Be smart about debit card use

Debit cards are becoming as ubiquitous as credit cards.  According to payments industry consulting firm Mercator Advisory Group, in 2006, consumers opted for paying by debit as frequently as by credit.  In 2007, debit card transactions are predicted to surpass credit card sales by market share.

Compare Prepaid Credit CardsWith the popularity of debit cards, consumers need to make smart decisions about their use.

For consumers, the ability to take out money using a debit card when making a purchase can be a huge convenience.  Doing so can allow cardholders to avoid incurring the fees for withdrawing money at what bankers label "foreign" ATMs -- or those not operated by the consumer's home bank. Those fees usually total up to $2 per transaction.

Merchants often limit the amount of cash a consumer can get when shopping at their store, but by combining the ability to take out cash when making purchases with the use of a home bank's ATMs, cardholders can avoid the need to visit foreign ATMs and pay their fees.

When it comes to fraud, debit card users are responsible for up to $50 if they report a lost debit card within two days of realizing the loss.  However, if the situation is not reported within 60 days from the time a statement listing fraudulent charges is mailed, the cardholder could be liable for all of their losses, unlike the maximum liability of $50 with a credit card.

However, MasterCard and Visa have extended their credit card zero-liability protection to debit cards displaying their logos.  Still, MasterCard's protection does not apply if the account is past due or if two or more "unauthorized events" have been reported in the prior year.  Even so, consumers should make use of debit cards that bear the MasterCard or Visa logo.

Meanwhile, according to financial services consulting group Dove Consulting, debit card transactions that use a PIN for approval are 15 times more secure than signature-based transactions, since criminals have a much easier time forging a signature to use a stolen debit card.

Most debit cards give consumers the option of either a PIN or a signature.  Fraud is a concern with signature-capable debit cards, particularly online, where merchants are unable to verify signatures.  Some large banks offer PIN-only debit cards, but they are accepted much less frequently than signature verification cards.  So while a PIN-only debit card may be a good choice for worried consumers, they need to be sure that the stores where they shop are on the issuer's network.

Amid recent developments, certain banks are now making debit cards that behave like reward credit cards, enabling consumers to earn points, most often for debit transactions completed with a signature as opposed to a PIN.  But consumers should probably not decide on a debit or bank card solely based on rewards, since they typically only amount to about .5 percent of each dollar spent. 

In other news, retailers are making noise about the fact that banks charge them much more to process signature debits than PIN-based debits (77 cents to 25 cents on a $100 purchase).  Visa notes that merchants experience greater traffic and sales from its branded signature debits.  But with Congress investigating, reward debit card programs may not exist for long enough to allow consumers to collect their rewards.

Finally, even though the majority of networks for processing debit payments do not permit merchants to add on extra fees to a purchase, some do.  Should a debit card user encounter such charges, they can speak to the store manager and cancel the sale if the fee is not waived.  Additionally, they may decide to not shop at the store in the future and to complain to MasterCard or Visa, depending on whose debit card the use.

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Updated: 03-24-2019