So many people use debit cards because they are so convenient and help people manage their money on a real-time basis. I wish I had $1 for every time I have heard someone tell me that line. While widely popular, many do not know the personal financial risks associated with debit cards.
As a result of our monthly review, one of our clients just learned that his bank account has been nearly depleted as a result of fraudulent debit card activity. By now, the balance is probably zero.
Unlike credit cards, where the cardholder’s risk of loss due to unauthorized transactions is limited to $50, with a debit card you could be liable for the entire loss! Your entire account balance – and then some – could be entirely wiped out. That’s quite a financial risk.
If you notify the card issuer that you lost your card, and no one has used it just yet, from that point forward you are not liable for any fraudulent charges. For example, your purse or wallet was stolen or you just used your debit card and a short time later it’s gone.
However, when someone uses your debit card before you report it as lost or stolen, the risk-of-loss meter starts. If you report the unauthorized charges within two business days of the transactions occurring, your risk of loss is limited to $50. The cardholder personal risk of loss jumps to $500 after day two. After 60 days of failing to notify the card issuer of fraudulent transactions, 100% of the financial loss is on you. In this case, you do not have physical possession of the card.
But what happens in this time of increased data breaches if you have physical possession of your debit card, but someone has somehow secured your card number, name, and security code through no fault of your own? You must review your bank statements to mitigate your risk. If you have physical possession of your debit card, and someone has drained the balance of the account, your risk of loss is zero IF you notify the cardholder within 60 days of the bank statement being provided to you, that reflects the fraudulent transactions.
- Do not use debit cards.
- If you do use debit cards (gulp), make it a habit to review your bank account activity on- line every day.
- Review each bank statement immediately once it’s available for any unauthorized activity
- Have a separate bank account for your debit card, and do not have any other electronic payments or bank accounts tied to it.
- Keep a minimal balance in the debit card account—that way you limit the ultimate risk of loss in case you are not monitoring the daily activity associated with that account.
Aside from the loss of funds, debit card holders have other factors to consider. Once the money is gone, how long does it take for the bank to put the stolen funds back into your account? What do you do if your house or rent payment, car payment, utilities, and other charge card payments are electronically withdrawn from the bank account that is tied to your debit card that has just been drained and the account doesn’t have the funds necessary to make the electronic payments? What if you are on vacation and that debit card is your primary funding source for your trip? Sounds like a nightmare? It can be.
When I’m asked if the plastic card I am using is a debit or credit, that’s a very easy answer. The only question is, do I expend the time and effort to educate that clerk on the potential risks of having that popular debit card.