Debit Card Traps - Part I

According to a recent article in Reader's Digest, debit cards have replaced credit cards as the "plastic of choice," with debit cards used for 33 percent of in-store transactions compared to 19 percent with credit cards. That number is expected to jump to more than 50 percent in the next three years.

The increase in the use of debit cards has translated into an increase in debit card fraud. In 2007, hundreds of visitors to a national chain restaurant in Sioux City, Iowa, learned that thieves had stolen their debit card numbers by swiping them through a "skimmer" device, and made cloned cards. These cloned cards were then used to make purchases in California and Mexico. This came on the heels of the massive data breach reported by TJX Companies.

One of the biggest misconceptions about debit cards is that they offer the same protection against fraud as credit cards... probably because they both have the familiar Visa or Mastercard logo stamped on the front of the card.

When you make a purchase with a credit card, and the service or product is not delivered or is not what was promised, you can dispute the charge with your credit card company. Under the terms of the federal Fair Credit Billing Act, the credit card company must remove the charge while it investigates your dispute.

There is no such grace period with debit cards. Once the money is pulled out of your account, it's gone - and under the terms of the Electronic Fund Transfer Act, the issuer of your debit card is not legally required to investigate or help you with your dispute.

While federal law generally limits your liability on both credit and debit cards to $50 provided you report the crime within two days of receiving your statement, recouping your cash is not a sure thing. And if you fail to notice the suspicious activity right away, you may be liable for up to $500 or more.

How to Protect Yourself

• Don't ever hand over your debit card at a place where they process the card out of your sight, such as a restaurant.
• Don't use debit cards for online purchases or big-ticket items.
• If a store's card reader prompts for your PIN, override the sale by pressing Credit/Other or ask the cashier to process the transaction as credit.
• Gas stations are notorious for being "hot spots" for skimming. If you must use a debit card at a gas station, use your PIN and don't let the card out of your hand.
• Take advantage of your bank's online banking system and check your statements frequently.