Are you protected when you use your debit card?

May 8, 2020

Debit cards vs. credit cards. Which protects you more?

Last night, I received an alert from my bank that my $979 purchase at Best Buy went through. I made no such purchase. For a second, I thought maybe hubby went all in for Mother’s Day, but unfortunately for me, I knew that wasn’t the case.

After a quick check to make sure we both physically had our debit cards, I called my bank to let them know that transaction was fraudulent. While I was on hold, I used the lock feature my bank offers to temporarily shut down our cards. Within a few minutes (and as I continued to hold), I could see that the purchase was credited.

After holding a bit longer, speaking with a rep, and then being transferred to the fraud department, my account was secured. And I have a new debit card coming to me.

Are credit cards safer than debit cards?

As a debit-card-only carrier, it made me think about how this experience would have differed if it was my credit card that had been compromised. One of the reasons many people give when declaring that you need credit cards to survive is that they’re safer to use than debit cards. And that in the event of fraud, you are more protected. The counter-argument to that is often that you get the EXACT same protection on your debit card as you do with your credit card.

So which is it?

First, a quick word on safety. Whether you’re shopping online or at brick-and-mortar retailers, your debit card is not any more or less safe to use than your credit card. They are equally safe or equally unsafe, depending on where you shop. If you buy from sketchy websites, unknowingly use your card where a skimmer has been placed on the card reader, or shop at a retailer that has a data breach, your cards — whether debit or credit — are equally susceptible.

Now, let’s move on to protection. Just what happens when your debit card or credit card is fraudulently used? Do credit cards offer you better protection?

Credit card vs. debit card protections

Three factors affect what you’re ultimately on the hook for if your credit or debit card is compromised: federal law, the credit card company’s policy, and your bank’s policy.

Federal Law

Two federal laws provide you protection if your debit or credit cards are lost or stolen: The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA). The Federal Trade Commission (FTC) outlines the differences in the protections for debit cards and credit cards on its website. When you report the fraud and whether it was the actual card that was stolen (vs. just the number), both play a role in your protections.

Here’s a quick glance.

Your Maximum Loss in the Event of Fraudulent Charges

When you report the loss or theft Credit cards Debit cards
Before unauthorized purchases are made.  $0 $0
After unauthorized purchases are made. $50

• $50 if loss/theft is reported within 2 days

•$500 if loss/theft is reported between 2 days and 60 days of your bank statement

•Full liability if loss/theft is reported more than 60 days after your bank statement

If your number is used, but your card was not lost or stolen $0 $0 (provided you report it within 60 days of your bank statement)

 

So, according to federal law, if your number is stolen but not your actual card, you’re not on the hook at all. That is the same for credit cards and debit cards (unless you wait more than two months to report the charges on your debit card.)

If your card is lost or stolen, the protections on credit cards and debit cards again are similar, unless you wait to report the event on your debit card. So not EXACTLY the same protections, but pretty similar. Just be sure to report fraudulent activity right away!

Now again, these are federal laws that card issuers must adhere to at a minimum. Many have their own policies on top of the law.

Credit card companies’ policies

Your debit card comes with either a Mastercard or a Visa logo, depending on which company your bank or credit union partners with. Since the other credit card companies (American Express and Discover) don’t issue debit cards, we’ll only look at how Visa and Mastercard protect you in the event of fraud.

Visa’s Zero Liability Policy
On its website, Visa states, “You won’t be held responsible for unauthorized charges made with your account or account information. You’re protected if your Visa credit or debit card is lost, stolen or fraudulently used, online or offline.”

The policy also dictates how quickly banks must replace your money. “Visa’s Zero Liability Policy requires issuers to replace funds taken from your account as the result of an unauthorized credit or debit transaction within five business days of notification.”

Mastercard’s Zero Liability Protection
Mastercard offers similar protections. “The financial institution that issued your Mastercard won’t hold you responsible for unauthorized transactions,” the company states on its website.

Okay, so in summary, both Visa and Mastercard offer the same protections on their debit cards as they do on their credit cards. (This surpasses the distinctions made between debit cards and credit cards in the federal laws.)

Your bank or credit union’s policy

In most cases, your bank or credit union has its own policy for fraudulent transactions, some of which go beyond the federal law and Visa’s or Mastercard’s guidelines.

For example, Bank of America has a “$0 Liability Guarantee,” which states they will credit fraudulent transactions as soon as the next business day. Again, it’s your responsibility to report fraud on your accounts right away. Bank of America states in its policy, “To be covered, report transactions made by others promptly.”

You can find your banking institution’s policy by looking in your account documents, your bank’s website, or by contacting them.

Credit card fraud and debit card fraud impact you differently

Okay, so between federal law, the credit/debit card companies, and your own bank, you have the same protections on your debit card as you do with your credit card.

But let’s not ignore the fact that fraud on your debit card has the potential to impact you much differently than fraud on a credit card.

For one thing, there’s the temporary loss of money. If you go to pay for your groceries and you can’t because your money is gone, well, that’s a problem. There’s no denying that. But in my experience, banks are fast and furious when it comes to addressing fraud. I was $979 poorer for about 10 minutes the other day. Also, in the umpteen years I’ve been with my bank, this was the first time a fraudulent charge went through. If anything, I’ve been inconvenienced by my bank’s abundance of caution when they declined valid charges that were outside of my typical spending habits.

Secondly, there’s the possible domino effect of bounced transactions. But if you’re not responsible for fraudulent charges, then you’re not liable for any bounced transactions the fraud may cause.

Tips to protect yourself from credit card or debit card fraud

The FTC provides these tips for protecting your debit and credit cards.

  • Never provide your account number over the phone unless you initiate the call.
  • Never leave your account information out in the open or write it on an envelope.
  • Keep a record of your account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.
  • Draw a line through blank spaces on charge or debit slips above the total so the amount can’t be changed.
  • Never sign a blank charge or debit slip.
  • Cut up old cards — cutting through the account number — before you throw them away.
  • Review your monthly statements promptly and your account activity periodically. Report mistakes or discrepancies as soon as possible.
  • Carry only the cards you’ll need.
  • Don’t carry your debit card PIN on you or write it on your debit card. Commit it to memory.
  • Never write your PIN on the outside of a deposit slip, an envelope, or other papers that could be lost or looked at.

Bottom line

My goal was not to convince you to ditch credit cards, but rather to shed light on the fact that you have pretty much the same protections on your debit card as you do on your credit card. So that in itself is not a reason to use credit cards instead of debit cards. Are you still with me? Did I accomplish my mission?

Again, in either case, whether you’re using credit cards or debit cards. don’t wait to report a loss, theft, or fraud, as this may impact your protections.

What has your experience been with fraud on your debit or credit cards?

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