Understanding the Risks of Debit Cards

Armen Hareyan's picture

Debit Cards

Debit cards are quickly replacing cash and checks as a convenient way to pay for purchases. While quick and easy, debits cards are not without risk, so be sure to take necessary precautions. Here is what the Colorado Society of CPAs says you need to know to manage your use of debit cards.

Dispute resolution differs for debit cards

When you purchase an item with a credit card and that item turns out to be defective, you have a right to withhold payment until the issue is resolved. This right is protected under the Fair Credit Billing Act. In merchant disputes, dissatisfied debit card customers don't have the same protection.

Since your debit purchase is deducted from your account at or shortly after the time of purchase, you're on your own if something goes wrong with the purchase. The bank won't redeposit the money in your account for items that fail to be delivered, are of poor quality, or don't work. Debit cards may be a great way to pay for gasoline or groceries, but for big-ticket items, it's wiser to use a credit card.


Liability protection puts the burden on the card holder

If someone misuses your credit card, your maximum liability under federal law for unauthorized use is $50. The regulations that protect you from fraudulent use of your debit card are not as user friendly. With a debit card, your liability, under federal law, for unauthorized use depends on how quickly you report that your card has been lost or stolen.

For example, if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 of unauthorized use. Your liability increases to $500 if the lost or stolen debit card is reported within 60 days.

Failure to report unauthorized use within 60 days after your bank mails you the statement will cause you to face unlimited loss. This means you can lose all the money in your bank account and, perhaps, the unused portion of any line of credit established for overdrafts.

As with credit cards, once you have