My credit and debit cards went on a shopping spree a few weeks back.
Unfortunately, I wasn’t along for the fun.
By the time the lost cards were canceled, the damage was roughly $5,000 in charges, nearly $2,000 on the debit card. The silver lining to the abused cards is this article.
If you get ripped off, all you have is frustration and anger; when it happens to me, at least I get to warn others of what lies ahead. (This is why my wife believes that every bad financial thing, from audits to fraud to probate problems, eventually will happen to us.)
Moreover, because my case involved a credit and a debit card, it presents a perfect opportunity to examine the differences between the two, because they are never more obvious than when the card has been used to commit a crime.
Credit cards need no introduction. Buy today, pay tomorrow, and throw in some interest when you can’t pay the whole thing off. Throw in a few additional features such as frequent-flier miles or travel insurance, and you pretty much have the whole picture.
Debit cards, meanwhile, are linked to a checking account and are an extension of the standard cards for use at automated teller machines (ATMs).
The bank teams up with a credit provider such as MasterCard or Visa, and the debit card is accepted wherever the regular credit cards are taken.
The difference is that debit cards, sometimes called check cards, take the money straight from your account. Some transactions deduct the cash immediately, as if you had gone into the bank and had the teller hand you the money. Generally, in these instances, you enter a personal identification number to go along with the transaction. During a shopping spree, however, you likely will make “off-line” transactions, for which you are asked to sign, and it takes a few days for the store to process the trade and collect the money from your account.
Banks want you to use debit cards rather than ATM-only cards because they make extra money every time you plunk down the plastic instead of a check to buy something. Many banks, mine included, no longer offer cards strictly for ATM use.
Debit cards generally lack the bonuses of free insurance and other features, but the good news is that your spending is constrained by your account balance, which should keep you from racking up the debt.
Where the cards differ greatly is in the situation I encountered, in which each was lost and used fraudulently.
For credit cards, after reporting the card missing, you write a letter to the company or fill out a form that disputes the improper charges. Within 30 days, the credit card issuer must, by law, either acknowledge receipt of the letter or correct the bill. If it does not make the fix, it has two billing cycles to set things right or explain why it has not made the change.
You have the right to withhold payment of the disputed amount until the situation is resolved. You may be charged interest and penalties, but it must be subtracted if you are proven right.
Assuming you report the missing card immediately after losing it, your potential liability should be no more than $50.
In the debit situation, however, the money in question is gone from your account when you report the card missing. The thief has already emptied your account.
Sadly, many people don’t find out there is a problem until they get their next bank statement or the checks start bouncing.
“John and Mary Workhard can’t afford to have their money tied up for a few days, or may not have an understanding landlord who doesn’t mind getting a check late or holding it a few extra days,” says Paul Richard of the National Center for Financial Education. “If you lose a debit card, you have much bigger problems than with a credit card.”
The law encourages institutions to resolve these problems as quickly as possible, with a maximum of 10 business days from when you notify the bank until the funds are restored.
Alternatively, the institution can give you provisional credit–where the money is put in your account and you are allowed to use it–while it takes up to 45 days to investigate.
Assuming you are proven correct and that you notified the institution within two business days of realizing that the card was lost, your liability should max out at no more than $50. Waiting any longer to report the card missing raises your liability to $500 or more pretty quickly.
While my bank asked me to file a police report, contact one of the merchants involved and file a formal letter, those are not necessary steps before refunds can be processed. The clock starts ticking on the day the lost card is reported.
What makes the misuse of a card even harder to stomach is that, short of never losing a card, there is virtually nothing you can do about it.
In my case, the credit card was kept for emergencies but virtually never used. The card issuer somehow missed out on the fact that a card that hadn’t been swiped through a machine for over a year was suddenly on a rampage.
“Many card issuers have neural networks that track the behavior of the customer and raise a red flag when something out of the ordinary happens,” says Joe Alcodray, a Dearborn, Mich. consultant to the credit card industry.
“The company then contacts you to make sure you have the card and are using it this way. But, obviously, that doesn’t always work.”
Another thing that didn’t work was how I signed the cards. Trying to safeguard them, I had done something I had heard from experts in the past, putting X’s or “Please See ID” where the signature should have been. Technically, unsigned cards aren’t valid. They should have been signed before they were accepted, and the merchants should have requested ID to verify it was me who was signing (I lost only the cards, not my identification).
The fact that no one forced the fraudulent user of my cards to pony up a picture ID means the merchants probably never looked at the back of the cards. From now on, I’ll sign all cards, add “See ID” to the debit card–and then harass the clerks who accept it without asking for my license.
Two other tips for card use: Photocopy the contents of your wallet so you know what is missing if it is lost or stolen. And stop carrying cards you don’t use; chances are good I could have done without the emergency Visa.
“Sign the cards and stay on top of your statements, and be particularly vigilant with the debit card, because that is your biggest liability,” says Gerri Detweiler, author of “The Ultimate Credit Handbook.” “Nobody realizes how bad and inconvenient these problems are until it happens to them.”
In all cases, debit or credit card, follow up any loss by contacting any merchants with whom you have electronic bill payment–because the cards will be canceled and the bills won’t get paid–and keep copies of all correspondence and all bills involved. Although the incident should not find its way to your credit history because any negative information caused by fraud should be wiped out, you never can be too careful.
