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Useful Credit Card Rules and Laws - What About Debit Cards?

The Consumerist article titled "10 Things You Might Not Know About Your Credit Card" has some useful information regarding credit cards. Out of the 10, I found the following most useful to know:
The Maximum Liability For Unauthorized Use Of A Credit Card* Is $50 According To Federal Law

Merchants Cannot Require A Minimum Transaction Amount

Merchants Cannot Charge A Surcharge For Using A Credit Card, However, They Can Offer A "Cash Discount"

With the rewards checking accounts requiring debit card usage, some readers have expressed concern about debit cards lacking the liability protection that credit cards have. With credit cards, it's nice to know that you're liable for a maximum of $50 for unauthorized use. There doesn't seem to be the same protections for debit cards, and unlike credit cards, when you buy something with a debit card, the money comes right out of your checking account. Here's what consumer advocate Clark Howard says:
Sure it looks like a credit card, and it works similarly to one, but it can really foul you up in ways that a traditional credit card can not.

One thing we can do to reduce problems with our debit card use is to limit it to small purchases. Stick with credit cards for large purchases and purchases over the internet. Using credit cards for large purchases also has the advantage of earning cash back rewards. I'm continuing to do more research into this issue of debit cards. If you've already looked into this, please leave a comment.

To learn more about reward checking accounts, please refer to my High Yield Checking website.

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  |     |   Comment #1
I work for Fifth Third Bank. The debit cards we issue DO have the same protection offered by mastercard IF you use it as credit and do not use debit (enter pin) at checkout.

When you use it as credit it is processed through the mastercard network, if you use debit it is processed through an ATM network, ie allpoint or star.

However, I do believe a bank has to join a certain program for its debit cards to have those mastercard benefits. So check with your bank! Or come to Fifth Third, we have awesome cd rates right now haha
  |     |   Comment #2
My biggest concern is if I were to have my wallet lost or stolen, someone can go on a spending spree with $25k in my account.

But, despite the #50 limit on CCs, most Ive heard of wont even make you responsible for ANYthing.

I wonder if the banks so the same for debitcards ?

Id like to see banks allow us to put a maximum tranaction limit on the debitcard so the possibility of losing big # is reduced.
  |     |   Comment #3
On the topic of "Merchants Cannot Require A Minimum Transaction Amount" - I've had many arguments with merchants over their $5 and $10 minumum credit card purchase requirements. I tell them they are in violation and I will report them. Some back off and take the card. Other's don't - and I happily report them to MasterCard. I do understand their frustrations though. If I charge a 25 cent item - it costs the merchant more than 25 cents in fees to MasterCard. Sounds like the merchants and MasterCard need to work out something for small dollar amount purchases so the merchant doesn't lose money on the transaction.
  |     |   Comment #4
"My biggest concern is if I were to have my wallet lost or stolen, someone can go on a spending spree with $25k in my account.

Id like to see banks allow us to put a maximum tranaction limit on the debitcard so the possibility of losing big # is reduced."

Major banks around here do. In fact at Fifth Third you can set the limit you want. Something very annoying with our system tho is the MAX you can limit it to is only $4500. So if you want to make a very large purchase you have to write a check.

So again, check with your bank. A lot of people don't even realize there is a limit, even less know you can change it to your liking.
  |     |   Comment #5
I don't know enough about the workings of debit cards to comment on the things mentioned here but in the last couple of weeks I was in two stores that had signs up saying they no longer accept debit cards. Don't know if this is a sign of things to come or not. Profit margins are so small on gasoline it wouldn't suprise me if some small gas stations go to cash only. There are a lot of reward debit cards out there.
  |     |   Comment #6
In addition to the debit cards used with rewards checking accounts, there is at least one debit card that pays rewards: my WaMu atm/debit card pays 3 cents per transaction!
  |     |   Comment #7
Eddie, to you have a piece of paper with your ATM card PIN on it?
  |     |   Comment #8
Tap the credit button & not debit. Check with your debit card banks, with mine they would rather me press credit than debit. It cost less on the banks end when doing this. Bank Deals run a in depth article on this subject.
  |     |   Comment #9
I know many merchants who have posted sign telling the minimum amount that you can charge, usually $10. Nothing happens to them even if you report to MC or V.

On the other hand many charities will accept even 10¢ because they probably get free card processing. I use several of them to meet my Reward checking requirements. There is a site that advertises that you can just charge 30¢ and he makes a profit in the deal.
  |     |   Comment #10
Eddie, if my fifth third debit card is stolen and used, will my money never leave my account or be under a debit hold?

I doubt it, so no, it does not have the exact same protections.

If I use a credit card there is no way I will go to an ATM and be denied money from my own checking account because of a transaction processed on my credit card.
  |     |   Comment #11
One thing regarding debit cards a lot of people don't know is that you can call up your bank (at least with bofa) and ask them to reject paying overdrafts. This will enable you to avoid getting hit with the OD fees when you use your debit card. Of course, you will need to have some cash of a credit card on hand if you want to be able to purchase the items and some people might be embarrassed. Also, at bofa, you have to make the option for both checks and debit card. I wanted to just have them reject debit card transactions if it would be an OD, but allow the checks to be paid, but it's all or nothing with them.
  |     |   Comment #12
called my credit union. Im liable for up to $50, and it may take 10 days for the money to be provisionaly returned. When they determine the card was indeed fraudualently used, the provisional will drop off.

