A pre-authorization is simply to determine if you have a maximum available credit line, not that they will actually charge you that amount. A good example is when you order a pizza to be delivered to your home. The charge for the pizza may be $20.00 but you can access your bank account online and see a pre-authorization for $26.00. The reason they have pre-authorized the higher amount is because they want to be sure you have enough money to cover the cost of the pizza and in the event you want to provide the delivery person a tip, they are also ensuring your credit line will cover the tip as well.
If they only authorized the $20.00 and you wanted to leave a $4.00 tip on the card, the entire transaction would decline and they wouldn't get paid for the pizza because of the tip amount being included as one authorized amount.
So a pre-authorization is simply a way for the merchant to ensure you have the maximum amount of funds anticipated to be spent available within that credit line. They can convert the pre-authorized amount to any actual amount to be debited from your account later on as long as the actual amount being debited is less than or equal to the amount of the pre-authorization.
Debit card, sometimes can't be pre authorized. Meaning that if it is pre-authorized by some amount, that amount would be deducted from your debit card right away. And it takes longer time to refund
This topic is very sensitive and some how technical in understanding. I would like to explain Pre-authorization first. In fact, Pre-authorization is evident from its name that seller will swap your card to obtain approval from the issuing authority equal to the amount that you have spent and expected expenses amount from your bank are secured. Then the bank will allocate an approval code and seller will get money through that approval code at the end of the purchase.
While charge on credit card means taking the money from your limit physically. For example, some one is getting a room in a hotel and room per night fare is $100, so the hotel's front desk officer will swipe the credit card and will authorize $100 against your card and bank will give a certain approval code which means that bank is guaranteeing the existence of that certain amount in credit limit, when you will check out, the hotel will charge the card to obtain that money from your bank account.
Pre-authorization will always be reflected with Minus Sign on your online credit card detail and when hotel will charge your card, the sign will automatically change to positive, means that money is taken by the hotel out of your credit line.
Has anyone ever heard of a pre-authorisation charge, supplemental to the actual final bill of your hotel stay? I just stayed in a well-known hotel. My debit card was swiped on check-in and I agreed that I would be using that card to pay the charge for the room and dinner on check out the next day. I paid the bill on departure, then discovered today that they had charged an extra 200euros. I called the hotel to question this, and they told me it's a pre-authorisation fee held as security, which will be refunded to my account in 3-5days. I was never informed of this when I was at the hotel and have never come across this in any hotel. I work for a hotel group and we certainly don't carry out this kind of behaviour, and yet the staff member of the hotel told me 'it's common practice'.
Is pre-authorization of a credit card without consent of owner illegal?
In our company - The account operates on a prepaid basis so the monthly fee is payment for the coming month. We require a document called "Pe-authorized payment form". That document serves as an "authorization" and "by signing" on the form, you agreed to the terms and conditions that, you authorize the company or the merchant to charge your credit card as payment for the service; and as an account holder, you are responsible for all charges incurred; and you authorize the company or payment processor to charge your credit card or debit your bank account through direct debit for all outstanding amounts.
This pre-authorization process is just another way for banks to run up fees. With all of the technology we have today credit card processing networks should have the ability to collect funds from your account in real-time. This technology exists today banks just fail to implement it.