Why debit cards make you more vulnerable to fraud than credit cards

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Debit cards can have pretty kitties, serious fraud riskThere are a lot of good things about using debit cards. They force you to limit your spending to the money you have on hand, they don’t leave you vulnerable to revolving debt and interest charges that credit cards can, and you can get pretty kitties printed on the front if you want.

One big downside, though, is how vulnerable they leave users to fraud.

With a credit card, thieves who make bogus charges are essentially stealing the bank’s money directly. Cardholders can simply refuse to pay any fraudulent charges that appear on their statement, and the bank is out of luck. On the other hand, debit cards have a direct link to cardholders’ funds, so when a thief uses it, they’re taking money directly from the consumer.

In clear cases of fraud, federal regulations limit the amount of fraud you’ll be responsible for to $50, so as long as you report it in time (within 2 business days of discovering unauthorized purchases). That means your bank will eventually reimburse you for most of your losses, but that can take a while; banks aren’t exactly falling all over themselves to make sure you get your money in time in most cases.

Waiting game with debit card fraud can be hard

A friend of mine recently experienced this firsthand. Her debit card information was stolen and used to manufacture counterfeit cards, which were then used to make several big gas purchases in another city. All in all, $600 was stolen out of her checking account and wasn’t replaced until two weeks later.

As a result, she had to ask for an extension on her rent and was otherwise seriously crunched for cash. Then there are the smaller inconveniences — her local branch is closed by the time she gets out of work, so she had to wait to get a replacement debit card in the mail. And like many people, she had linked several automatic payments to her debit card, so those had to be canceled and made manually with her credit card, which she’ll eventually have to pay off, too.

The sad thing is, what she went through is actually extremely common. A study last year by ACI Payment Systems and Aite Group found that 1 in 5 debit cardholders had experienced fraud within the previous 5 years.

Reducing your risk of debit card fraud

There are a few things you can do to reduce your chance of getting your debit card details stolen. For instance, my friend had recently thrown away an old debit card, which she thinks started the whole thing. If she had shredded the card more carefully and thrown pieces into different bags, she thinks she might not have become a victim.

She also says she plans to be more vigilant about watching her checking account. The thieves made two small Home Depot purchases with the cards to test them before racking up big charges.

You can also try to avoid using your debit card online, where many thieves are able to capture debit card information via spyware and viruses. And exercise caution when swiping your debit card at outdoor ATMs and gas stations — two areas where it can be relatively easy for thieves to install skimming devices to capture your info. Unfortunately, debit card data is most often stolen through data breaches at retailers and other businesses that users ultimately have no control over.

What do you think? Have you ever been a victim of debit card fraud? What lessons did you take away?

{ 6 comments, please add your thoughts now! }

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6 Responses to “Why debit cards make you more vulnerable to fraud than credit cards”

  1. dojo says:

    My husband had a ‘bogus’ charge on his debit card 2 years ago. He immediately contacted Chase and they stopped the $2.57 payment and made sure the money is not taken from his account. This was our only experience in this area.

    Our ways to protect our money: don’t keep the savings/big money in the card accounts. We use this only to transfer money/pay for few things, the ‘big’ money is NEVER connected to a debit/credit card. We don’t keep a lot of money in the ‘transfer’ account or PayPal. If anyone breaks into them, they can find few tens of bucks and that’s all. The rest is better hidden 😀

  2. Karen says:

    My bank is extremely proactive–they told ME my debit card had a problem and replaced it. The short term inconvenience was worth it. A second time, I lost my debit card, and they also replaced it with a minimum of fuss. I’ve never had any Actual Fraudulent Charges on my debit card.

    In contrast, I did have a fraudulent charge on my American Express, and getting rid of the $12.97 charge for a delivery pizza in Illinois (I live in Texas) was a long, drawn-out process, involving an hour on the phone and some mail correspondence.

  3. Bryan says:

    I haven’t had any issues yet, but my a local grocery was compromised, and let us know. I was proactive and called my bank to get a new card.

    My friends on the other hand didn’t, and ended up with around $1000 in fraudulent charges.

    My wife has had two different credit cards compromised. Both Discover, and Chase were excellent with being proactive. Both charges were from Newegg, and were around $1000. The card companies called and asked about the charges, removed them. She had new cards within a couple of days.

  4. Lisa says:

    I recently saw an amount for $1.00 coming out of my debit card account that I didn’t make. I called Patelco (local credit union) and they said they had already stopped it and also stopped the incoming $1000.00 from the same place (looked like someone was using my number online for a BestBuy purchase). The bank told me that the small charges is usually what they see first as the “crook” tests your number to see if it’s real. For once I was happy with my bank 🙂

  5. Cackalacky says:

    “With a credit card, thieves who make bogus charges are essentially stealing the bank’s money directly … and the bank is out of luck.” No, it’s actually the merchant who accepts the card who is out of luck. When a consumer files a dispute over a fraudulent charge, the bank does a “chargeback” and reverses the payment to the merchant. It’s the merchant, not the bank, who is ultimately out of luck. This is why merchants need to be vigilant and check the signature on the back of the card against the consumer’s photo ID.

  6. Paul R. says:

    You have additional protection when using your Debit Card by declaring to the clerk, ring the transaction as credit. That way you are not required to enter a pin.

    At the end of the day your Bank will handle the transaction as a Debit anyway and subtract it from your Checking account.

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