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Is a debit card still a debit card if you choose ‘credit’ option?: Money Matters

November 25, 2018

Is a debit card still a debit card if you choose ‘credit’ option?: Money Matters

Q: Regarding the use of a debit card for EVERYTHING we buy: We’ve discussed using a credit card instead of the debit card for purchases. However, my wife says it’s already a credit card because it has the MasterCard logo on it, and we can choose “debit” or “credit” on purchases. But I don’t think it can be both. Your thoughts?

T.F., Lyndhurst

A: If the transactions are deducted from your checking account, it’s a debit card. Period. No matter what logo the card says.

When you’re choosing “debit” or “credit” at the point of sale, that just indicates which network your transaction will be processed through before the money comes out of your checking account. With a traditional credit card, the money doesn’t come out of your checking account at all; you get a bill and then you pay it later.

Again, the pretty logo (MasterCard, Visa, etc.) just indicates which network is used to process your purchase. That doesn’t make it a credit card.

While we’re on the topic of the dangers of debit cards, particularly on a primary checking account, let’s revisit the guy I wrote about earlier this month who had $22,000 stolen from his checking account at Dollar Bank because he had a debit card connected to the account. (It took a few months and an intervention for him to get his money back.)

If you’re still using a debit card on your primary checking account (if you must have a debit, at least have it connected to a secondary account that doesn’t hold all your money for important bills, etc.), here’s what you need to know about debit cards and credit cards:

If you have a problem with a credit card transaction, such as fraud, you don’t have to pay the amount in dispute while it’s being investigated. With a debit card, the money is already gone from your checking account, and you’re trying to get your own money back.

Debit card fraud has been rising by about 30 percent a year the past few years.

Debit cards are more vulnerable to fraud than credit cards, according to the Identity Theft Resource Center in California, a nonprofit consumer education organization.

The reason: Account monitoring isn’t as thorough for debit cards because the transactions are processed through different networks. Credit card networks have more thorough histories on individuals so they can better detect suspicious transactions. The debit card network, however, can rely only on a person’s transaction history with that specific bank -- not the entire MasterCard and Visa system.

Banks are less likely to freeze debit cards (vs. credit cards) when they do notice something suspicious. The reason: The bar is higher to block people from using their own money.

In one national study, the typical case of debit card fraud amount exceeded $2,500, and consumers ended up with $800 out-of-pocket that they didn’t get back.

Credit cards offer protection under the federal Fair Credit Billing Act. This means you can refuse to pay for products or services that you didn’t get or that are defective. There’s no such protection with a debit card.

If you use a debit card, and a fraudulent charge or a billing error causes other payments to bounce (like your mortgage or cell phone payment), you will be hit with hefty overdraft fees (maybe $35 each) and will probably have difficulty getting the fees refunded.

Debit card authorizations can tie up your money. Gas stations, hotels, rental car companies and other merchants may put a three-day hold on more money than you will actually be spending on a particular transaction. You can’t use that money until the hold ends.

This temporary hold on your own money could cause other payments to bounce even though you really have enough money in your account. You have no recourse for this.

Your protection under federal law stinks with a debit card, compared with the protection offered by credit cards. With a credit card, your liability in case of fraud or errors is limited to $50 if you notify the card issuer within 60 days after the statement listing the transaction is mailed. With a debit card, the $50 liability limit expires two days after the fraud. Then your potential liability goes up to $500.

Banks desperately want you to believe that debit cards are safe. However, that “zero liability” promise is voluntary, not the law. It can change any time.

You don’t necessarily have protection against errors with debit cards. In many cases, banks regard errors by a merchant as a “billing dispute,” not fraud. You’re on your own to get it resolved.

With billing disputes, the banks sometimes tell you to get the merchant that made an error to pay the overdraft fees. Yeah, right. Like that’s going to happen.

About one in 14 consumers has been hit by debit card fraud in the past five years.

While many consumers get most of their money back in debit card fraud cases, they generally have to wait seven to 10 days while the bank investigates.

In the typical case of debit card fraud, consumers spend 28 hours making phone calls, dealing with their bank and filing police reports.

Debit cards are often a bigger target for thieves because they can mean cash since they are linked to someone’s bank account. While getting money from an ATM or getting cash back from a transaction at a store requires a PIN, fraudsters are getting more sophisticated, according to the American Bankers Association.

And these incidents of fraud involving cash are becoming more common following security breaches by major retailers in recent years. In some cases, thieves have figured out how to tamper with checkout-line PIN pads and install skimming equipment to capture information. Using a card with an EMV chip in a terminal with a chip reader reduces your risk.

Most banks and credit unions say the best way you can protect yourself is to monitor your account daily for suspicious activity or sign up for text or email alerts for activity or balance thresholds. And that’s true. Banks rely heavily on customers -- you -- to flag problems.

If you ask your bank, I mean really press the branch manager, he or she will acknowledge the bank can’t completely protect you from debit card fraud that wipes out your accounts, leaves you without cash or causes other transactions to bounce. They can only help you after the fact. If they say they can absolutely protect you from debit card fraud from ever occurring, have them call me at 216-316-7064.

To reach Teresa Murray, email moneymatters@plaind.com or call or text 216-316-7064. She cannot respond to all queries or comments.Previous columns: cleveland.com/moneymattersOn Twitter: @TeresaMurrayOn Facebook: www/facebook.com/MurrayMoneyMatters

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