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Debit Cards

Debit cards are becoming a common way to pay for merchandise. Banks are advertising them, Visa and MasterCard are backing them and consumes are using them in more and more ways. Many people are finding debit cards to be a convenient way to pay. But there are some things you should know.

First, you may be carrying a debit card and not even know it. Some banks have begun sending replacement ATM cards that double as debit cards. Since the cards often bear the Visa or MasterCard logo, you might be confused about what the card is and how it works. Beware: this is not a credit card. The plastic cards look like credit cards but work like checks. With a credit card, you purchase items but pay for them later. You receive a bill once a month and you can pay all or a portion of the amount you owe. But with a debit card, the money is withdrawn from your checking account when you make the purchase. You must have enough money to cover the cost of what you are buying or you'll overdraw your account.

Two Ways to Use the Card

Debit cards can be used in two ways. In on-line transactions, such as at an automated teller machine or at the grocery store check-out counter, you must input your security code before the transaction is processed. The transaction cannot occur until you enter your code, which offers the consumer some protection. Unless someone knows your code, they cannot access your money.

But many of the new debit cards can also be used in off-line transactions. Off-line means you do not have to punch in your security code and the computer does not automatically check your balance and immediately deduct the payment from your checking account. Instead, the transaction works like a credit card purchase. You hand your card to the salesperson, who gives you a receipt to sign. The money is deducted from your account within three business days.

While many people are finding the off-line option to be more convenient than carrying checks, it has the same drawbacks as checks: you can overdraw your account with a debit card purchase, just as you can with writing a check.

Less Protection

The other potential problem with debit cards is theft. Since the card ties into your checking account, someone who steals your card could steal all of the money in your account. And while you might ultimately be able to get your money back if the card was used illegally, that could take time.

Debit cards do not carry the same kinds of protection as credit cards. If your debit card is lost or stolen and you report it within two business days, you are liable for up to $50. If you report the problem between two and 60 days after it occurs, you are liable for up to $500. If you do not notice and report the problem within 60 days, you could be responsible for all unauthorized charges, according to Bankcard Holders of America.

In comparison, if your credit card is lost or stolen, you are not responsible for any unauthorized charges from the time you report the loss. If someone uses your cards before you report the loss, you are responsible for no more than $50 on each credit card.

if you use a debit card, be sure you know what you have to do to limit your losses if the card is lost or stolen.

What It Costs

Debit cards offer convenience for consumers and banks. For consumers, carrying a debit card means not having to carry a checkbook or cash. A credit card offers the same convenience, but you have to pay the bill at the end of the month. With a credit card, you can spend more money than you have, which can ultimately mean paying even more in interest costs. For some consumers, that makes the debit card a more appealing way to pay.

For the bank, debit cards cut down on check processing fees, which are much higher than the cost of posting a debit transaction to a customer's account. They also offer a new income source, because most debit cards come at a cost the consumer. Fees vary. Some banks charge a per-transaction fee. You might be charged 25 cents each time you use the card to pay a bill. Some banks are offering the cards free for the first few months and then at a cost of $1.25 or $1.50 per month, regardless of how often you use it.

Debit cards are relatively new, but many banks are touting them as the wave of the future as they move toward more automated banking. Be sure you read the information that accompanies your card and call your bank if you have questions about how the card works or how much it will cost to use it. And make certain the benefits of a debit card will outweigh its costs.

August 1996

Maryland Attorney General's Consumer Protection Division
Consumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free

 
 

Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
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