The Federal Reserve has an explanation of the practice of authorization holds (74 Fed. Reg. 5212, 5228­–29 (January 29, 2009)):

“When a consumer uses a debit card to make a purchase, a block, or hold, may be placed on funds in the consumer’s account to ensure that the consumer has sufficient funds in his or her account when the transaction is presented for settlement. This type of block or hold is commonly referred to as a ‘debit hold.’ During the time the debit hold remains in place, which may be up to three days after authorization, those funds may be unavailable for the consumer’s use in other transactions.

“In some cases, the actual purchase amount is not known at the time the transaction is authorized, such as when a consumer uses a debit card to pay for gas at the pump, check into a hotel room, or pay for a meal at a restaurant. Consequently, the debit hold may be placed for an estimated amount that exceeds the actual transaction amount.”

As explained above, the use of authorization holds is an accepted practice that protects banks and merchants from fraud and from customers with insufficient funds to pay for a purchase. The authorization hold protects the merchant and the bank from loss by allowing them to (1) verify that a card is valid, (2) check that the customer has enough money account to pay the charge or potential charge, and (3) reserve a block of money so that the customer’s money is not used to pay later charges.

Merchants and banks need such protection because they are not paid instantly on swiping a debit card. Instead, the transaction is processed through various banks, and it may take several days before the merchant or bank is paid. The length of the hold depends on the customer’s agreement with the bank.