More and more consumers are using debit cards instead of credit cards for daily purchases. The number of locations and situations in which you can use a debit card has increased significantly and many people prefer to pay as they go, rather than racking up a credit card balance and incurring interest fees.
From 2003 to 2008, debit card use grew from 47.7 percent of plastic-based purchases to 58.9 percent. The Nilson Report, a newsletter that tracks the consumer payment industry, anticipates that this number will go past 67 percent by 2013.
This rise in debit card use has attracted the attention of thieves. As the use has gone up, so has fraud. There are a number of things you can do to prevent and deal with bank debit card fraud. Before we look at them, it's important to know the difference between credit card fraud and bank debit card fraud.
The Difference between Credit Card Fraud and Bank Debit Card Fraud
One major difference between credit card fraud and debit card fraud grows out of the different ways the two types of cards work. When you use your credit card, you establish a balance with the credit company that accrues interest until you pay it off. Using a debit card takes money directly out of your bank account.
So, if you identify a fraudulent use of your credit card, the balance remains unpaid while the credit company investigates the fraud. But with bank debit card fraud, the money has been removed directly from your account – and you will not get that money back until the fraud claim is resolved. Even if the claim is resolved in your favor, you could be out the balance of your account for weeks or months while the bank investigates your claim – a major inconvenience, especially if you have immediate bills to pay.
Different Liability Rules for Credit Card Fraud and Debit Card Fraud
Another major difference between credit card fraud and debit fraud is that there are different federal rules covering liability with each type of card. With a credit card, your maximum liability for fraudulent use of your card, even if the card is used before you report it missing, is $ 50. If the loss involves your credit card number, but not the card itself, you have no liability at all for unauthorized use.
The rules for liability around debit card fraud can be punishingly different. It's individual company policy, not federal law, which determines your liability. In general, your liability depends on how quickly you report noticing that the card is missing, or noting that there has been fraudulent use of the card. If you report the loss within two business days, your maximum liability for fraudulent use is $ 50. Beyond two days, you could be liable for up to $ 500. If you report fraudulent use of the card more than 60 days later, you risk unlimited liability. Yes, unlimited liability. That means that if you wait two months before reporting the fraud, you could have your entire account cleaned out and be liable for it. If you are choosing a debit card, look carefully at the policies that company has around liability; Visa, for example, has a helpful Zero Liability program.
It is Important to Report Debit Card Fraud Quickly
This potential unlimited liability means that it is very important to report fraud quickly. If you think you've lost your card, or suspect a fraudulent use of your card, report it immediately. The risk of someone cleaning out your account, and being liable for it, outweighs the inconvenience or embarrassment of discovering your card was actually in a drawer, or that that you thought was fraud was just a purchase you forgot about.
Reporting a lost or stolen card quickly will also keep you from being charged for any checks that may bounce on your emptied account.
Tips for Avoiding Debit Card Fraud
One of the simplest is to keep careful track of your card itself, as well as withdrawals made from your account; Have your bank's phone number securely stored in a separate location, so that you can immediately make a call if the card goes missing, or an unexpected withdrawal shows up.
Unfortunately, thieves have worked out ways to commit debit card fraud without actually stealing your card. One of the most prevalent is called "skimming," which which sets up equipment that captures magnetic stripe and keypad information when you input your PIN at ATM machines, gas pumps, restaurants, or retailers. Experts on skimming advise consumers to avoid using their card at gas pumps, to only use ATMs located at banks (which are harder to hack into and are under better surveillance), and, again, to keep a close watch on your bank account.
Smart thieves who get access to your bank account will start with small withdrawals to test the waters, and if that initial debit card fraud goes unnoticed, will quickly move on to larger purchases and emptying your account.
To avoid fraud, and minimize your liability should it happen, it's worth getting in the habit of watching your account closely – a habit which can also be good for your budget. It's also good practice to make sure you have enough money to cover a few months of expenses in your savings account, in case you do fall victim to debit card fraud and have to wait for your claim to be resolved.