an estimated transaction that is typically 25%-200% greater than what the average person actually buys. That block (or hold) could lead to the bank bouncing (or denying) other transactions of yours before the block is removed. Basically, a gas station presumes everyone drives a tractor trailer truck, or at least an SUV, and blocks for the cost of gas for a 30 gallon tank. Hotels and rental car companies place even larger blocks -- because their transactions are larger. It is truly inadvisable to use a debit card at the beginning of a hotel stay or when you obtain your rental car. Many hotels and rental car companies are posting warnings to this effect. It is usually OK to use one to pay at the end, since at that point they should bill your exact expense without a block. (Ask.) The practice is unfair and NYPIRG's release explains our reform platform in detail. We have a fact sheet explaining blocks/holds and other debit card risks here.