The Risks of Using a Debit Card

by Joe on July 2, 2010

I have been out of the blogsphere for a month;  my wife and i took a vacation and we made a lot of memories with family and friends. But now that i am back, i want to keep writing and talking about the stuff that makes us wake up early, and stay late in the office or wherever we go.. that is money and debt; because quite frankly you either have money or debt. In most cases most people have more debt  than the money and we are trying to look for more money to get rid of the debt!

Today we look at the risks involved when using a debit card. I am not a proponent of credit cards  and infact, after paying off over $15,000 in credit card debt i would be the last person to advice on using that credit card. However, when using the debit or checkcards, there are several risks that you should be aware of- previously published at yahoo money.

Here’s the brief version of the risks involved when using  debit or check cards:

1. Loss Limits
Like credit cards, federal law limits your liability for fraudulent transactions on a debit card to $50. But that’s only if you notify your financial institution within two days of discovering the theft. If you’re a space cadet and don’t check your bank statements for a couple of months, you could lose everything.

2. Pay Now/Reimburse Later
If someone has fraudulently used your credit card, you don’t have to pay the charge. But when somebody has fraudulently used your debit card, the money comes directly out of your account in real time. That means you’re out the money while the bank does a leisurely examination of their records to investigate your fraud claim. Many consumers complaining to Privacy Rights Clearing House said they lost access to their funds for several weeks. In the meantime, they were caught short and unable to pay their bills.

3. Merchant Disputes
The same problem affects merchant disputes. If you pay with a credit card when ordering something online, and that product comes damaged, broken or not at all, you can dispute the charge and stop payment with your credit card. If you used your debit card, the charge is paid when you made the order. By the time you find out the goods weren’t what was advertised, the merchant has your cash and you’re in the unenviable position of having to fight to get your money back.

4. Phantom Charges
If you use a credit card at a hotel, the hotel takes an imprint when you check in, but doesn’t charge your card until you check out. It’s a far different story with a debit card. Generally, hotels will put a “hold” on funds in your account for more than you’re spending. Yes, more. They hold the full amount of your stay, plus an estimated amount for “incidentals,” such as meals at the hotel restaurant and dipping into the mini-bar. This is not an actual charge–the hold will come off your account at the end of your stay. But it affects the available balance in your checking account anyway and can lead to overdrafts. One consumer said these phantom charges cost him $140 in overdraft fees. These “holds” are commonly placed on debit card transactions made at hotels, gas stations and rental car companies.

5. Overdrafts, Overdrafts and More Overdrafts
Overdraft charges have been soaring in recent years and the vast majority of consumers who pay them explain that their overdraft was the result of a debit card transaction. Many consumers naively assumed that if they didn’t have sufficient funds in their accounts, their bank wouldn’t approve a debit swipe. But they were wrong. The result: a $4 coffee could trigger a $35 overdraft fee. Government regulators are reigning in these fees by demanding that banks give consumers a chance to “opt out” of automatic overdraft protection, but that doesn’t start for existing accounts until August. (If you have a new account, it’s starts in July.)

 6. Skimming
Financial crooks have gotten sophisticated in recent years and are using “skimming” machines to read your card data and charge your account. When your debit card is skimmed, your bank account can be drained before you know that you’ve been had.

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{ 2 comments… read them below or add one }

Financial Bondage July 2, 2010 at 9:26 am

Glad you got to have family and vacation time. That’s important stuff. So far I’ve had no problems using the debit card. Hopefully I won’t have any.

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Joe July 2, 2010 at 12:22 pm

FB!
My check card info was compromised last year.. no idea how – and the ‘thief’ was buying stuff online and shipping them to our house. The pattern began with a dollar charge.. then five dollars.. then forty five.. and in four days the ‘thief’ tried a $1500 transaction.. luckily the the SEARS online where the transaction had happened required verification of information so the charge did not go through.
However it took about three weeks to have the bank refund the other fradulent charges.
I am now extremely careful especially when shopping online, and i check our online statements very often.

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