Fraud Protection: Debit Versus Credit Cards

Today's guest post comes from Odysseas Papadimitriou, founder and chief executive officer of Evolution Finance, which is the parent company for Wallet Blog and Card Hub.

Debit card use is growing rapidly. Last year, spending on VISA debit cards surpassed spending on VISA credit cards for the first time in history. Although debit card use is growing in popularity, there is a certain amount of confusion around fraud coverage on debit cards, not to mention credit cards.

To help you sort out the differences, here is a comparison:

Consumer liability for debit and credit card charges is limited to $50 when fraud is reported. However, VISA and MasterCard, which control 100 percent of the U.S. debit card market, have gone one step further, and require that credit card issuers like Capital One, Chase and Citibank adhere to a zero percent liability policy for their customers. They also require that immediate refunds be granted on disputed charges. Most major credit card networks have applied these rules as well.

The amount of protection offered by debit cards versus the level of protection offered by credit cards is identical, as mandated by the law and in common practice. But this is not to say that the level of protection matches the level of convenience. Both debit and credit cards offer zero percent liability, meaning that all consumers who find themselves victims of card fraud will end up in the same place–their money will be refunded. However, because of the way debit cards are structured relative to credit cards, unauthorized debit card use can have a huge impact on a consumer’s wallet and on his or her psyche.

It’s common knowledge that when you purchase something with a debit card, the cash amount for that purchase is deducted from your available balance instantaneously. Now imagine your checking account is wiped out due to fraud on the debit card associated with it. Now imagine your car payment is due tomorrow. If you’ve already sent your payment by check, it will likely bounce. If not, you won’t be able to pay your car note, nor pay for the gas you need to drive your car until the fraud issue is resolved with your bank. Never mind that these days, most people simply can’t afford for something like that to happen, the scenario described above would naturally cause anyone to undergo a considerable amount of stress.

Alternatively, the line of credit on a traditional credit card represents borrowed funds. This means that when fraud is committed against a consumer credit card account, nothing is lost directly. Also, there are usually between 25 to 55 days before the consumer will even become responsible for the debt that was accumulated due to the fraud. In that amount of time, a watchful consumer would generally have detected the fraud, reported it and had it resolved.

Credit cards should be the first choice for consumers who want maximum convenience and minimum hassle should they become the victims of fraud. In the case that you have no choice but to use a debit card, report any unauthorized transactions you notice right away. And if your bank is slow to move or tells you that it can’t issue you a refund for whatever reason, you may want to remind it of the agreement it made with VISA or MasterCard in order to be able you to issue you your debit card in the first place. If this doesn’t work, get in touch with the network in question and ask that they investigate. They are usually pretty quick to respond.

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