A credit hold is not a credit charge

Recently, a sharp-eyed ITN reader booked a Holland America Line cruise to Alaska for 18 days, paying for herself and her roommate. Three weeks before the cruise, she received from the cruise line a puzzling document requiring her to sign and send back a preauthorization to hold $60 worth of credit per person per day for the cruise. For the two travelers, this added up to a substantial $2,160.

She protested to Holland America and informed ITN, saying that she hardly ever bought things on board, that it was not clear that she would get this amount back if she did not spend it and that she had never encountered this kind of document before.

Your intrepid investigative reporter (that would be me) immediately swung into action. I interviewed the passenger and several Holland America senior staff and established the following interesting facts.

• The cruise line was putting a credit “hold,” not a credit “charge,” on the passenger’s credit card. In other words, if she had a credit limit on her card of, say, $5,000, this credit hold would reduce her credit limit to $2,840 ($5,000 minus $2,160). Thus she would be unable to charge any more than $2,840 for other items on land on that particular card before and during the cruise. (Of course, she could use other credit cards, which would be unaffected by this credit limit reduction.)

• If the passenger and her roommate were parsimonious and managed to spend, say, zero on shipboard items during the cruise, her credit card would be charged nothing. At the end of the cruise, when she settled her account, her credit limit would be restored to $5,000 when the cruise line notified the credit card company that the credit hold should be lifted.

• If a passenger believes that the amount of the credit hold is excessive, then she/he can object, and the amount per day can be negotiated down to a more realistic level. Our passenger did just that and managed to get the credit hold negotiated down to a level of $20 per day instead of $60.

• If a passenger has credit limit problems, she/he usually can work with the cruise line to pay off the account partway through the cruise, charge with another card, make a cash deposit or otherwise assure the line of good faith and creditworthiness.

The problem to be addressed

Cruise lines are placing credit holds in advance because they have occasionally been “burned” in the past. How can this happen, since every charge on board is authorized by the credit card company?

In fact, each charge is NOT individually authorized when it occurs. This is because cruise ships often operate in remote areas and have very high telecommunications costs to check with the shore when they are at sea. Thus, if I am on a cruise and want to charge a $6 martini (shaken, not stirred), it is not worth it to the cruise ship to send a $10 satellite message to the credit card company asking if it is okay.

What happens is this. Let’s say I tot up a bar bill of $6,000 (100 martinis per day x 10 days x $6). When we reach the final port and I go to settle my bill with the purser, that entire amount of $6,000 is sent all at once to the credit card company for processing. If my credit limit with that company is only $5,000, then it will process the $5,000 in the normal way (and the charge will appear on my next credit card statement) but refuse to process the additional $1,000.

The credit card company’s position will be that the cruise line should have checked first to ensure that the credit limit was not being exceeded. That $1,000 thus will become an amount that the cruise line must obtain directly from me. The line will try to get me to pay cash, write a check (hmmm) or put the charge on another credit card. If I cannot do any of these, then the cruise line will be stuck and may end up having to take a loss.

Of course, the line could sue me or report me to the police for fraud or report me to the credit bureaus or take other legal measures, but all this is expensive and will probably not yield up the $1,000 owed.

Most lines have passengers set up credit holds upon arrival on board, either during the dockside entry procedure or during the first day on board. But occasionally there will be problems with this, since some passengers may have forgotten or lost their cards or may not have sufficient credit limits or may already be over their limits.

And a very few passengers may be scam artists who are trying to take advantage of the cruise lines. Have you ever heard those plaintive announcements over the intercom on board during the first few days at sea: “Will Mr. Smith please report to the purser’s office? Will Mr. Smith PLEASE report to the purser’s office?” Often, these announcements have to do with credit problems.

So some cruise lines, like Holland America, have set up credit holds before the cruise begins in order to avoid credit limit problems. This seems reasonable to me. It was also reasonable to our passenger, once it was properly explained to her.

Points to remember

For our ITN cruisers, the morals of this story are as follows:

• A credit “hold” is not a credit charge. But be sure it is just a hold.

• Negotiate down the per-day amount of the hold, if the amount proposed seems excessive, based on your history on previous cruises. Remember that charges that you likely will make will include bar bills (all those martinis), spa treatments and shore excursions (these can be expensive), purchases in shops on board the ship (a new diamond tiara for the Captain’s Ball), etc.

• Cruise lines are willing to work with passengers who have low credit limits or other credit issues. If in doubt, call ahead.

• Ensure that you have a sufficiently high credit limit on your primary credit card to withstand a high credit hold.

• Be sure you have one or two backup credit cards, each with substantial credit limits.

• Stop worrying and have fun on the cruise!