A debit card is a useful money management tool. It provides credit card-like access to purchases, but the money comes directly from your checking account, not from a line of credit. Many people prefer to use debit cards in order to avoid the pitfalls of credit cards. Some banks and credit unions even offer rewards programs similar to credit card rewards programs. For example, Target offers the Redcard Debit card that offers 5% off of each purchase, just like the Target credit card does.
However, there are some very big differences between credit cards and debit cards when it comes to fraudulent charges.
Debit Card Charges Fraud
One of the major differences between a debit card and a credit card is that a debit card can be used both as a debit card, via a PIN number, and as a credit charge card, via a signature. If you use the PIN number method, you must enter your PIN into a little terminal. Never give your PIN or say your PIN to the person conducting the transaction. If you cannot enter your PIN secretly, then process the transaction as a charge transaction instead.
The PIN number provides a little bit of extra protection because just having the card, or card number, is not enough. However, since most debit cards can also be used as a charge card, even the bad guys get your number, they can still make fraudulent charges without the PIN by asking for the transactions to be processed as charges.
The standard rules for protecting your debit card are the same as for protecting your credit card. Keep a close watch on your cards and don’t let others use them. Don’t expose the number, or the security number on the back. If you lose your cards, report the loss immediately. Don’t hope that you can go back and find it somewhere. By the time you go see, the thieves could already be making charges. Or, particularly clever thieves could have copied down all your card information, and then put it back where they found it. Then, you won’t be on the lookout for fraud like you would be if you lost your card.
What To Do for Debit Card Fraud Charges
The best protection against credit card fraud and debit card fraud is to carefully watch your accounts. Reviewing your statements every month is a good start, but you really should be checking even more often than that. Use your bank or credit union’s online banking tools to keep an eye on your account at least weekly. That way, the thieves won’t have so much time to clear out your account.
Services like Credit Karma and Credit Sesame offer free credit monitoring. They’ll send you an email if something negative gets reported to your credit card. However, that can take months, so you need to manually watch your accounts.
If you ever do notice something fraudulent or suspicious on your card, call right away. Since many cards are issued by banks, many people make the mistake of waiting until the bank is open to report any problems. That could be several more hours’ worth of fraud, or in the case of a weekend, a few days. Even if your bank is closed, there is a 1-800 number on the back of your card, or on the bank’s website. That is a 24-hour number. Use it. Use it, right away.
Don’t hesitate to cancel your card. It’s better to shut the theft off at the source. Most merchants use credit card terminals to process debit card transactions. As soon as you report your card stolen, or cancel it for fraudulent charges, those transactions will start being denied. That will save you a lot of time and effort. It can also help save your credit score. Unfortunately, many merchants will make a claim on your credit report when your transaction is reported as fraudulent, and the money is reversed. You can, and should, get that removed, but it’s better to never have the problem at all. Many banks and credit unions can issue you a new card on the spot. You won’t even have to wait for it to come in the mail.
Liability for Debit Card Fraud
The good news is that there are limits that you can be liable for debit card fraud, if you report it right away. You have no liability for any charges made after you report fraud or a stolen card. It is the financial institution’s job to stop and reject those transactions.
However, you can be liable for transactions made before you report any loss or theft of a card. If you report the loss or theft of a card within two business days, your maximum liability is $50. If it is more than two business days, then your maximum liability rises to $500. So, it’s important to report it right away.
If someone makes fraudulent transactions with your card, but you have not lost your card, then you are not liable for any amount.
Here is where it gets sticky, and where a credit card is better for fraud protection.
If someone fraudulently charges $500 to your credit card, and you report it right away. The $500 balance for that charge is still on your card. However, your credit card company will not make you pay that portion of your balance while they investigate. The only way this will have any practical effect on you is if that amount puts you over your credit limit. Then, you might not be able to use that card until your credit card issuer does something about it.
On the other hand, if someone fraudulently uses your debit card, it lowers your checking balance. You could be bouncing checks before you even know it. If you have debit card overdraft protection, you could be racking up overdraft fees. While the bank will eventually refund most of this and sort it out, you may be out of money in the meantime. In other words, the processing and refund time can actually harm you financially.
Overall, it’s often best to use a credit card and pay it off every month, rather than use a debit card, if you are able. While you’re at it, you might rack up enough points to get something interesting out of your credit card rewards catalog.
No matter what you use. Report theft or fraud right away and keep an eye on your balance and transactions.