Regarding using Credit or debit, the merchant WANTS you to use debit while the banks want you to use Credit.

Aldi only takes debut.
  |     |   Comment #13
Even if you have a wonderful, responsive bank that does not hold you liable for any fraud and quickly credits your account, the problem is what happens between the time the fraud takes place and it is discovered.

Say someone gets ahold of your debit card number (or you don't notice your card is missing) and goes on a shopping spree. Until you realize what has happened, all of your checks will bounce. Most people don't check their account balances hourly or even daily or weekly. The first time most people will realize there is a problem is when their landlord calls and tells them their rent check bounced.

Yes, you do have rights with a debit card and most banks actually cover you for more than the law requires. But that won't help you when checks you wrote for your rent, mortgage, utility, and credit card bills bounce while the money is missing from your account, even if the bank later returns the money.
  |     |   Comment #14
It is better to use a ATM card instead of DC or CC because even if it is lost, the thief cannot use it without your PIN.
  |     |   Comment #15
"It is better to use a ATM card instead of DC or CC because even if it is lost, the thief cannot use it without your PIN."

That is exactly the point. With an ATM card, PINS are a must for each transaction. With Debit/Check cards, when they process it through the "credit" button, it does NOT require any pins. It's processed as a credit card transaction and a signature is all that's needed--if at all.

My biggest concern--and it's the primary concern why I have not opened a rewards checking account--is that one is forced to frequently use, and thus carry regularly, a debit/check card. If my wallet were to be stolen and the thief discovered that I had this debit/check card in my wallet, he can go on a spending spree and take out thousands (25k-50k depending on the reward checking account) before I discover the theft. But unlike a credit card, the charged amount is immediately taken out of my checking account. Even if I dispute the charges, that amount is already gone from my account. I won't have immediate access to my own money during this dispute resolution process. Credit cards are completely different in that it was never your own money that was "charged/stolen". Your own money is still safely tacked away in your own separate checking/savings account.

Additionally, don't let the fact that MasterCard or Visa having certain policies delude you into believing that would be equal to federal law protection.

Whatever MC/Visa implement as policy, they can just as quickly change/alter/rescind. And you'd have to fight/litigate MC/Visa through civil court for your remedies. Whereas with federal law protection, you're well protected and you'll have the FEDs on your side to prosecute if the violations are flagrant and widespread enough.

Bottom line, MasterCard/Visa having their own policies is NOT enough. We need federal law that will protect check/debit card transactions in the same way as credit card transactions are currently protected.

I do NOT feel safe at all carrying a debit/check card with me on a daily basis. In fact, I have NEVER accepted any debit/check cards to date. I have always declined them and asked for an ATM card replacement. I strongly feel debit/check cards are just catastrophes waiting to happen if you carry them with you on a daily basis.

ATM cards are much safer than debit/check cards because of the PIN code required for any and all transactions.

I would feel much better if ALL debit/check cards required a PIN code for any and all transactions just like the ATM cards currently. Then I would feel somewhat assured even if my wallet was stolen.
  |     |   Comment #16
I only have credit cards and ATM cards. Debit cards are useless and a liability.

Banks try to send you a debit card instead of an ATM only card. I always cut them in half and ask for a ATM card.

There is no good reason to have a debit card.
Bill in NC
  |     |   Comment #17
What the last 2 posters said.

As a former (reformed?) banker, I'd never use a debit card.

Debit cards are for the convenience of the _bank_, not the consumer.
  |     |   Comment #18
Most debit cards have a daily maximum of 15 uses per day, and also a daily max on the amount of money you can debit. I don't care if you have 25,000 dollars in your account, just try to buy a 700 dollar TV at Best Buy with your debit card. Unless you clear it ahead of time with the bank, it ain't gonna happen. There are safeguards, but not as good as a credit cards

With a credit card you can do a charge back on any amount of a purchase, if your not happy with you purchase. Most banks say they can't with a debit card.
  |     |   Comment #19
You don't have to carry DC with you for the use of Rewards checking. I conduct 10/12 small transactions online
within half an hour each month and then forget about it. My DC is always safe in safe deposit box.
I just carry 3 credit cards on my person a MC, a V and a Discover in my keyring. I use D to get cash at grocery store and don't ever use an ATM machine to withdraw cash.
  |     |   Comment #20
"I conduct 10/12 small transactions online
within half an hour each month and then forget about it."

How about some examples of these small online transactions so that we can all analyze and see if it'll work for our banking needs.
  |     |   Comment #21
Nistuj, it doesn't work exactly the same no, obviously because it does come right off your account instead of being billed.

