A few weeks ago, $250 was mysteriously deducted from my checking account, leaving me with $34 to my name. In a panic, I called the 1-800 number on the back of my Wachovia debit card and, after being put on hold for about 15 minutes (and accidentally hung up on twice),  I was told that someone named Hakeen Simpson had walked into a Newark, N.J., bank and withdrawn the cash from my account.

“That’s nice,” I said, then added, “You do realize that’s not my name.”

Almost immediately, the customer service representative on the other line asked, “But do you know a Hakeen Simpson?”

I’ll spare you the rest of the details of this exchange, because, lucky for me (and perhaps my bank), Hakeen Simpson wasn’t trying to steal my money or my identity. Turns out someone in Newark had just made a clerical error in his favor. Also lucky for me (and perhaps my bank), I had no major bills to pay. In fact, I got paid the very next day.  Which meant that I could literally afford to wait out the 48 hours it took to reverse the charge. But what would have happened if that Newark bank teller’s timing hadn’t been so good? The truth, I discovered, is that I would have had to pay the price for someone else’s mistake.

The Fraud Claims Process

“You have to realize that, first of all, the money you are using [with your debit card] is your money. It’s the cash in your account.  When that’s gone, there’s nothing,” Bruce McClary of ClearPoint Credit Counseling Solutions, explained to me, adding that a thief can clean out your funds in seconds. “With a credit card, someone could go on a shopping spree, but, the good news is, it wasn’t with your money to begin with.”

Because of this distinction, different federal laws apply to each payment method. Under the Fair Credit Billing Act, the maximum liability for credit cardholders who report a fraudulent charge within 60 days of its appearance is $50. Conversely, under the Electronic Funds Transfer Act, the law that regulates debit card transactions, a cardholder can be held liable for up to $500 if they fail to report the charge within two days of its appearance. (The $50 liability still applies to debit cardholders who dispute a charge within 48 hours. In fact, the only way you guarantee that you won’t have to pay anything out of pocket is to report the card, whether debit or credit, as stolen before a fraudulent charge is made.)
And, while both laws shift full liability onto the consumer if 60 days has elapsed, the EFTA also permits banks to charge cardholders for any overdraft fees or penalties that may have resulted from the fraudulent charges. This is a big problem, according to Identity Theft Risk Management Specialist Denise Richardson, since many people pay their bills through their checking account.

“If someone gets a hold of your card, you need to notify all of the people who receive automated payments from your account since they will need to know if a check is going to bounce,” Richardson says, adding that “suddenly, a small thing can turn into a major headache.”

Of course, most big banks (as well as debit card endorsers Visa and Mastercard) tout zero-liability policies that say they will refund your money and all incurred fees if the charge is found to be fraudulent.  While this is comforting, most consumers don’t realize that the EFTA gives banks 10 days to do so.

As Doug Johnson of the American Bankers Association explained: “Under [the EFTA], the customer must report an unauthorized electronic fund transfer from their debit account within 60 days of getting their statement. The notice can be oral, but the bank can request a written confirmation within 10 days of the oral notice. The bank will begin its investigation after receiving the oral notice. It will generally not wait for the written confirmation because it must give the customer provisional credit within 10 days of when the oral notice was received if it has not completed its investigation.”

This provisional credit is where a certain debit card urban legend originates. You may have heard stories of full refunds being issued for all incorrect charges almost immediately. According to Richardson, banks will remove disputed charges and begin an investigation “right away” when the charges have been made on credit cards. When it comes to debit cards, it’s a different story. Banks will conduct similar investigations, but it typically takes one to two business days to issue a credit (something that was confirmed by representatives from Wells Fargo, Bank of America and Chase) … or longer, depending on the circumstances.
For example, those who frequently inquire about fraudulent or incorrect charges, which can be considered suspect, may have to wait for the bank to do some preliminary detective work. Johnson explains, “A customer’s account history, an evaluation of past history with the retailer and potentially a discussion with the retailer’s bank could all be part of the investigation.” Additionally, if fraud is the culprit, the bank will have to close your account and issue a new debit card, which can further delay your access to much-needed funds. Therefore, if your identity is stolen at an inopportune time (say, the end the month) you may, in fact, be left scrambling.            

How can you limit the consequences?

For starters, ask your bank to outline its claims policy before you sign up for an account. (If you already have one, call your customer service hotline.) This way you’ll know exactly what you are entitled to should a fraudulent charge appear on your debit card statement. It might save you a few headaches.

I had no idea, for example, that Wachovia’s claims division was open 24/7, 365 days a year.  Instead, I took it at face value when the customer service rep told me I had to wait until the next business day to file my dispute. Apparently, he thought the claims division closed at 8 p.m.

Next, once your account is open, make sure you check it regularly. Ed Kadletz, head of Wells Fargo’s Debit and Prepaid Cards Department, pointed out that, while Wells Fargo monitors for irregular activity, they’re not going to capture everything. Therefore, consumers should “monitor their own transactions,” a sentiment echoed by both Neil Brazil, vice president of Public Affairs for HSBC, and Ben Tanner, spokesperson for Bank of America.
Richardson says that, depending on their specific needs or worries, consumers can purchase additional identity theft protection from an outside company, such as Lifelock or TrustedID, which promise to reduce the chance of incurring fraudulent charges. McClary also points out that there are many smartphone banking apps that will send you automatic updates whenever your checking account balance changes. (And, as we’ve learned, the sooner you discover fraudulent debit charges, the less monetarily liable you are.) However, both he and Richardson suggest reducing your dependency on a checking account entirely.

“I always tell people that if they are going to use a debit card, they should consider only keeping a certain amount of money of it,” Richardson says. “That way, if a thief gets hold of it, they’ll only have access to minimal funds.”

Additionally, McClary suggests keeping “at least three months of net income” in a separate savings account, which can be accessed should life, your bank or Hakeen Simpson throw you a curveball. He also says that you can ask your bank to issue you a separate credit card, which can be used for large purchases and linked to your checking account. This way you can go in to your checking or savings accounts at the end of the day and move funds around to directly pay the bill as you go.

And, if you really must use your debit card like a credit card, you should refrain from using it for online purchases, since entering all of that personal information (card number, expiration date and security code) leaves your account more exposed. Beyond that, McClary agreed with the banks’ suggested plan of action.

“Check your accounts every hour or every 10 minutes if you have to,” McClary says. “Vigilence is the best defense.”

For sites you can use to minimize your exposure to identity theft, check out this MainStreet article “7 Great Sites for Preventing ID Theft.”

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