Debit Cards vs Credit Cards: Fraud and Disputes
Recently a friend had her checking account cleaned out due to debit card fraud. It’s a painful and aggravating experience to go through and I wouldn’t wish it on anyone (except maybe a politician or two I know).
The primary difference between debit card fraud and credit card fraud is that with debit cards, your own cash gets wiped out. While you can eventually get the charges reversed like you can with a credit card, the process doesn’t necessarily happen as quickly and, while you’re waiting, you’ve got nothing in the bank. That’s a problem if you have checks outstanding, automatic bill drafts scheduled to happen, etc.
The T.J. Maxx data breach in 2007 that exposed the payment information of thousands of customers resulted in $150 million in fraud losses, and most of it was pulled directly from customers' bank accounts. While credit card users got their accounts straightened out and new cards in the mail within a few days, the case created huge problems for debit card holders, who waited an average of 2 to 3 months to get reimbursed. Could you wait that long for your money if they coincidentally hit you right on your payday?
Debit Card fraud is very preventable if you follow a few simple rules:
1. Don’t use a debit card, period. Use a credit card. Why would I recommend this? Because with a credit card your tools for fighting bogus charges are set in law and the dispute procedures are implemented like a well-oiled machine with all the major card vendors. When they steal from your credit card, it’s not YOUR money at that point they're stealing, it’s the bank’s money. Your ability to pay your bills is not endangered.
2. If you use a debit card, only use it at terminals indoors and at places you trust strongly. Never use a debit card at an outdoor ATM, gas pump, or an ATM that isn’t bank-branded. Certainly don’t use it in those cash machines in a convenience store, etc.
3. Don’t use a debit card for online purchases, EVER. With websites being hacked and other breaches, you are MUCH safer using a credit card. If nothing else, get one of those re-loadable cards and use those for online shopping so that if they do steal that info, the damage is limited to however much you loaded on it.
4. Don’t have your debit cards tied to the account where your emergency fund resides. If they clean out your checking AND your savings/emergency fund, you’re really bent over a barrel.
A certain popular radio personality decries the use of credit cards and says using a debit card is exactly the same. While I really do like a lot of what this guy preaches, on this one he’s dead wrong. Sure, using the cards anywhere is just like using a credit card, and as long as everything stays kosher it’s not a problem. But when it comes to billing disputes and getting charges reversed, there is a world of difference. Will your bank work with you on getting bogus charges reversed? Of course they will, but how long will it take before you get YOUR money back into YOUR account? It might be quick but it also might be longer than you might be able to stand if your budget runs lean.
Remember, with credit cards you’ve got federal law on your side, with debit cards you do not. For more background information and tips for disputing charges to your debit card, see this article.
Stay safe out there folks.