As for which method of debit card use -- PIN or signature -- is most secure, consumers are bit schizophrenic. According to a STAR/First Data study in 2005, 47% of consumers preferred PIN debit because they felt it was more secure. But the December 2005 issue of the Chicago Fed Letter, published by the Federal Reserve Bank of Chicago, noted that "cardholders perform twice as many signature-based debit transactions as PIN-based debit transactions. Cardholders in the United States performed 10.3 billion signature-based transactions and 5.3 billion PIN-based transactions in 2003."
And with all that activity, only 20% of those surveyed in the STAR/First Data study were aware that their debit cards have the same zero liability coverage as their credit cards.
"While debit cards offer much in the way of convenience, with equal protection against fraud and loss, they don't appeal equally to everyone," McBride says. "Consumers who always pay their credit card balances in full will find that a rebate credit card is far more attractive than a debit card due to the higher rewards and additional float time on the money."
Debit card use will continue to grow because consumers find them an efficient way to manage money. Nevertheless, there are still a few aspects, such as daily usage limits, overdraft risk and blocking, that need to be considered.
Here's how blocking works, according to the FTC: You use a credit or debit card when you check into a $100-a-night hotel for five nights. At least $500 of your available credit or available amount in your checking account is immediately reduced by that amount. In addition, hotels and rental car companies often add anticipated charges for "incidentals" like food, beverages or gasoline to the blocked amount.
Saturday, August 1, 2009
How to get money back
So what happens if a cardholder has a problem and wants her money back?
"The process varies by issuer," Krattli says. "Call the bank, let them know there's a discrepancy -- that they didn't receive what they ordered, didn't like it, etc. A customer service representative will talk them through some of the steps that will be taken. In most cases, they get the money back in their checking account within five business days."
Sloane thinks consumer concern about loss will continue to push the debit card business. "Zero liability hasn't worked itself all the way out on the debit side, and the next phase will be offers of recovery. A bank will say, 'We'll help you recover accounts.' Maybe five years from now the banks will offer some kind of insurance policy for the best customers."
"The process varies by issuer," Krattli says. "Call the bank, let them know there's a discrepancy -- that they didn't receive what they ordered, didn't like it, etc. A customer service representative will talk them through some of the steps that will be taken. In most cases, they get the money back in their checking account within five business days."
Sloane thinks consumer concern about loss will continue to push the debit card business. "Zero liability hasn't worked itself all the way out on the debit side, and the next phase will be offers of recovery. A bank will say, 'We'll help you recover accounts.' Maybe five years from now the banks will offer some kind of insurance policy for the best customers."
Equal protection
Another feature of credit cards that has been added to debit cards is fraud and loss protection. Discover Card, Visa and MasterCard branded debit cards now have the same fraud and loss protections as credit cards. In Bankrate's survey, every bank that offers debit cards provides fraud and loss protection.
The Fair Credit Billing Act and the Electronic Funds Transfer Act provide procedures for consumers to follow if a credit or debit card is lost or stolen.
Under the Fair Credit act, your maximum liability for a stolen credit card is $50.
The Electronic Funds act, which covers debit cards, says liability is dependent on how quickly you report the loss or theft. If you report the theft within two business days, you are liable only for $50 in unauthorized use. If you don't report the loss in two business days, according to the Federal Trade Commission, "you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts."
While the FTC's warnings about losing a check card are dire, the reality may be much less scary. Over the past few years, Discover Card, Visa and MasterCard have extended their zero-liability protection to debit cards. In effect, check cards now have the same protections as credit cards.
For Visa, offering zero liability "makes sense," Krattli says. "We make sure you have acceptance wherever you shop and make you feel as secure as you can be about your purchase. That's part of our brand promise: payment options, acceptance, comfort and security for purchases."
Despite the coverage, McBride has a caveat for consumers. "While many debit card issuers offer the same protection against fraud as that of credit cards, it still means closing the barn door after the horse is already out. It may take some time to restore the funds to the account, unlike a credit card where the cardholder can withhold payment on any fraudulent purchases."
Sloane also advises consumers to find out how their bank processes debit transactions.
"Visa has extended zero liability, but the banks have to agree. A transaction must go through the Visa or other network in order to be covered. You have to ask your bank whether zero liability applies to that debit card. Otherwise, they'll say you're exposed to the FTC rules. What is not discussed much is how long it takes to get the money back into the checking account rather than credit back."
The Fair Credit Billing Act and the Electronic Funds Transfer Act provide procedures for consumers to follow if a credit or debit card is lost or stolen.
Under the Fair Credit act, your maximum liability for a stolen credit card is $50.
The Electronic Funds act, which covers debit cards, says liability is dependent on how quickly you report the loss or theft. If you report the theft within two business days, you are liable only for $50 in unauthorized use. If you don't report the loss in two business days, according to the Federal Trade Commission, "you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts."
While the FTC's warnings about losing a check card are dire, the reality may be much less scary. Over the past few years, Discover Card, Visa and MasterCard have extended their zero-liability protection to debit cards. In effect, check cards now have the same protections as credit cards.
