Posted on: Thursday, June 16, 2005

AKAMAI MONEY
Restaurant's gratuity figure cleared in final card transaction

By Lynda Arakawa
Advertiser Staff Writer

Q: I recently used my credit card to pay for dinner at a restaurant. I added a 10 percent tip, but when I checked my account online, it showed my card had a pending amount that was higher than the total I signed for. I called the restaurant and the manager told me that a 20 percent gratuity is added to all credit card purchases and that eventually it would be replaced by the actual amount I agreed to. Is this common practice?

A: While it may sound strange, local bank officials say this is common practice for food and beverage establishments and enables them to ensure that a cardholder has enough credit to cover the entire bill, including gratuity. They say consumers shouldn't be concerned because cardholders will only be charged for the amount they signed for at the restaurant.

When you pay for a meal by credit or debit card, the restaurant swipes your card and gets authorization from the issuing bank before you add any gratuity. Any tips will increase the final total of the bill, so restaurants take this into account and seek credit authorization for the initial bill amount plus an estimate of what the gratuity will be. The assumed gratuity is usually 15 percent to 20 percent.

If you check your credit or debit card balance online, you may see a temporary hold on this amount. But that should clear within a few days when the restaurant settles the transaction with the cardholder's bank.

"A hold by no means is an actual charge," said Keith Nagata, First Hawaiian Bank senior vice president. "It's just a hold pending a completion of the transaction. ... When you first have an authorization, it's just to check to see that there's sufficient credit (or) sufficient funds in your account."

He said it is good practice to keep all credit card receipts to compare against your statement, which should reflect the actual amount you signed for, not the authorization amount.

In the past, restaurants were penalized when the authorization and the settlement were beyond a certain tolerance, said Bank of Hawai'i spokesman Stafford Kiguchi. "Therefore, credit card terminals are programmed to add in that 20 percent gratuity. But that's for authorization purposes only. So if you tip less than 20 percent you still have that authorization temporarily outstanding against your availability."

Kiguchi said the actual amount the cardholder signed for is entered during the transaction. Any difference between that and the authorization amount is cleared.

For example, if your restaurant bill is $100 and you add a 10 percent gratuity, your total will be $110. But a restaurant assuming a 20 percent tip will seek authorization for $120. When the restaurant settles the transaction, however, only $110 is processed to your account and the additional $10 is released for availability.

Visa USA officials said financial institutions that issue Visa cards decide whether to place holds on cardholder funds and that Visa requires the card-issuing banks to release all holds when the transaction clears or within three business days of the authorization request, whichever comes first.

Reach Lynda Arakawa at 535-2470 or larakawa@honoluluadvertiser.com.