What stops someone from repeatedly charging a debit card?
In order to provide some context to my question:
I recently rented a car from a company. They required a deposit before handing me the car, as insurance. So I used my debit card, I entered in the card reader and gave my pin. The transaction was completed and the amount appeared in the my bank statement.
Due to a mishap, the car broke down and I was to be charged for the whole amount of the insurance deposit, plus an additional fee. The company charged me the additional fee without needing my card or my pin (or my consent for that matter, as I only saw the additional charge through my bank statement).
So my question is as follows:
What stops them from doing this again? They could have just as easily charged me for any amount, and keep charging me in the following weeks, months...
What is the difference between the first payment (with the card reader and pin) and the secondary charges?
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Technically, lack of money on your account. Please note that debit cards might include a credit limit. In any case, closing the card will make it unable to charge it.
However, it won't stop them from sending you a bill.
Charging you at will is a fraud, so no serious company would do that - you can easily change your apartment to one with 'swedish curtains' for something like that. If they charge you because they think you are responsible for the damage to the car, and you believe you're not - you can take the case to the court, but you risk paying much more (court costs inclusive) if you loose...
When I charge a meal on my credit card, it's "rung up" but I don't add the tip until the server returns with my card. When I first noticed this, it occurred to me that the card issuer must be aware the charge will come back a bit higher, up to 25% or so.
When I check into a hotel, I present a card, but no actual charge occurs until after I check out. On my credit card, I have enough to cover my stay, but a debit card needs to freeze a higher amount. The hotel doesn't know whether you'll charge meals to the room, or binge watch movies, etc.
The same goes for renting the car. Far more than the actual rental is 'frozen' for a brief time for exactly the situation you described.
To John's comment, this is exactly why anyone steering people away from credit cards, under the premise that "all debt is evil" are setting the reader/listener up for this exact issue. Charging, and paying the bill in full (or even paying the amount when you get back home, the day the charge hits the account) should not be confused with debt. To be clear, legally, of course it's debt. It's just not the "18%/yr, average family owes 45 on credit card debt" that you should avoid. It's no different than the plumber who is kind enough to bill you. You get the bill, you pay it in full.
What stops them from doing this again?
There are different kinds of set-up. In this case if you read the fine print, you have authorized the Car Rental to charge you/your card. So there is a backing contract authorizing explicitly your agreement by you signature. Now the Car Rental would negotiate with the Card Bank, saying if they have the right paper authorization, they would not need any PIN. Of-course there is also a safeguard for the card company, if you refuse, they would reverse the charges. If you file a law suite against your bank, they would point it to Car Rental company, which in turn would show you the legal contract you have signed.
So thus no large organization would try to recover something via this mechanism. The Banks will not allow small organizations this facility to charge without card being present.
What is the difference between the first payment (with the card reader and pin) and the secondary charges?
The first one are treated as fully authentic transactions and the second are treated as "Card Not Present" transactions and follow a slightly different regulation.
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