For Visa, offering zero liability "makes sense," Krattli says. "We make sure you have acceptance wherever you shop and make you feel as secure as you can be about your purchase. That's part of our brand promise: payment options, acceptance, comfort and security for purchases."
Despite the coverage, McBride has a caveat for consumers. "While many debit card issuers offer the same protection against fraud as that of credit cards, it still means closing the barn door after the horse is already out. It may take some time to restore the funds to the account, unlike a credit card where the cardholder can withhold payment on any fraudulent purchases."
Sloane also advises consumers to find out how their bank processes debit transactions.
"Visa has extended zero liability, but the banks have to agree. A transaction must go through the Visa or other network in order to be covered. You have to ask your bank whether zero liability applies to that debit card. Otherwise, they'll say you're exposed to the FTC rules. What is not discussed much is how long it takes to get the money back into the checking account rather than credit back."
Debit cards: A good deal gets better 2
With most debit cards, however, points are earned only on signature purchases and aren't earned in specified cases, including ATM withdrawals, balance transfers or payments made to prepaid or reloadable cards.
"I guess consumers have shown that they do respond to rewards, even when those rewards are less substantial than on the credit side," Sloane says. "I still believe the primary consumer motivation is better management of their finances. Secondary motivation is the thought that, 'as long as I'm using my debit card, I might as well get something back from that.' "
Regardless of the differences between credit card and debit card reward programs, one has to evaluate how one uses them.
"Credit card reward programs only work if you use the rewards and pay off the balance every month," McBride says. "If you do pay off your balance every month, you have no need to use a debit card. You can use the issuer's money until the bill comes and keep your own cash in an interest-earning account."
"I guess consumers have shown that they do respond to rewards, even when those rewards are less substantial than on the credit side," Sloane says. "I still believe the primary consumer motivation is better management of their finances. Secondary motivation is the thought that, 'as long as I'm using my debit card, I might as well get something back from that.' "
Regardless of the differences between credit card and debit card reward programs, one has to evaluate how one uses them.
"Credit card reward programs only work if you use the rewards and pay off the balance every month," McBride says. "If you do pay off your balance every month, you have no need to use a debit card. You can use the issuer's money until the bill comes and keep your own cash in an interest-earning account."
Rewards a mixed bunch
Though not as robust as reward programs on credit cards, debit card reward programs are still a good thing for those who use debit as an alternative to credit cards, cash or checks.
For example, the Citi ThankYou program awards one point for every $3 using a PIN and one point for every $2 spent for a signature transaction. The ThankYou program with the Citi Diamond Preferred Rewards Card gives five points for every dollar spent at grocery stores, gas stations and drugstores, and one point per dollar at every other type of retailer, including online and phone purchases.
Comerica Bank's World Perks travel rewards program has two tiers: For a $20 annual fee, cardholders earn one mile for every $2 spent, and for $55 annually, they earn one mile per dollar spent.
The variety of rewards is also broad. Washington Mutual's free checking account gives 3 cents on every purchase up to $250 per year. It also offers "WaMoola for Schools," which earns a point per purchase for the designated school. Points are converted to cash once a year and donated to the school.
Chase has three types of debit card awards. Debiters can earn miles with a Continental Airlines Banking Card (two tiers: $25 annual fee equals one mile for every $2 spent; $65 annual fee brings one mile per dollar) or a United Mileage Plus Check Card ($25 annual fee, one mile per $2 spent). Or they can sign up for free for Chase Visa Extras, which gives one point for every dollar spent on qualifying purchases.
For example, the Citi ThankYou program awards one point for every $3 using a PIN and one point for every $2 spent for a signature transaction. The ThankYou program with the Citi Diamond Preferred Rewards Card gives five points for every dollar spent at grocery stores, gas stations and drugstores, and one point per dollar at every other type of retailer, including online and phone purchases.
Comerica Bank's World Perks travel rewards program has two tiers: For a $20 annual fee, cardholders earn one mile for every $2 spent, and for $55 annually, they earn one mile per dollar spent.
The variety of rewards is also broad. Washington Mutual's free checking account gives 3 cents on every purchase up to $250 per year. It also offers "WaMoola for Schools," which earns a point per purchase for the designated school. Points are converted to cash once a year and donated to the school.
Chase has three types of debit card awards. Debiters can earn miles with a Continental Airlines Banking Card (two tiers: $25 annual fee equals one mile for every $2 spent; $65 annual fee brings one mile per dollar) or a United Mileage Plus Check Card ($25 annual fee, one mile per $2 spent). Or they can sign up for free for Chase Visa Extras, which gives one point for every dollar spent on qualifying purchases.
Convenience and security
The rise of debit card use is attributable to several factors, primarily money management, convenience and security. "Significant awareness was raised about the high interest rates charged by credit cards and the fees for late payments," Sloane says. "Consumers have been educated about the benefits of debit cards. Consumers see it as a way to budget their money more effectively."
