Debit or Credit?

Should you use your debit or credit card for your purchases? Not only most of us have both nowadays, but we have multiples of them from various banks. In the old times, there was the Automated Teller Machine or ATM card, which was used to withdraw money from the ATM cash dispenser with a Personal Identification Number or a PIN. Later, banks changed the ATM card to a debit card to allow users to also use it for purchases as a credit card by making a deal with Visa and Master Card to place their logos on the card. Therefore, not only consumers could withdraw cash from the ATM machines but they could also make purchases as a debit or credit card. The banks’ selling point was if consumers use their cards as debit for a purchase, they could also get cash at the store. This was a good trick pulled by the banks to add to their revenues. No one won except the banks. Whether you use it for purchases as a debit with a PIN or as a credit card, the banks win and we all lose. The card users don’t win because 1) money comes out of their checking account immediately whether they use the card as debit or credit, 2) they may get charged if they use the card as debit and ask for cash, 3) they expose their ATM card number and its PIN more often that if they just used it for cash withdrawals from the ATMs, 4) store areas where transactions occur are less private than banks’ ATMs, and 5) in case of unauthorized cash withdrawals from their accounts, consumers have to wait until banks’ investigation is finalized before they can see their own money back into their accounts. The merchants also lose big time if consumers use the card as credit since merchants have to pay a percentage of the revenues if the buyer uses the card as credit, and guess whom the merchants charge this additional cost back to? Consumers, of course! It’s a win-win situation for the banks. Banks' objective is to have consumers use their own money even when they use the card as a credit card because money comes of the account immediately to pay the merchant, while charging the merchants a percentage of the sales as if consumers were using credit cards to buy things on borrowed money. To better understand the differences and decide for yourself whether to use a debit or credit card, let’s compare the pros and cons of using a debit or credit card:

Debit or credit security

From a security standpoint, I prefer to use my credit cards only and limit my debit card to cash withdrawals from the ATMs, just like the old times. With every instance of debit card use, I further increase the risk of revealing my card number and the PIN, which can be used to get cash directly out of my account, thus increasing my liability. I say directly, because sometimes, identity thieves and credit card fraudsters may buy stuff with your credit card and then sell them for far less than their actual value, but who cares, it’s not their money.

Debit or credit benefits

I prefer to use a credit card with the highest rebate plan. Some credit cards give you cash and others give you points to fly, dine, buy gas and more. I guess this benefit adds even more incentive to use a credit card instead of a debit card. You get rebates and cash back while your liability is reduce to just $50. Not a bad deal. Why would you want to use your own money, and, get no rebates, while you can buy things on borrowed money and even get rebates and cash back. You’ll pay no interest on borrowed money if you pay your bills on time.

Debit or credit protection

Electronic banking is governed by the Electronic Fund Transfer Act (EFTA), and the use of an ATM or debit card to withdraw cash, deposit cash or transfer funds are considered electronic banking transactions. The Fair Credit Billing Act (FCBA) governs all credit card transactions.

The FCBA shifts most of the responsibility for unauthorized transaction toward the banks. Have you ever wondered why banks are so nice to monitor your credit card transactions and notify you of potential misuse or unauthorized use of you credit cards? Because they have to assume responsibility for and cover losses due to all fraudulent credit card transactions, that’s why. If consumers had to pay for all unauthorized credit card transactions, no one would call us, believe me.

Under the FCBA, you cannot lose more than $50 if your credit card or its number is misused for unauthorized transactions, but, if someone uses your ATM or debit card without your permission, you can lose way much more.

If you report the loss of your debit or ATM card within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you report its loss after 2 days but before 60 days after your statement is mailed to you, you could lose as much as $500 because of an unauthorized withdrawal. And, if you do not report an unauthorized transfer or withdrawal within 60 days after your statement is mailed to you, you risk unlimited loss. That means you could lose all the money in your account and the unused portion of your maximum line of credit established for overdrafts.

Now, if you failed to report the institution within the time periods allowed because of an illness or travel, the institution must extend the time period for notification to what is reasonable. Also, if state law or your contract imposes lower liability limits, those lower limits apply instead of the limits in the federal EFT Act.

After reporting the loss or theft of your ATM card, you are not liable for additional unauthorized transfers that may be made. Because these unauthorized transfers may appear on your statements, however, you should carefully review each statement you receive after you report the loss or theft. If the statement shows transfers that you did not make or that you need more information about, contact the institution immediately, using the special procedures provided for reporting errors.

What you should consider when using a debit or credit card

-Notify the banks as soon as you realize you have lost your debit or credit card.
- Report the loss of your debit or credit card to the Police.
-Review you monthly debit or credit statements carefully and notify banks of all fraudulent transactions immediately.
-Notify in writing to report card loss or fraudulent debit or credit transactions. Send your letter registered with receipt confirmation. Keep a copy of the letter for your records. Banks have 10 days to investigate but could extend to 45 days. Banks have to investigate assuming your innocence until proven otherwise.
-Don’t use a debit card to make purchases on the Internet. Use a credit card instead since you have less liability with a credit card.
-Ask the banks if you can just have an ATM card with a PIN for cash withdrawals only, while making all of your purchases with a credit card.
-Don’t write your PIN down or carry it with you along with your debit card.

Who you should contact

In all cases of lost and stolen debit or credit card, and, unauthorized transactions, you should attempt to deal directly with the banks and card issuers to resolve your issues. Use the suggested guidelines I just described above for handling your case and you should be fine. If you are unable to resolve your issues with the card issuers or have questions regarding your rights under the federal laws, contact the following agencies:

Board of Governors of the Federal Reserve System
Regulates state-chartered banks that are members of the Federal Reserve System, bank holding companies, and branches of foreign banks:
Division of Consumer and Community Affairs, Stop 801 20th and C Streets, NW
Washington, DC 20551

Federal Deposit Insurance Corporation
Regulates state-chartered banks that are not members of the Federal Reserve System:
Division of Compliance and Consumer Affairs
550 17th Street, NW
Washington, DC 20429
877-ASK-FDIC (275-3342) toll-free

National Credit Union Administration
Regulates federally chartered credit unions:
Office of Public and Congressional Affairs
1775 Duke Street
Alexandria, VA 22314-3428

Office of the Comptroller of the Currency
Regulates banks with "national" in the name or "N.A." after the name:
Office of the Ombudsman
Customer Assistance Group
1301 McKinney Street, Suite 3710
Houston, TX 77010
800-613-6743 toll-free

Office of Thrift Supervision
Regulates federal savings and loan associations and federal savings banks:
Consumer Programs
1700 G Street, NW
Washington, DC 20552
800-842-6929 toll-free

Federal Trade Commission
Regulates other credit card and debit card issuers:
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
877-FTC-HELP (382-4357) toll-free Learn more about debit or credit card risks in the credit card fraud section.