Credit Vs. Debit Fraud Coverage

Credit cards offer better fraud protection than bank ATM / debit cards.

Debit cards do not provide the same safeguards as credit card anti-fraud protection features. Three-fourths of consumers don't understand the important differences between credit and debit cards, according to the National Consumers League. Many people use debit cards and credit cards interchangeably, increasing their risk of identity theft and fraudulent charges.

Problem

Over 9 million Americans fall victim to identity theft every year, according to the Federal Trade Commission. Stolen credit cards and debit cards can provide a starting point for identify thieves. A crook in possession of a stolen debit or credit card can quickly max out a credit card or empty a bank account.

In both cases, reporting the theft as quickly as possible minimizes the damage caused by the thief. Credit cards offer more protection against fraud than do debit cards.

Credit

Under federal law, the maximum fee for unauthorized use of a credit card is $50, according to the Federal Trade Commission. If the cardholder reports the theft before it is used, he is not liable for any charges. The FTC also notes the cardholder is not liable for any charges if the credit card number is used but the card itself is not stolen. Although federal law limits liability to $50, many large credit card companies have a zero liability policy, and they refund disputed charges at once, according to Kevin Coffey, founder of Corporate Travel Safety.

Debit

The FTC reports that liability for debit card fraud is also $50, but only if the cardholder reports the card stolen within two business days. After two business days the bank holds the cardholder is responsible for up to $500. A cardholder assumes complete responsibility for any charges to a debit card if more than 60 days elapse between the mailing of the bank statement listing the first unauthorized use and the reporting of fraudulent activity.

Action

Report any evidence of credit or debit card misuse to the bank that issued the card immediately. Stolen debit cards require special care. In addition to reporting the card stolen, close the checking account associated with the card and open a new account. Do the same with any bank accounts linked to the checking account, not matter how tenuous the connection. Given the possibility the thief could access savings accounts or lines of credit, playing it safe is the best option.

Recommendation

In terms of safety, credit cards offer better fraud protection than debit cards do, especially for online purchases. The two-business-day limit on reporting missing debit cards greatly increases the risk that the cardholder will be held liable for a significant amount.

Credit card companies immediately refund disputed charges until their investigation is complete. In contrast, unauthorized debit charges are not refunded until after the bank concludes its investigation, which can leave the cardholder short of funds.

References

• Coffey, Kevin: Crooks Who Use Your ATM Card as a Passport to Your Account.
• Federal Trade Commission: About Identity Theft

Resources

• National Consumers League