"The No. 1 reason consumers are using debit cards is convenience," says Nancy Krattli, the vice president of consumer debit products at Visa. "They provide convenient money management -- you don't have to carry cash, have exact change, and there is no record-keeping because it's on the bank statement."
She says Visa's cardholder surveys indicate that people choose debit for day-to-day transactions such as gas, groceries and drugstore purchases. But, increasingly, they're using them for smaller-ticket transactions such as fast food, coffee at Starbucks, even parking. "The average ticket has gone down," Krattli says. "In 2004 the median was $24, and it has come down to $22 now."
A Visa survey from August 2006 showed that 55% of debit card holders use their cards for purchases of less than $25, and 86% cited convenience as their primary reason.
"The No. 1 reason consumers are using debit cards is convenience," says Nancy Krattli, the vice president of consumer debit products at Visa. "They provide convenient money management -- you don't have to carry cash, have exact change, and there is no record-keeping because it's on the bank statement."
She says Visa's cardholder surveys indicate that people choose debit for day-to-day transactions such as gas, groceries and drugstore purchases. But, increasingly, they're using them for smaller-ticket transactions such as fast food, coffee at Starbucks, even parking. "The average ticket has gone down," Krattli says. "In 2004 the median was $24, and it has come down to $22 now."
A Visa survey from August 2006 showed that 55% of debit card holders use their cards for purchases of less than $25, and 86% cited convenience as their primary reason.
Debit cards: A good deal gets better
With no fees for transactions, no debt added to high-interest credit cards, "zero liability" fraud protection and new rewards programs, the debit, or check, card is proving to be a grand slam for consumers.
Debit card fees for transactions, whether PIN or signature, have nearly disappeared, according to Bankrate.com researchers who surveyed the 10 largest banks and thrifts in each of 10 top markets. Only seven of the 100 institutions charge a point-of-sale fee for PIN transactions. Five of those charge per transaction and two charge a monthly fee.
The public loves them Debit cards have become nearly universal. Of the 100 banks surveyed, only three do not offer them. Of those that do, only two banks, Bank of the West in San Francisco and Firstrust Bank in Philadelphia, charge an annual fee to have a card.
This is very good news for consumers, who have embraced debit cards as their preferred purchasing plastic. According to the Federal Reserve, since 2003, debit cards, which draw money from your checking account, have been used to make more purchases than credit cards, which are used to borrow money.
"The competitive environment for banks demands that they position themselves to the consumer as offering low-cost checking accounts," says Tim Sloane, the director of the Debit Advisory Service at Mercator Advisory Group, a payments-industry research firm. "Core to the value proposition for consumers is debit cards. The once-common practice of charging transaction fees on debit cards has disappeared."
Greg McBride, a senior financial analyst at Bankrate, agrees.
"Point-of-sale fees for PIN-based debit card transactions appear to be more myth than reality," McBride says. "Nonetheless, cardholders should always verify the terms with their issuers to avoid being surprised."
For signature transactions, only Wells Fargo has a fee, and that is $1 per month for some customers, regardless of the number of transactions. "Some customers -- depending on account type and applicable waivers -- are charged a $1 usage each month in which they make a purchase using their check card or their ATM card," says Lisa Westermann, a spokeswoman for Wells Fargo. "The fee is charged for unlimited PIN-based and signature-based point-of-sale transactions and is only charged if either card has been used for point-of-sale purchases during the statement cycle."
Debit card fees for transactions, whether PIN or signature, have nearly disappeared, according to Bankrate.com researchers who surveyed the 10 largest banks and thrifts in each of 10 top markets. Only seven of the 100 institutions charge a point-of-sale fee for PIN transactions. Five of those charge per transaction and two charge a monthly fee.
The public loves them Debit cards have become nearly universal. Of the 100 banks surveyed, only three do not offer them. Of those that do, only two banks, Bank of the West in San Francisco and Firstrust Bank in Philadelphia, charge an annual fee to have a card.
This is very good news for consumers, who have embraced debit cards as their preferred purchasing plastic. According to the Federal Reserve, since 2003, debit cards, which draw money from your checking account, have been used to make more purchases than credit cards, which are used to borrow money.
"The competitive environment for banks demands that they position themselves to the consumer as offering low-cost checking accounts," says Tim Sloane, the director of the Debit Advisory Service at Mercator Advisory Group, a payments-industry research firm. "Core to the value proposition for consumers is debit cards. The once-common practice of charging transaction fees on debit cards has disappeared."
Greg McBride, a senior financial analyst at Bankrate, agrees.
"Point-of-sale fees for PIN-based debit card transactions appear to be more myth than reality," McBride says. "Nonetheless, cardholders should always verify the terms with their issuers to avoid being surprised."
For signature transactions, only Wells Fargo has a fee, and that is $1 per month for some customers, regardless of the number of transactions. "Some customers -- depending on account type and applicable waivers -- are charged a $1 usage each month in which they make a purchase using their check card or their ATM card," says Lisa Westermann, a spokeswoman for Wells Fargo. "The fee is charged for unlimited PIN-based and signature-based point-of-sale transactions and is only charged if either card has been used for point-of-sale purchases during the statement cycle."
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