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HSFPP Weekly Update #43 – DEBIT CARD LIABILITY

Message from Flashman: This week’s update is a continuation of previous updates concerning Federal consumer protection laws and regulations. Unit # 5 in the student guide covers the use of credit and credit cards. However, parents tend to feel more comfortable giving their teenagers a debit card instead of a credit card, thinking that this will minimize their risk. However, debit cards come with their own risks. Parents and teenagers need to know the differences in consumer protection with a debit card versus a credit card, especially if the debit card is tied to parents’ bank or credit union accounts. This week’s Website Pick of the Week will help you to better understand the Electronic Funds Transfer Act covering debit cards.

Suggested Activity for Teachers:

Hand out this week’s article In the New$ at the end of your class period. You might also want to share with your students information on the Electronic Funds Transfer Act from website. Encourage them to share this information with their parents. Have students work in teams to answer the Student Activity questions and be ready to share their answers at the next class meeting.

In the New$... Debit Card Liability

With debit card use gaining popularity among U.S. consumers, it is important to remember that with the cards' convenience come additional risks. Chief among these risks are the potential damages incurred when debit cards are lost or stolen.

As noted in Eileen Alt Powell's Associated Press article included in ThirdAge.com's money column, credit card transactions are governed by the Fair Credit Billing Act, which caps consumer liability for purchases made with a lost or stolen card at $50. Alternately, debit card transactions fall under the Electronic Funds Transfer Act, which sets consumer liability based upon the time frame within which the consumer reports a lost or stolen card. For example, the maximum liability is $50 for cards reported lost within 2 business days after the consumer realizes the card is missing. However, that maximum liability jumps to $500 for cards not reported in the first two days (exceptions exist for consumers on extended travel or in the hospital).

Recently, in response to consumer complaints, major credit card companies Visa and MasterCard have set consumer liability on their debit cards at $50, and several companies have instituted zero liability policies. While consumer advocates have welcomed these moves, they still have reservations about the protections in place.

Alt Powell quotes Consumer Reports financial expert Mari McQueen: "A number of banks have been trying to add additional protections to try to make debit cards more secure and to encourage consumers to use them. But these are not legal protections, and consumers should be aware of that. A policy can change, because it isn't the law."

McQueen also points out that fraudulent charges on a debit card can be more damaging than those on a credit card. "As a practical matter, when a debit card is used, the money is gone from your account," McQueen said. "What else will have happened before you get it back? Will all of your checks have bounced with $25 in penalties each?"

Susan Grant, Vice President for Public Policy at the National Consumers League (also quoted in Alt Powell's article), adds that settling disputes over purchases with a debit card is often more difficult than those made with credit cards. "(I)t can be an uphill battle getting the money reinstated in your account," Grant said. "You just don't have the same leverage, because they'vegot your money." Grant encourages consumers to consult theircard issuer’s website to learn exactly what protections are offered and suggests that consumers use debit cards in “cashand carry” situations and credit cards for purchases made for future delivery.

The National Consumer League offers the following “Seven Tips for Responsible Use of Debit Cards”:

If your card is lost or stolen, report the loss immediately to your financial institution.

If you suspect your card is being fraudulently used, report it immediately to your financial institution.

Hold on to receipts from your debit card transactions. A thief may get your name and debit card number from a receipt and order goods by mail or over the telephone. Your card does not have to be missing in order for it to be misused.

If you have a PIN number, memorize it. Do not keep your PIN number with your card. Also, don’t choose a PIN number that a smart thief could figure out, such as your phone number or birthday.

Never give your PIN number to anyone. Keep your PIN private.

Always know how much money you have available in your account. Don’t forget that your debit card may allow you to access money that you have set aside to cover a check that has not yet cleared your bank.

Keep your receipts in one place for easy retrieval and better oversight of your bank account.

(Sources consulted: "Pros and Cons to Using Debit Cards" by Eileen Alt Powell (as found at Third Age.com); "Your Liability if You Lose Your ATM, Debit, or Credit Card," at Nolo.com; "Debit Cards: Beyond Cash and Checks," from the National Consumer League's website www.nclnet.org, and "Debit Cards Still Confusing to Many Consumers," from the Better Business Bureau website www.bbb.org.)

STUDENT ACTIVITY:

Choose two financial institutions that offer debit cards. Using their websites, find the answers to the following questions on the Better Business Bureau website.

1.) What are my liability limits if my card is lost or stolen?

2.) Will I be charged any fees for using my debit card?

3.) Is there a cap on how much money I can debit per day? Per month? If so, what are those limits?

4.) Do I have the same purchase protections with my debit card that I have with a credit card?

5.) Will the financial institution allow me to have my photograph on my card?

6.) If my card is lost or stolen and money is illegally withdrawn from my account, how soon will it be replenished by the bank?

7.) What are the differences between the two institutions? Which institution's card would you rather use, and why?

Website Pick of the Week:

The Federal Trade Commission’s explanation of the Electronic Funds Transfer Act:

http://www.ftc.gov/bcp/conline/pubs/credit/elbank.htm

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.