Debit Card Fraud Protection
On this blog I cover topics about personal finance. One of my previous posts addressed the question of do debit cards offer the same protection as credit cards. That particular post was sort of a review of what to expect when using a credit card vs. a debit card. Still, I understand that some people can’t (or don’t want to) get a credit card, and I don’t want to give off the impression that debit cards don’t offer fraud protection. They do, it’s just that it’s typically less than what credit cards offer. So I did a little research on debit card fraud protection and here’s what I’ve gathered.
Under federal law, your liability for debit card fraud depends on how quickly you report the loss. If you report an ATM or debit card missing before it’s used without your permission, the card issuer cannot hold you responsible for any unauthorized transfers. If you report the card missing after the unauthorized use occurs, your liability under federal law depends.
Report the Loss
For example, if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you don’t report the loss within two business days after you discover the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you.
That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts. However, for unauthorized transfers involving only your debit card number (not the loss of the card), you are liable only for transfers that occur after 60 days following the mailing of your bank statement containing the unauthorized use and before you report the loss.
Debit Card Fraud Protection: Zero Liability Policies
In practice, the major card issuers have “zero liability” policies that go beyond the federal law by exempting debit cardholders from liability in most cases when a bank investigation confirms a transaction is fraudulent. But certain conditions have to be met, and there are loopholes in those policies.
Even if you are granted liability protection that is identical to that for credit cards, the headaches of setting the record straight are much greater with fraud on a debit card. Since your debit card is linked to your bank account, payment for a fraudulent transaction has already come out of your pocket, so you’re fighting with the bank to get your own money back. Meanwhile, your other checks could bounce and you could face bounced check fees, bad marks on your credit (here’s a helpful resource to check your credit score), and other hassles while you’re waiting for the problem to be resolved.
Signature-based vs. PIN authorized transactions
The incidence of fraud is higher when consumers sign for debit purchases rather than using a PIN. One major retailer states that fraud on signature-based debit purchases can be up to 15 times higher than for transactions authorized by a PIN. Ironically, although your odds of becoming a fraud victim are lower when you use a PIN, your protection from liability if fraud does occur is greater with a signature debit card because card issuers may exclude some types of PIN transactions from their zero-liability policies. You should call your card issuer to find out what your liability is for unauthorized signature vs. PIN debit purchases. Since banks encourage the use of signature debit (because they collect higher fees from them), you’re likely to have better fraud protection when you sign.
If unauthorized transfers show up on your bank statement, report them to the card issuer as quickly as possible. Once you’ve reported the loss of your ATM or debit card, you cannot be held liable for additional fraudulent transfers that occur after that time.
Protect Your Cards
The best protections against debit card fraud are to know where your cards are at all times and to keep them secure. For protection of ATM and debit cards that involve a Personal Identification Number (PIN), keep your PIN a secret. Don’t use your address, birth date, phone or Social Security number as the PIN and do memorize the number.
The following suggestions may help you protect your ATM or debit card accounts.
* Be cautious about disclosing your account number over the phone unless you know you’re dealing with a reputable company.
* Never put your account number on the outside of an envelope or on a postcard.
* Draw a line through blank spaces on charge or debit slips above the total so the amount cannot be changed.
* Don’t sign a blank charge or debit slip.
* Tear up carbons and save your receipts to check against your monthly statements.
* Cut up old cards - cutting through the account number - before disposing of them.
* Open monthly statements promptly and compare them with your receipts. Report mistakes or discrepancies as soon as possible to the special address listed on your statement for inquiries. The card issuer must investigate errors reported to them within 60 days of the date your statement was mailed to you.
* Keep a record - in a safe place separate from your cards - of your account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.
* Carry only those cards that you anticipate you’ll need.
* Don’t carry your PIN in your wallet or purse or write it on your ATM or debit card.
* Never write your PIN on the outside of a deposit slip, an envelope, or other papers that could be easily lost or seen.
* Carefully check ATM or debit card transactions before you enter the PIN or before you sign the receipt; the funds for this item will be fairly quickly transferred out of your checking or other deposit account.
* Periodically check your account activity. This is particularly important if you bank online. Compare the current balance and recent withdrawals or transfers to those you’ve recorded, including your current ATM and debit card withdrawals and purchases and your recent checks. If you notice transactions you didn’t make, or if your balance has dropped suddenly without activity by you, immediately report the problem to your card issuer. Someone may have co-opted your account information to commit fraud.
Buying a Registration Service
For an annual fee, companies will notify the issuers of your ATM or debit card accounts if your card is lost or stolen. This service allows you to make only one phone call to report all card losses rather than calling individual issuers. Most services also will request replacement cards on your behalf.
Purchasing a card registration service may be convenient, but it’s not required. You have the right to contact your card issuers directly in the event of a loss or suspected unauthorized use.
If you decide to buy a registration service, compare offers. Carefully read the contract to determine the company’s obligations and your liability. For example, will the company reimburse you if it fails to notify card issuers promptly once you’ve called in the loss to the service? If not, you could lose your protection for fraud on your debit card and be liable for unauthorized charges or transfers.
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