Debit Card Laws
In 2009, U.S. consumers made 37.9 billion debit card payments, according to a report published by the Federal Reserve in December 2010. The report also highlights the increasing popularity of debit cards compared with other payment methods. Debit cards offer the convenience of plastic without the temptation to rack up debt. The use of debit cards is not without risk -- but there are laws to protect you from significant loss.
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Loss
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If you lose your debit card -- or it is stolen -- inform your bank as soon as possible. If you report the matter before the card is used, the Electronic Fund Transfer Act prohibits your bank from holding you accountable for any fraudulent use. If unauthorized transactions occur before you notify your bank, federal rules restrict your maximum financial loss, depending upon how quickly you act. Report the matter within two business days, and you face a maximum loss of $50. If you fail to notify your bank within two business days but report the matter within 60 days, you face a loss of up to $500. Fail to act within 60 days, and there is no federal restriction on your financial loss.
Overdraft
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Federal rules prohibit your bank from applying its standard overdraft terms and practice to debit card transactions that would result in your account becoming overdrawn, unless you have specifically agreed -- opted in -- to the arrangement. This means that, unless you have opted in, your bank cannot approve a transaction for which you have insufficient funds in your account and then hit you with its standard overdraft fee. Typically, these transactions will be declined -- so avoid point-of-sale embarrassment by keeping accurate records of your account balances.
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Statement Errors
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As soon as your bank statement arrives, check for errors and unauthorized withdrawals. A thief may get hold of your debit card details without physically stealing your card, through a process known as skimming. If your card has been skimmed, by the use of either a hand-held device or a unit placed in an ATM, you will not be aware of this until a fraudulent debit appears on your statement. Under federal rules, if you report an unauthorized transaction within 60 days of the statement date, your bank has 10 days in which to investigate and two more days to credit your account with the amount of an erroneous debit. If the bank needs longer to investigate, it must credit your account with a sum equal to the amount in dispute. Should the investigation find in your favor, the credit will remain -- if not, the bank must notify you in writing before debiting the relevant sum from your account.
Considerations
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MasterCard and Visa provide debit card users with loss protection that exceeds the statutory requirements. Check your card issuer's terms and pay particular attention to any conditions that apply. Whether you are relying on statutory protection or enhanced terms provided by your card issuer, always safeguard both your card and your PIN and promptly notify your bank of loss or misuse.
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References
- Board of Governors of the Federal Reserve System: Federal Reserve Study Shows More Than Three-Quarters of Noncash Payments Are Now Electronic; James Savage; December 2010
- Federal Trade Commission: Credit, ATM and Credit Cards: What To Do If They're Lost Or Stolen; June 2002
- Board of Governors of the Federal Reserve System: New Overdraft Rules for Debit and ATM Cards; June 2010
- Federal Deposit Insurance Corporation: Debit vs Credit Cards How They Stack Up; Fall 2009
- Federal Trade Commission: Resolving Specific Identity Theft Problems
