NEW YORK (MainStreet) First there was the Target card breach that compromised many tens of millions of credit and debit cards. Then there was the Neiman Marcus breach. Then the Michael's breach. The list goes on, and so the question has to be asked: is it time to cut up your debit card?
Understand: debit cards have markedly weaker consumer protections than do credit cards. With a credit card, under federal law, your maximum liability for unauthorized use of the card is $50, and the reality is that most issuing banks will waive even that.
A crook can rack up tens of thousands of dollars of bogus charges on your credit card and you won't be out a dime.
Debit cards are a different, scarier story. Federal law says that you are out $0 if you report the loss before any use occurs. That jumps to $50 if you report within two business days. The ceiling climbs to $500 if you report within 60 calendar days. If it takes you longer, forget about it: all the losses are on you.
That creepy, one-sided math is why savvy consumers are keeping their debit cards firmly in their purses and wallets.
Listen to Carol DelliCarpini, a gift director with LaBella Baskets: "Debit cards have become more unsafe to use. That's why it is prudent for me to only use my debit card in an emergency. I keep it with me just in case I need it while on the road driving with my family, or if I am in need of groceries. I do not use it to make purchases at department stores."
"I don't use my debit card except at ATMs owned by the issuing bank," said Matthew Goldman, CEO of Wallaby, a credit cards rewards company. "You just have much stronger protections with a credit card."
A big plus of debit cards is that the consumer typically cannot spend him - or herself into trouble because the card is linked to a checking account, and when that empties out, the card stops working.
But that's where the good news stops.
Attorney Stephen Lesavich, author of The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards, pointed out a huge disadvantage of debit cards: "When a fraudulent debit card transaction occurs, the money is immediately taken out of your bank account. It is your money. It has a direct impact on you. If your bank account is empty, you cannot pay your bills. You do not get your own money back unless you dispute a fraudulent transaction and then win the dispute. This may be several months later."
Dispute a charge on a credit card, and it's an entirely different story. According to the Federal Trade Commission, the card issuer must investigate the complaint and, during that time, you cannot be obligated to pay the charge or any interest that might accrue as a result. Basically: when bad charges show up on a credit card, you get a free pass, at least until the card issuer investigates and resolves the matter.
With a debit card, not so fast. Particularly when the crook also has your PIN - which sometimes can be bought in online criminal bazaars - many banks take a hard and slow line when it comes to restoring access to funds that went out to charges you are disputing.
You may not be able to pay your rent or your electric or your car note - all while you wait for the investigation to run its course.
That plainly is bad news, and it is news specific to debit cards.
So, should you cut up your debit card? Probably not, it's still the best way to get money out of an ATM - but shrewd advice, followed by an increasing number of wary consumers, is to keep that debit card firmly in a pocket when shopping at retail or online.
"Consumers are getting smarter," said Goldman. "The last few months have opened their eyes."
Bottomline: The risks of a breach seem to go up daily and if breached, let it not happen with an associated debit card. Your protections with a credit card simply are much higher.
--Written by Robert McGarvey for MainStreet