Volume 3   Issue  37                      December   2004

                 

Debit Card Gaining Popularity but Lacks Safety of Credit Card
Fort Worth Star Telegram, By Teresa McUsic, December 13, 2004

 

More people are using debit cards for their holiday buying than any other form of payment, but these consumers aren't getting the same protection as with credit cards. More than 34 percent of shoppers plan on using debit or check cards as their primary form of payment during the winter holidays, according to a recent survey by the National Retail Federation. That surpasses those who will use credit cards (29.5 percent), cash (25.9 percent) or checks (9.9 percent).

While quick and easy, though, debit cards come with risk. There are two distinct differences between them and credit cards, according to the Texas Society of CPAs:

• When you buy an item with a credit card and it proves to be defective, you may withhold payment until the issue is resolved, a right protected under the Fair Credit Billing Act. On the other hand, the amount of a debit card purchase is deducted from your account at or shortly after the transaction occurs, and you're on your own if something goes wrong. The bank won't redeposit the money in your account for items that fail to be delivered, are of poor quality or don't work. Debit cards may be a great way to pay for gasoline or groceries, but for big-ticket items a credit card offers more consumer protection.

• If someone steals your credit card, your maximum liability under federal law is $50, and most card companies even waive that. With a debit card, your liability under federal law depends on how quickly you report that the card has been lost or stolen.

For example, if you report the loss within two business days after you realize that the card is missing, you will not be responsible for more than $50 of unauthorized use. Your liability increases to $500 if the lost or stolen card is reported within 60 days.
Failure to report unauthorized use within 60 days after your bank mails you the statement will expose you to unlimited loss. You can lose all the money in your bank account and, perhaps, the unused portion of any line of credit established for overdrafts.
As with credit cards, once you've reported the loss of your debit card, you cannot be held liable for additional unauthorized use after that date. Some debit card issuers offer more protection than the law requires. These are voluntary measures, however, and could change at any time.
While debit cards have their drawbacks, most personal finance experts say they're better for budgeting and spending within your means. The ideal mix may be to use your credit card for the protection but act like it's a debit card, and pay it off each month.
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