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Debit card fraud can leave you in the lurch

Despite consumer protections, you could still be on the hook

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If you think your funds are protected in the event of debit card fraud, you might be surprised to learn that in some circumstances, they really aren't.

The next time you make a payment with plastic, consider this scary statistic: More than 25 percent of data breaches in the United States involve credit and debit cards, according to the Identity Theft Resource Center. While there are laws that limit consumers' liability for fraudulent charges, there are instances where debit card users may be left footing the bill.

The Fair Credit Billing Act limits liability for unauthorized credit card charges to $50. The Electronic Fund Transfer Act (EFTA) provides similar protections to debit and ATM users, keeping their liability to $50 or less, but only in certain cases.

Debit card fraud can leave you in the lurch

"As a general matter, you're not liable for unauthorized transactions, but if you lose the card, you may be liable if you don't report that someone's been using your account," says Nessa Feddis, vice president and senior counsel for the trade group American Bankers Association.

According to EFTA, if you report a debit or ATM card missing before it's used, you'll be liable for nothing. If you report it missing within two business days of discovering the loss, your liability is capped at $50 for unauthorized charges. However, if you don't report the loss within two business days, you could be held liable for $500. If you don't report unauthorized charges within 60 days of receiving a bank statement with the charges, you could be held liable for the entire amount.

Beware of 'friendly fraud'
While banks can't penalize you for being careless with your debit card or for leaving a piece of paper lying around with your PIN number, there may be unauthorized charges that banks can hold you responsible for under EFTA.

The customer will be held liable if the customer gave permission to the individual who made the transactions and did not revoke that authorization with the bank.

-- Amanda Landers
Capital One Bank

For example, when the disputed charges were made by a friend or family member, the situation could get murky. "Merely knowing the suspected perpetrator would not result in the cardholder being liable for fraudulent transactions," says Lisa Westermann, a spokeswoman for Wells Fargo. However, "if the customer gave his or her PIN to the fraudster, we may decline the fraud claim."

Say you decided to entrust your PIN number to a relative so that she could make one withdrawal for you. Even if the relative then made another withdrawal without your permission, you could be held liable for both transactions.

"The customer will be held liable if the customer gave permission to the individual who made the transactions and did not revoke that authorization with the bank," says Amanda Landers, a spokeswoman with Capital One Bank. Once you tell your bank that a person you gave temporary access to your PIN no longer has that access, the bank would likely have you change your PIN or issue a new card, Neddis says.

So what happens if a friend or family member discovers your PIN and uses your card without your permission?  While the bank will likely let you off the hook for the charges, you may first have to sign an affidavit stating that you didn't authorize the person to make the charges. That could then open that person up to the possibility of law enforcement actions taken by the bank. "If it's your son or daughter or someone you know, are you really going to want to bring charges against them?" says Linda Sherry, a spokeswoman for Consumer Action. "That's what the bank is probably going to want you to do."

Bank procedures could vary
Though banks can by law hold you liable for $50 if you report unauthorized transactions within two days, most will not hold you responsible for anything if it turns out fraud was committed.

However, that may not be enough to eliminate financial strain since an unauthorized ATM or debit card transaction can leave a consumer's bank account drained. To ease some of the pain, many banks provide provisional credit in the amount of some or all that was taken while they investigate the claims.

When Michael Alston of Austin, Texas, noticed unidentified charges of about $110 after his debit card was skimmed at a gas station, "my bank restored the entire amount the very next day," he says.

Wells Fargo provides credit within the first 48 hours of the discovery of the breach, while Bank of America  provides credit within 24 hours and J.P. Morgan Chase within one business day. Banks also vary on the procedures customers must take to report a claim. For example, Capital One requires that customers submit a claim in writing before provisional credit is granted. However, if an investigation finds that fraud was not committed, the customer will then be responsible for paying the credit back.

If consumers feel their banks are unduly holding them responsible for unauthorized charges, they should speak to a manager or someone higher up in the bank, Consumer Action's Sherry suggests. If that doesn't work, they could contact the new Consumer Financial Protection Bureau at 855-411-2372, which, while not yet  accepting debit card complaints, will assist consumers in determining which oversight bureau to contact regarding their issue.

Otherwise,  the Federal Reserve Board regulates state-chartered banks that are members of the Federal Reserve System. The Federal Deposit Insurance Corp. regulates state-chartered banks that are FDIC insured and that aren't members of the Federal Reserve System. And the Office of the Comptroller of the Currency regulates national banks that have the word "national" or initials "N.A." in their names. And the National Credit Union Administration regulates federally chartered credit unions. For contact information on these agencies, visit "How to file a complaint."

But more than anything, consumers should take steps to keep their PINs and debit cards safe. "It's a shared responsibility to make sure there is no fraud," says Feddis.

See related: Tips to handle online debit card theft, 9 best practices for debit card use, 4 keys to credit, debit card zero-liability issues, 10 places NOT to use your debit card

Published: February 3, 2012


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