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

Posted By Claes Bell On 10/22/2013 @ 8:30 am In Banking | 6 Comments

There 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?


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