Are You Vulnerable?
Do you have a debit card? Do you know your responsibilities if someone uses your card? What's your liability? If you don't know, apparently you're not alone.
While MasterCard, Visa, and Bank of America recently announced they will cover the liability incurred by their customers for unauthorized transactions, other card companies have yet to make such statements. Most cardholders don't realize the significance of these statements because most don't know that debit cards are governed by different rules than other payment mechanisms and thus, the cardholder could be liable for transactions due to fraud. Due to this lack of education, Representative Charles E. Schumer of New York recently has introduced legislation to: 1) adjust the liability caps, and 2) require the conditions to be stated in clear English and larger type.
Despite the recent announcements from Visa, Consumers Union, a non-profit group which publishes Consumer Reports, says consumers will still face delays when trying to recover money. "Unlike a credit card, a loss with an unsecure debit card is instantly drained from your checking account," said Gail Hillebrand, an attorney for the Consumers Union. "Consumers may find themselves without a penny in their account and may face enormous bounced check penalties as a result of theft, fraud, or error. Carl Pascarella, president and chief executive of Visa USA says banks have been "very, very pro-active" in trying to curb fraud. He said lines of credit will be extended within five business days of notification of lost, and many banks waive fees that result from theft. Overall, he said the level of fraud is "minuscule" amounting to less than one tenth of one percent of card volume. But, if you're that one tenth it doesn't seem minuscule. And five days is a long time to go without any money.
The increased risk associated with debit cards may be part of the reason why, despite the reported growth in off-line debit card transactions from $279.3 million in 1993 to $1.2 billion in 1996 (Debit Card News), Gordon Sellon of The Federal Reserve Bank of Kansas City says there is no widespread demand for the cards. In fact, some banks are postponing their debit card programs.
Another liability challenge is that banks are finding it cheaper to send customers debit cards when their ATM cards need to be replaced. The California Public Interest Group says at least two entities, Great Western and Bank of America, are automatically replacing ATM cards with debit cards.
Many of these customers didn't ask for a debit card and are concerned that cards are more likely to be stolen since they don't require a PIN number and they arrive unexpectedly. Plus, many customers are confused. Just what is that card arriving in the mail? Is it an ATM, credit, debit, enhanced ATM, check card, or what?
The long and short of it is summed up in Sellon's analogy: TV did not replace radio and debit will not replace any other payment mechanism. Debit cards will coexist with all current payment methods, including checks which grew in transactions from 62 billion in 1995 to 64 billion in 1996. (Watch for the 1997 Check Study planned for release on September 1, 1997).
