Why a Debit Card is Not All That Attractive
The debit card has an allure for many because it allows people to make credit card like transactions without the fear of debt but all of that comes at a price and a risk.
A debit card is not a credit card, obviously. With a debit card, transactions are paid from the cold hard cash sitting in your bank account and do not include and extension of credit, that is unless you run into your overdraft account.
The perception that a debit card is safer than a credit card is simply unfounded, especially when you are making online or international purchases.
Here is the problem. If someone gets a hold of your debit card information and uses it fraudulently, those funds get sucked from your available funds in your bank account. Just one incorrect or fraudulent transaction can set off a chain of events that can cause a world of financial hurt, rejected transactions and a heap of bank fees.
Consumers in the U.S. and U.K. both suffer under the illusion that a debit card is as safe as a credit card. It is not but your bank certainly wants you to think so but the law clearly differentiates.
Recent news from the Office of Fair Trading in the UK revels that the House of Lords has made it clear that credit card transactions must now protect consumers against misrepresentation or breach of contract when the good or service purchased is above £100 but no more than £30,000. That is good news for U.K. consumers.
There is no getting around the fact that a debit card is not as safe to use for purchases as a credit card.
Invariably when I talk to people about this they look at me like I’ve got snakes coming out of my head. “Certainly that’s not true”, people say. Their bank has done such a good job of convincing them that they WILL protect them from liability that people are using their debit cards in record numbers on the internet or for foreign purchases. But it is a voluntary obligation and not a legal one to protect you from fraud when you use a debit card. Read what the U.S. Public Interest Research Group has to say about debit cards or maybe the recent Office of Fair Trading release in the U.K. Be sure to look at footnote 2.
When you have a problem with a fraudulent transaction or purchase you made using your credit card, your bank will intervene on your behalf once you have brought the matter to their attention. This means that before you are obligated to pay for that transaction the bank will investigate the issue and may absolve you of any responsibility for it.
With a debit card the funds will be immediately withdrawn from your account and you will have to fight with your bank to get provisional funds replaced in your account while they investigate the issue.
In my investigation of debit cards I discovered that between 1%-5% of debit cards transactions are fraudulent depending on the debit card portfolio. Debit card fraud happens.
So if you want to make sure that you have maximum consumer and legal protection when using a plastic card to make a purchase, make it with a credit card and not a debit card, please.
Oh yes, a week ago I learned another obvious lesson, it is always better to show up at the airport on the day of your reservation, and not the day after. This screw-up left me having to purchase a same day ticket for my travel. Ouch! Thankfully I used my credit card for the ticket because they made a mistake and sold me a ticket to the wrong city. Completely their mistake but the credit from the immediate refund will take up to 7 days to process. If I had used my debit card those funds would have been gone from my bank account until refunded and even if the transaction had only been authorized and not debited, those funds would have been placed on hold until the authorization was released, days latter.