The holiday season is upon us and that means shopping. Gifts for friends and family, tax returns, etc… odds are your personal spending will go up over the next two months and some of that will be through online purchases. In today’s world the paper processing of transactions through cash and checks are dwindling. Electronic transactions are king and is done through the use of a little plastic card. It’s important for people to understand the difference of the cards that are in your wallets and purses because they do have significant differences when it comes to protection.
“It’s important that consumers understand the difference between a debit card and a credit card,” says John Breyault, director of the Fraud Center for the National Consumers League, a Washington, D.C.-based advocacy group. “There’s a difference in how the transactions are processed and the protections offered to consumers when they use them.”
There are two primary types of cards you can have, credit cards and debit cards. Credit cards are issued by a bank and the transaction is using the bank’s money, not yours. Through a credit card you are borrowing the money from the issuing bank and have to pay it back at a set interest. A debit card is tied directly to an account that is yours. You are spending your money that you control withdrawing the funds directly. The cards may look very similar but they are quite different.
Both are convenient, debit cards are using your funds so there is no interest, credit cards have additional costs associated to them if you do not pay the balance off right away. The real problem between the two is not the use of the cards themselves but it’s around the protections you have as a consumer and banker. There are federal laws and regulations that cover you as a consumer and limits your responsibility and liability for a compromised card’s charges you did not authorize. However, one is the bank’s money and the other is your hard earned cash.
When a credit card is compromised, and I have experienced this twice, you call the bank and they cancel the card and wipe the transactions that were fraudulent/unauthorized from my account and issue me a new card. It’s a hassle but I am not out anything other than a few days while I wait for a new card number. The bank then goes behind the scenes and goes after their money, stops payment, etc… As a consumer I am protected.
Consumer rights: credit cards
• If your credit card is lost or stolen and charges are made, you are not responsible for more than $50. Most issuers provide $0 liability coverage if you notify them very quickly.
• You may be able to challenge charges from a merchant if you are unhappy with your purchase, as long as you do not pay the item off. This should only happen after you have tried to resolve the issue with the seller, and the charge must be for more than $50.
• You can dispute a credit card charge in certain cases and temporarily withhold your payment as it is investigated on the condition that you write to the credit card issuer at the proper billing inquiries address. The letter must reach the issuer within 60 days from when the statement listing the charge was mailed to you.
• Should the seller go out of business, the card issuer can reimburse you for the cost of the purchase you never received.
Debit cards have the same types of protections, some bank’s differ on this so pay attention, but since the debit cards are direct lines into your bank account it’s your money that’s immediately transferred out. Any money that is lost from a compromised debit card is out of your pocket. You probably will get it back, but it may take several months for the bank to complete that process. That means if you have your primary account loaded up with all your dispensable cash and it’s drained to zero, you are in a tough spot until your money is returned.
Consumer rights: debit cards
• When using a debit card to buy holiday items, you have a much shorter window for resolving issues, since money is quickly taken out of your account upon purchase. You may owe up to $500 for the charges if you don’t report the error within two days. If you wait too long, you may be responsible for all of the charges. Grant recommends using a credit card whenever possible because of the stronger protection it provides.
• The bank must investigate any unauthorized debit card charges within 10 days of you notifying them. If the issue is still not resolved after that, the bank is required to temporarily credit your account for at least part of the amount in question and continue its investigation, generally for 45 days. If it turns out that no error is discovered, the bank can reclaim the money with a written explanation.
• Unlike with a credit card, you generally cannot halt payment on a defective or undelivered item made with a debit card.
Read more: http://www.creditcards.com/credit-card-news/consumer-rights-for-credit-and-debit-cards-1282.php#ixzz3LhVIwD6M
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The protections around getting your money back quickly and the reduced protections you have is why you NEVER use a debit card for an online purchase. Your account could get drained and the two-day limit could pass before you realize it if you are not checking your account daily or not have balance alerts sent to you for large purchases or low balance. In a perfect world for you, use your credit card everywhere and always. This requires high discipline on paying the balance and spending only what you have but I know many people who use their credit card for everything from a pack of gum to weekly groceries. In electronic transfers, currently, credit cards are the best option.
Financial responsibility still sits 100% on your shoulders. Banks and retailers are looking out for themselves first, you a distant second. Your money and financial transactions ultimately are under your control. In the event of an electronic transaction method gets compromised know what your protections and plan of action is to protect yourself, your credit and your money. If you aren’t sure or are hesitant, take a step back and don’t do it until you are comfortable with the risks. Security breaches, credit card fraud and other threats are only going to continue to grow as the world gets more and more digital and the hackers and thieves get more and more sophisticated in their attacks.
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Binary Blogger has spent 20 years in the Information Security space currently providing security solutions and evangelism to clients. From early web application programming, system administration, senior management to enterprise consulting I provide practical security analysis and solutions to help companies and individuals figure out HOW to be secure every day.