About six months ago, I wrote a column urging shoppers to put away their check books and start using their check cards -- those debit cards that can be used to draw money from your checking account either at an ATM or in place of a credit card at a store cashier.
My intent was to speed the lines and shorten the waiting time at the grocery store, while encouraging the use of plastic instead of paper.
I pointed out that the Visa Checkcard, which is by far the most widely used debit card, has a "zero liability" policy if used fraudulently. Since Visa debit cards processed nearly half a trillion dollars in spending in 2006, the trend to debit is well under way.
But that column generated dozens of emails, some chastising me for my lack of patience at the grocery store and others pointing out some deficiencies of debit cards. Here are a couple of excerpts:
- Terry, I not only write checks at the grocery store, I use coupons too, so you may not want to get in line behind me.
- Payroll and unemployment insurance request copies of voided checks. It's a nightmare to go around. ... And the DMV won't take debit or credit cards to pay for driver's licenses, stickers or plates.
- Does she the lady in line in front of me have a spouse that has out-of-control spending habits or a controlling spouse that must see each and every transaction she makes? Is she hoping for the 24-hour float on that check from the store to the bank while awaiting a direct deposit paycheck? Just several of many possibilities you didn't suggest in your article.
The Real Danger of Debit
The email that really made me think twice came from someone on the front line of identity theft. Here's part of what he had to say:
I am a Chicago Police Sgt ... and day after day my people have to make reports for all types of identity theft. You were mistaken in so many ways in the article. ... The first thing I tell people is never ever use a debit card. ... When someone gets that card or just the number they can drain your checking account. Sure you can catch it if you check everyday, but by then the damage is done, and any other charges or bills that get paid automatically start bouncing. It takes time to correct the theft and by then the damage is done and the other bills still need to get paid.
Terry Takes it Back!
Obviously, I had some rethinking to do. So I called Visa, and here's what I learned.
Credit and debit transactions are governed by separate Federal regulations. Reg. E says consumers are liable for a maximum of $50 on any fraudulent credit card transaction.
But Reg. Z makes a distinction for debit transactions: Consumers are liable for a maximum of $50 if the fraudulent transaction is reported within two days (which means you should review your checking account online daily) or $500 after that time limit. It's even more if you've received a bank statement in the interim and did not dispute the fraudulent withdrawals.
Also, under Reg. E, banks are required to give you "provisional credit" within 10 days while they investigate your situation. But those 10 days could be a nightmare for people living paycheck to paycheck. That's what the police sergeant was pointing out.
Visa says it definitely does have a "zero liability" policy -- but only if your debit transaction goes over its Interlink network. That's a key distinction, but one that a consumer is simply not able to make when entering a PIN at the merchant.
Visa says about 40% of all debit transactions are done over its Interlink network, while the balance travel over various other banking networks.
Its zero liability policy is not in effect if your transaction goes over those other networks!
That's a huge distinction from using a credit card, where the card issuer is automatically initially on your side in dealing with a merchant in a disputed transaction.
"Consumers should always sign for their purchases to be guaranteed of zero liability," a VISA spokeswoman says.
My New Approach to Debit
When you use your debit card, you're always presented with a choice of using your PIN or asking for a credit receipt. By signing, you turn your debit purchase into a transaction that
go over the VISA network. That's what I've been doing since I learned these distinctions, and I think you should, too.
And that's The Savage Truth!
Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,
The Savage Number: How Much Money Do You Need?
in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald?s and Pennzoil.