Photo: The Oil Drum
The news reports have been terrifying. Credit card numbers were stolen from University of Southern California dining halls in May and June, it was recently announced. Although no other personal information was accessed, these types of reports give rise to mass panic, as people envision thousands of dollars being racked up in their name.In this unpredictable economy, credit cardthefts have continued to be an easy target for fast cash. But the panic isn’t necessarily warranted. Actually, there is another payment type that you should be worrying about instead.
That’s not to say credit card theft isn’t inconvenient. You’ve got to notify companies that are automatically debiting from your card, change how you shop online and carry extra cash for the things you’d normally just slide onto your card. If you’re travelling, you may have to wait for the bank to deliver a new card to you.
But your credit card is backed by a federal law that limits how much cash you’re responsible for if it’s stolen. And that counts for a lot.
On the other hand, there is one type of theft that isn’t protected by the law, and it can wreak havoc on your checking account. That’s theft of your debit card.
Credit cards and debit cards may look alike — your debit card may even have a little Visa or MasterCard emblem on the side of it — but make no mistake. Losing your debit card can cost you tons more if it’s stolen.
John M. Mackey, president of Mackey Client Protection of Missouri LLC, uses his debit cards regularly for fuel and groceries. After swiping the card at a fuel pump one day, he suddenly began to see his account drained as a thief used his stolen number. He reported the loss, but it still cost him because it was a debit card.
“Unfortunately, I could not recover the loss from my bank; reason given is business accounts are not insured like personal accounts,” Mackey said.
Mackey said the numbers to his business and personal accounts have been stolen more than once — at fuel pumps, at grocery store swipe machines and through online purchases. Sometimes he gets the money back; sometimes he doesn’t.
Experts warn people not to carry debit cards at all since it’s as though you are carrying an open door to your checking account — they’re linked directly to your bank. They give thieves the ability to tap into your account and drain it. And these days, thieves don’t have to have your debit card in their hands to steal your account numbers. They can collect your numbers from the Internet or skim them from gas station pumps and restaurants.
When that happens, the timing of your report of theft is critical.
“It hinges on how quickly you report it,” said Curtis Arnold, founder of cardratings.com and author of How You Can Profit from Credit Cards. “A lot of times, you don’t catch these things right off the bat. That’s when it becomes a problem.”
But there are steps you can take to protect your account from a stolen debit card:
Within 2 Days: According to the Federal Trade Commission (FTC), you must report debit card theft within two days in order to keep liability to $50.
Between 3 And 60 days: If you report the loss after two business days, you could lose up to $500 for an unauthorised transfer.
If just your number is stolen and not your card, you’ve got 60 days to report it from the time your bank statement (with the fraud) is mailed to you.
After 60 Days: You could lose all the money in your bank account (and the unused portion allowed for overdrafts) if you fail to report the fraud within 60 days of the arrival of the statement with the unauthorised charges.
On the other hand, “you’ve got stronger protection if you’re a credit card user than you have if you’re a debit card user,” Arnold said. “The federal law is stronger for credit cards. And they don’t have direct access to a checking account; they can’t wipe that out.”
Indeed, credit cards have some clear safety systems in place:
- If you report the loss before your credit cards are used, the Fair Credit Billing Act says the card issuer cannot hold you responsible for any unauthorised charges.
- If a thief uses your card before you report the theft, the most you will owe for unauthorised charges is $50 per card. Report the theft within 60 days of your statement to ensure your safety, advised Mitchell Katz, spokesman for the FTC.
- If the loss involves only your credit card number, but not the card itself, you have no liability for unauthorised use.
- After the loss, review your billing statements. If you see fraudulent charges, send a letter to the card issuer’s billing errors department. The letter should list each questionable charge, the date the card was lost or stolen, when you first noticed fraudulent charges and when you reported the problem.
Regarding your bill, watch for late charges and interest accruing on the bogus purchases.
You may have to spend time getting charges off your account, but the odds are largely in your favour.
It is also important to monitor your credit to make sure the thief hasn’t used your information in other ways.
The Investing Answer: Beware of the new side business that’s booming because of the fear of theft. Many Americans spend tons of money on services to protect themselves from card identity theft. Before you buy into it, make sure you know what you are getting. If your credit card was stolen, that protection probably won’t reimburse you for money lost. It will likely just notify you that someone has been trying to access things in your name.