Two years ago, Nina Robinson lost touch with a trusty, old friend: her checkbook.
For years, the marketing director wouldn’t go anywhere without it. Her checkbook had a permanent home in her purse and had rescued her many a time when she was short of cash.
These days, Robinson writes checks so rarely she can’t keep track of her checkbook.
Her new financial companion? A debit card.
“I live on that card,” Robinson says. “I use it for almost everything.”
If you’re not yet familiar with debit cards, you will be soon. The cards are the fastest-growing form of payment in the world. Use of debit cards has nearly doubled each of the past four years. Visa alone handled more than $1 billion in debit-card purchases last year.
“Use of debit cards is exploding,” said Nikki Waters, senior vice president of San Diego-based Star System Inc., an ATM network.
Debit cards are essentially turbo-charged ATM cards. They were introduced more than a decade ago and allowed bank customers to use their ATM cards to buy goods and services, mostly at gas stations and grocery stores. Before long, Visa and MasterCard issued their own debit cards, adding millions of retail and service companies to the list of places that accept debit cards.
The cards, which withdraw money directly from checking accounts, caught on as a way to bring the convenience of credit cards to the pay-as-you-go set and to those who couldn’t get credit cards because of financial problems.
Best of all, debit cards provide a more hassle-free payment process. No daytime phone numbers. No driver’s license numbers.
But many people don’t understand how to use their debit cards. Some confuse the cards with their look-alike credit-card cousins. Others are rightly concerned about possible fees.
“They’re good for certain situations, but it’s not a replacement for everything in your wallet,” said Steve Rhode, president of Debt Counselors of America, a non-profit group.
So before you pull out that so-called “plastic check,” here’s what you need to know about your debit card.
It’s little wonder people get the wrong idea. Many debit cards feature a Visa or MasterCard logo. When you use them, you may push the “credit” button at the cashier. You can authorize the purchase with your signature, and the receipt may even read “credit.”
But trust us, you’re not charging. You won’t pay interest. You won’t get a bill. There’s no 25-day grace period or money float.
“The money is coming directly out of your checking account,” explains John Hall of the American Bankers Association.
There are two reasons for the Visa or MasterCard logo. First, it means consumers can use the debit cards anywhere the credit-card counterpart is accepted. Second, retailers use the same computer network to authorize your debit-card purchase that they use for credit-card purchases.
With checks, you usually get some float on your money, so you can count on a day or two before the payment will post to your bank. That won’t cut it with debit cards.
When you present your card, the retailer sends an electronic message to your bank asking whether there are enough funds. (The retailer doesn’t learn your balance or other personal information.) If the account is empty, you’re out of luck.
So some retailers prefer debit cards. They don’t bounce.
On-line and off-line–this is where most people get lost. Banks and retailers will say it doesn’t matter which system you use, but it can determine how much you pay in fees, where you can use the card and what you can do with it.
Both systems operate off the same card. In other words, that single ATM card in your wallet can be used for on-line and off-line purchases.
The on-line system is operated by regional ATM networks, such as Plus, Star, Interlink and Cirrus. Check the back of your card for the networks you can use. With on-line purchases, you use a personal identification number. The network verifies your account balance and transfers the money to the retailer’s bank almost immediately. With this system, you can withdraw extra cash, just as you do at the ATM. But on-line systems are used at far fewer places because they require retailers to install key punch pads and link to the ATM networks.
The off-line system is linked to either Visa or MasterCard. You may only use the off-line system if the Visa or MasterMoney logo appears on your card. Here you sign your name to a receipt, rather than punch in a code. And the money is transferred a little more slowly, in about one to three days.
Say you’ve learned that the travel agency where you booked that Alaskan cruise is under investigation by state regulators. You’re probably out of luck if you used your debit card.
There’s no “stop payment” in the world of debit. The warranty or insurance you have on your credit card doesn’t apply.
Lastly, don’t expect your bank to come running to your defense. Though federal law requires banks to withhold payments to retailers until disputes over certain credit-card transactions are settled, those rules don’t apply to debit.
There’s a common misconception that debit cards are safer than checks or credit cards in the event of theft or loss. As long as no one knows your secret code, the cards are useless, right?
Wrong.
If the card is stolen and it has a Visa or MasterCard logo, all a thief needs to do is forge your signature. The next thing you know, your bank account is dry.
Even more disturbing: You are less protected against unauthorized charges than you are with credit cards.
But debit-card issuers have recently enacted changes to lessen the risks of fraudulent charges. Under current federal law, consumers could be liable for up to $500, depending on when the loss was reported. Recent amendments to MasterCard’s debit-card policy state consumers will have zero liability if fraudulent charges are reported within one business day of their discovery and they will be required to pay no more than $50 for charges reported later. And earlier this month Visa agreed to assume all liability for lost or stolen debit cards if issuers are notified within two days. Beginning in November, consumers would be liable for up to $50 if the Visa card isn’t reported missing within two days.
