Photo: Flickr/Beau Giles
Despite their ease of use, debit cards pose a number of risks that can impact owners for the rest of their lives. So what is it about debit cards that make them the riskiest form of payment out there?
Debit Card Fraud Poses a Number of Threats
There are a number of risk factors that accompany debit card use, the primary being fraud.
There are four main types of debit fraud:
- In-person fraud: This type of fraud is committed when a thief steals your card and uses it to make purchases at various merchants.
- Online fraud: Online fraud occurs when your card information is stolen while making a transaction online. In this case, thieves could use card information to make online purchases or assume your identity.
- ATM fraud: ATM fraud occurs when a thief is able to acquire your card and/or pin number and withdraw money from the machine.
- Identity fraud: Identity fraud occurs when a thief steals your card to assume your identity. This type of identity theft is especially successful if the thief is able to acquire your wallet with other valuable information like a Social Security card or birth certificate.
Credit and debit card skimming is a popular form of fraud in which a thief installs a machine or camera at an ATM in order to pick up card information and PIN numbers when customers use their cards.
All of the forms of fraud have a great impact on the victim, which is why experts advise consumers to know the risks involved before using a debit card.
Debit Card Scams and the Risk of Failed Protection
Many of the threats faced with debit cards are similar to those of credit cards, so what makes debit card use riskier? The main reason is while debit cards offer thieves access to your personal information like credit cards, they go further to provide access to your personal bank account.
Even worse, debit cards do not carry the same protections as credit cards.
Currently, credit cards are protected under the Truth in Lending Act (TILA), which limits a consumers’ liability to $50 in charges if a credit card is ever lost or stolen. Once a charge is disputed, a creditor has 90 days to investigate the matter, during which time you may withhold payment of the disputed item.
But victims of debit card scams are not as lucky. While you are protected by the Federal Electronic Fund Transfer Act, you are required to notify your bank of fraudulent activity within two days. Even then, you are still liable for up to $50 of the losses. After two days, your liability rises to $500. And after 60 days, your liability is unlimited.
During the investigation period for a fraudulent debit card transaction, the funds cannot be held. In fact, the moment the card was swiped, the funds were likely pulled from your bank account. If you’re lucky, your bank might refund your losses minus the $50 liability–but in many cases, the funds are lost forever.
How to Avoid Debit Card Scams
Because debit cards pose many more risks that credit cards, or even cash for that matter, it’s important to take steps to protect them:
- Store your card in a safe place at home when not using it.
- Guard the keypad when entering your PIN number at an ATM machine.
- Never use your debit card to place orders for delivery over the phone.
- Consider prepaid credit cards or online payment options like PayPal to purchase items over the internet.
The fact that you’re carrying a card that provides direct access to your bank account and personal information–with few protections–makes debit card fraud more dangerous than fraud you might face with credit cards. So if you are considering this as your primary form of payment know that you are using it at your own risk.