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The Dangers of Using a Debit Card

submitted on June 1, 2010 by pablos17 in "Member's Lounge"
"Consumers need to be particularly careful during vacation season because identity thieves come out in droves. That makes it pivotal that consumers keep their debit cards on ice, said Beth Givens, director of the Privacy Rights Clearing House and one of the nation's foremost experts on keeping your private information private.

What makes debit cards so dangerous? Givens has so many reasons, her organization has put out an exhaustive fact sheet on whether you should use cash, credit or debit cards when shopping. (The report also explains the shortcomings of gift cards.)

Here's the short version of the dangers of debit:

1. Loss Limits:
Like credit cards, federal law limits your liability for fraudulent transactions on a debit card to $50. But that's only if you notify your financial institution within two days of discovering the theft. If you're a space cadet and don't check your bank statements for a couple of months, you could lose everything.

2. Pay Now/Reimburse Later:
If someone has fraudulently used your credit card, you don't have to pay the charge. But when somebody has fraudulently used your debit card, the money comes directly out of your account in real time. That means you're out the money while the bank does a leisurely examination of their records to investigate your fraud claim. Many consumers complaining to Privacy Rights Clearing House said they lost access to their funds for several weeks. In the meantime, they were caught short and unable to pay their bills, Givens said.

3. Merchant Disputes:
The same problem affects merchant disputes. If you pay with a credit card when ordering something online, and that product comes damaged, broken or not at all, you can dispute the charge and stop payment with your credit card. If you used your debit card, the charge is paid when you made the order. By the time you find out the goods weren't what was advertised, the merchant has your cash and you're in the unenviable position of having to fight to get your money back.

4. Phantom Charges:
If you use a credit card at a hotel, the hotel takes an imprint when you check in, but doesn't charge your card until you check out. It's a far different story with a debit card. Generally, hotels will put a “hold” on funds in your account for more than you're spending. Yes, more. They hold the full amount of your stay, plus an estimated amount for “incidentals,” such as meals at the hotel restaurant and dipping into the mini-bar. This is not an actual charge–the hold will come off your account at the end of your stay. But it affects the available balance in your checking account anyway and can lead to overdrafts. One consumer said these phantom charges cost him $140 in overdraft fees. These “holds” are commonly placed on debit card transactions made at hotels, gas stations and rental car companies.

5. Overdrafts, Overdrafts and More Overdrafts:
Overdraft charges have been soaring in recent years and the vast majority of consumers who pay them explain that their overdraft was the result of a debit card transaction. Many consumers naively assumed that if they didn't have sufficient funds in their accounts, their bank wouldn't approve a debit swipe. But they were wrong. The result: a $4 coffee could trigger a $35 overdraft fee. Government regulators are reigning in these fees by demanding that banks give consumers a chance to “opt out” of automatic overdraft protection, but that doesn't start for existing accounts until August. (If you have a new account, it's starts in July.)

6. Skimming:
Financial crooks have gotten sophisticated in recent years and are using “skimming” machines to read your card data and charge your account, Givens said. When your debit card is skimmed, your bank account can be drained before you know that you've been had."

  • 64102
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    Posted by mooncow728 on June 1, 2010
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    The hold thing applies to a lot of pay at the pump gas stations too. A lot of times they will "hold" anywhere from $50 - $100 until the payment gets processed which sometimes takes several days.
  • 64112
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    Posted by pablos17 on June 1, 2010
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    I never run debit at the pumps and try to use my bankcard as a credit transaction which usually will get me more points anyway.
  • 64118
    Posted by HouTex on June 1, 2010
    [reply] 1 0
    The banks here are offering a bonus when account holders use their debit cards as credit cards instead, so the consumer wins both ways (protection and bonus).
    • webbyone2010
      Posted by webbyone2010 on June 1, 2010 [reply] 0 0
      Do the banks explicitly say that using the debit card as a credit card automatically grants credit card-like protection?

      The banks in my neck of the word encourage account holders to use their debit cards as credit cards because the banks then make money off of merchant fees.
  • 64185
    Posted by webbyone2010 on June 1, 2010
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    Also, some credit cards offer automatic warranty protection for merchandise purchased with the card.
  • 64210
    Posted by JackBauer on June 2, 2010
    [reply] 3 0
    Great information. Recently, I had a major issue using my debit card. I was at ballgame and was trying to purchase a $5 pin set and was mistakenly charged for 100 pin sets, over-drafting my checking account. Luckily, Bank of America was understanding and reserved the $150 in fees that occurred due to merchant error.

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