But it is the same sort of protection. The bank has nothing to do with it. The bank submits a dispute to mastercard/visa, they issue the refund.
  |     |   Comment #22
"Enjoy the following Gold Benefits with your Fifth Third Debit MasterCard. For more details, view our Guide to MasterCard Benefits (PDF)."

Which lists the benefits we've come to enjoy with our mastercard credit cards.


With a checking account, yes it comes right out of your checking account. But it doesn't come off your credit card bill until they've decided you aren't liable for it either.
  |     |   Comment #23
"With a checking account, yes it comes right out of your checking account. But it doesn't come off your credit card bill until they've decided you aren't liable for it either."

Very true. But at least my rent check won't bounce between the time that the thief takes the money (which may be days before I first realize there is a problem) and the time the bank makes its decision.
  |     |   Comment #24
"There is no good reason to have a debit card."

Debit cards have one advantage I don't believe was mentioned here:

'Cash back'

You can make a $15 purchase (e.g.) and ask for $20 in cash, making your total purchase $35.

I've found this useful when I needed cash and wasn't near a bank that wouldn't charge me an ATM fee to make a withdrawal.

As for the fellow who makes 25 cent credit card purchases, well . . .
  |     |   Comment #25
Eddie: With a checking account, yes it comes right out of your checking account. But it doesn't come off your credit card bill until they've decided you aren't liable for it either.
True, however you don't have to pay any disputed amounts until they are resolved with a CC, however it leaves your checking account ASAP even if you dispute it and then you wait for it to come back.

As for the cash back aspects of a debit card, if you use the card with a PIN you have NONE of the Visa or Mastercard protections.
Jason Kilborn
  |     |   Comment #26
This is largely academic, but I'm an academic (I teach Payment Systems law), so here's the low-down on debit card fraud protection law: First, as one or more commenters have already pointed out, the big difference between CC and DC protection is that with a DC you're out the money for up to 10 days while the bank sorts things out, while with a CC, you just refuse to pay the charge, and the bank and merchant sort it out. Second, many banks (like Fifth Third, it sounds like) voluntarily limit or eliminate fraud losses on both DC and CC transactions. Finally, as to the law, a DC cardholder is responsible for the same FIRST $50 maximum as for a CC holder if the fraud/loss/theft is reported immediately. So as one poster mentioned, if someone goes on a spending spree with your DC, and you report the fraud immediately upon discovering it, as a matter of law, the bank must refund all but $50 of your stolen money--though again note that you're out the money for up to 10 days while the bank investigates your claim of fraud (and possibly longer if your bank wants to fight you--unlikely). The difference in fraud protection between CC and DC law (TILA v. EFTA, Reg Z v. Reg E) is that debit card liability can go further than the $50 if you DON'T report the fraud/loss/theft quickly. The cardholder is responsible for fraud losses up to $500 total dollars for all fraud occuring AFTER 2 days AFTER the loss is dicovered, and if the holder doesn't report the fraud/loss/theft within 60 days of receiving a statement with the fraud reflected on it, the holder is liable for ALL losses occurring after that 60-day period (watch out small business people with embezzling secretaries/treasurers with access to debit cards and statements). I NEVER use my debit card, and I asked my wife to shred hers for this reason. If you can control your spending, a CC is a FAR better payment device (for the range of protections the law now allows) than DC or even ACH transactions.
  |     |   Comment #27
Nistuj, nice comment. I only see a flaw; what is bank's definition and the court's definition of "reporting immediately". Some people may only check their account when they receive their monthly statements from the US mail. Others may check their account's required eStatements only once a month. Others may check it almost once a week. Of course, i'm hoping that even the Reward Checking accounts (that require eStatements) will send you a letter if your account reaches below 0 and charged with NSF so that one can say if charges were fraudelent and go through the painstaking of getting NSF, bounce check fees waived.
  |     |   Comment #28
"This is largely academic, but I'm an academic (I teach Payment Systems law), so here's the low-down on debit card fraud protection law"--Jason K.

Thanks for offering your studied comments. I'm sure we all appreciate it.

Are there bills being pushed in Congress to further protect DC users?
Jason Kilborn
  |     |   Comment #29
Unfortunately, no bills in Congress on this issue, and none expected. They can't even get behind the essential home mortgage market salvation bills, so offering more protection to DC users is not even on the radar. Indeeed, credit card holders in Europe don't receive the protections we have, and their CC system works relatively well, so I fear that Congress may reconsider the CC protections at some point.

By the way, as to the comment at 4:42, it isn't the banks that define "report immediately," it's federal law, and immediately is either within two days of discovering the loss/fraud (to avoid the extra $450 to $500 of immediate fraud loss) or to avoid unlimited losses later on, within 60 days of the bank's mailing (not the customer's receiving, as I said in my earlier post--I constantly confuse that rule) the first monthly statement with a fraudulent debit on it.

I would be happy to continue this discussion if you want more detailed information at jkilborn at jmls.edu.
  |     |   Comment #30
Since BG has again raised the issue of DC being required for Reward Checking and DC safety,
I would agree that one should not physically carry it but try to meet the requirements by online transaction only.
One should carry just one MC & one V in your wallet.

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