Last time we were talking about the potential benefits and drawbacks to using debit cards. This time well talk about about some of the consumer protections available to debit card users:

Consumer Protections for Debit Card users

Federal law includes protections against debit card errors and the loss or theft of your card, although consumers are required to promptly report a lost debit card or unauthorized transaction. In addition, industry practices may give you added protection.

“To be fully protected under the law, you must submit specific information about unauthorized debit and ATM card transactions within a short time period,” stressed Kirk Daniels, an FDIC Supervisory Consumer Affairs Specialist. “That’s also why it’s important to review your bank statements and report a problem as soon as possible.”

Unlike the federal protections for credit cards, which cap your liability for unauthorized charges at $50 (see the credit card section), your liability limit for a debit card depends on the situation and your promptness in reporting the lost card or unauthorized transaction. Specifically, the maximum legal liability is $50 if you notify the bank within two business days after discovering an unauthorized transaction. But if you notify your bank after those first two days, under the law you could lose up to $500, or perhaps much more. Some banks may voluntarily waive all liability for unauthorized transactions if the cardholder took reasonable care to avoid fraud or theft, but consumers must still report errors promptly.

In addition, with transaction errors, banks have up to 10 business days (and in some cases 20 business days) to promptly conduct an investigation after receiving notice from the debit cardholder. If more time is needed, typically because of special circumstances, they can take up to 45 days (and in some cases 90 days) to investigate, but they generally have to credit the consumer’s account for the amount of the alleged error on a “provisional” (temporary) basis pending the outcome of the review.

“Until the bank provides provisional credit, you could temporarily be out of pocket for the amount in dispute,” said Richard Foley, an FDIC attorney who specializes in consumer issues. “This would not typically happen with a credit card because consumers can withhold payment of the amount in dispute.”

Also, as discussed on the next page, consumers have better federal protections when they purchase faulty goods with credit cards.

Final words of wisdom about Debit cards

Debit cards may be especially useful for small and routine purchases, but they are considered less beneficial than credit cards for major purchases or buying items online because of the more limited protections in cases of unauthorized transactions or disputes.

Next time well move on to Credit cards and talk about their benefits and drawbacks.