Hotel pre-authorisation charges on your credit card: What they're for and why we're stuck with them

You've just rocked up to the check-in desk at your hotel and now comes a sour note. You're being asked to hand over your credit card so the hotel can take a deposit of $100, a pre-authorisation in hotel-speak. That's $100 for every night you're in the hotel. But you've already paid for your room, the hotel has your credit card details to cover any extras, what's the problem?

Correct, but the hotel wants to make sure there's enough in your account to cover any amount you might charge to your room by way of food and beverage, laundry, spa treatments and that late night raid on the mini-bar, should you be so foolish. If you walk out at the end of your stay without settling those charges, it becomes more difficult for the hotel to claw back what it's owed than if the hotel already has a lock on some of your funds.

According to Rodger Powell, Managing Director of Tourism and Hospitality Services AustralAsia, "Hotel theft is common, people still walk out without paying their bill, there's quite a lot of fraud. I just phoned three of the hotels I work with and all three had all found someone using a stolen credit card, caught when the pre-authorisation was denied. That's just in the last month. In one case the hotel was able to alert the police while the perpetrator was still in the hotel and the police made an arrest."

Another example - suppose you're a walk-in, a guest that shows up at the check-in desk without a reservation and books a room using a credit card. Since the guest is not charged until they check out, the hotel has no way of knowing whether the card is legitimate, but a pre-authorisation will confirm that straight away.

Note that the pre-authorisation is not a charge. Rather it's a block against your credit or debit card. A pre-authorisation of $500 means your spending limit is reduced by $500. That's why it's important to use a credit card rather than a debit card or a travel money card for the pre-authorisation, since it's only your credit limit that is reduced, rather than your access to cash on a debit card.

Not all hotels request a pre-authorisation, says Rodger Powell. "Of the hotels I just spoke to, none require a guest's credit card for a pre-authorisation except in a few circumstances. So for example if a business has already paid for accommodation for one of their employees then the hotel might require a pre-authorisation on check-in to cover incidentals, since the corporate account will only cover the cost of the accommodation. The alternative is to say to the guest 'Okay, you can check in but you can't charge anything back to your room', and that's not very convenient".

Also, "Industry sources tell me that the requirement for a pre-authorisation is more prevalent when the guest books a hotel room online through third parties." The hotel room is paid for but the hotel has no access to the guest's credit card and therefore the pre-authorisation is necessary since it guards against the possibility that the guest might do a runner.

Why are pre authorisations so high?

Another issue that frequently annoys guests is the size of the pre-authorisation. It's not uncommon to find yourself facing a demand of $100-200 for every night of your stay. If you're in a fancy resort or a Paris hotel frequented by rich folks, your pre-authorisation can be several hundred dollars per night. According to Rodger Powell, the reason is the hotel wants to make sure the pre-authorisations amount is greater than the guest's charges, even if they let their hair down.

Suppose a guest's credit card is blocked for an amount of $500. If their bill for extras comes to $700 when they check out, the hotel won't simply add an additional charge of $200. Instead the hotel bills that $700 as a separate charge. The guest's spending limit on their credit card is thereby reduced by $1200, until their financial institution releases the initial $500 pre-authorisation.

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Why does it take so long to get my pre-authorisation unblocked?

While the requirement for a pre-authorisation against possible charges might sound fair and reasonable, a major cause of heartache for guests is the lag between the time they check out and the time when the block on funds is lifted. When you check out, the hotel advises the financial institution behind your credit card that the account has been settled and the block on the funds can be lifted, but that doesn't happen immediately. The hotel has no control over that part of the process, but it can take as much as 10 working days for the block on the pre-authorisation to be lifted.

That can become a big problem when you're away for an extended period, hopping from one hotel to the next. Those pre-authorisation blocks accumulate, and if your financial institution is slow to unblock the funds after you've checked out, you could find yourself running out of credit. Worse still if you're using a debit card or a money card to which you have deposited funds.

The car-hire industry catches on

Car hire operators have now got in on the act. At the beginning of February I picked up a hire car from the East Coast Car Rentals office close to Gold Coast Airport. "Would I like to take advantage of East Coast's insurance, thereby reducing my excess liability from $4400 to zero," I was asked at the rental desk? That would add just over $300 to the cost of my 14-day car hire, and since I already had excess cover through my ANZ Rewards Travel Adventures credit card, I declined.

In that case, I was told, I'd have to leave a deposit of $1000, blocked against my credit card and unblocked when I returned the vehicle with no damage and a full tank. But if I accepted the East Coast Rentals insurance package, that deposit would go away.

How is this anything but a naked attempt to lever me into paying for the car hire operator's insurance, much of which goes into the pocket of the car hire operator by way of a commission. A quick survey of other operators in the car-hire game confirms that the practice is now widespread, but a $1000 deposit is head and shoulders above what most are asking, with $200 a more common figure.

Limiting the pre-authorisation pain

While it might be difficult to avoid the pre-authorisation, there are ways to lessen the pain. Book direct with your hotel, find out what the pre-authorisation amount is and use a credit card.

Yet another strategy, use cash for the pre-authorisation. Instead of a credit card, hand over cash to cover the full amount of the pre-authorisation when you check in and get a receipt. At the end of your stay you'll get your cash back minus any charges. You need to do this in local currency, and that gets complicated if you're travelling in several different countries, but right now, that's one problem you don't have.

See also: Others can, so why can't Australians travel overseas?

See also: Twenty things you never thought you'd miss about travelling

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