A couple of years ago, I had a late-night hankering for some fast food, so I stopped by my local establishment. I generally avoided this restaurant because the service had always been a bit off even though it was close to my home. I went ahead this time because I did not want to go out of my way.
I placed my order and the person at the window that I handed my card over to was very chatty, which I did not mind. It took a little longer to get my debit card back but nothing noticeable. I got my meal and went on my way. Upon checking my account app the next morning, I saw 3 unauthorized transactions overnight run through the debit card that I used for the fast food transaction. It was then that I realized my debit card number was stolen.
Once I was done verbally lamenting the need for chicken nuggets, I immediately used my online banking app to turn off the debit card. I also contacted the bank to let them know there were fraudulent payments overnight. The bank took a statement from me to investigate the transactions. Then my mind turned to whether I made the right decision to use my debit card vs. cash or credit.
What is the risk of using a debit card?
The laws that control the difference in your liability between using a credit card vs. a debit card are clearly stated on the Federal Trade Commission website:
You report your card’s loss before someone uses it:
Credit card: You aren’t responsible for any charges you didn’t authorize
ATM/Debit card: You aren’t responsible for any transactions you didn’t authorize
You report your card’s loss after someone uses it
Credit card: The maximum you might be responsible for is $50
ATM/Debit card: What you’re responsible for depends on how quickly you reported it
Your account number is used but your card isn’t lost or stolen
Credit card: You aren’t responsible for any charges you didn’t authorize
ATM/Debit card: You aren’t responsible for any transactions you didn’t authorize if you reported the loss within 60 calendar days after your statement is sent to you
If someone uses your ATM or debit card before you report it lost or stolen, what you owe depends on how quickly you report it.
If you report your ATM or debit card lost or stolen…
…before any unauthorized charges are made
Your maximum loss is…$0
…within 2 business days after you learn about the loss or theft
Your maximum loss is…$50
…more than 2 business days after you learn about the loss or theft, but within 60 calendar days after your statement is sent to you
Your maximum loss is…$500
…more than 60 calendar days after your statement is sent to you
Your maximum loss is…All the money taken from your ATM/debit card account, and possibly more — for example, money in accounts linked to your debit account
You have a limited time frame to report that the card number has been compromised or if your card is stolen or missing. If you are not keeping a close watch on your account, you are open to possible unlimited liability.
How can you control this reporting risk?
If you have checking accounts you do not monitor daily, consider not having a debit card for that account or see if your online banking system allows you to lock the card electronically until you intend to use it. If you have multiple accounts with one bank, consider having only one debit card from the bank for an account you monitor daily.
Why would you take the risk of using a debit card?
Having a debit card clearly comes with risks compared to credit cards, so why would you have one? For many people, a debit card offers the convenience of a credit card without the risk of carrying a balance and paying interest. Using a debit card also places a spending limit on your transactions if you plan to avoid overdraft fees. It has also been proven that consumers tend to spend more per transaction when using credit vs cash. If you have struggled to manage your spending, a debit card can help you stick with your plan to live below your means.
In my 20+ years of carrying a debit card, I have only had a couple of incidents like the one I described earlier. Because of this, I still carry and use a debit card for certain transactions. However, I do so with the knowledge that I must continue to monitor for and report unauthorized transactions quickly.
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