Consumers are turning to debit cards over credit cards this holiday season. According to the National Retail Federation’s 2009 study on Holiday Consumer Intentions and Actions, consumer debit card use is up and it’s growing steadily. 42.5% of shoppers will pay mostly by debit card or check card this holiday shopping season. That’s up 2.5% from 2008. Other findings saw credit card use drop 10% from this time last year; just over 28% plan to use credit cards compared to 31.5% in 2008. As the banks continue to raise credit card fees and rates, the debit card seems to be the more attractive choice for consumers. However, it could be a case of jumping out of the frying pan into the fire if the consumer ignores the fine print.
How Debit Cards Work
Debit cards look like traditional credit cards with the MasterCard, Visa, or bank logo embossed across the cards, but rather than borrowing from a bank, debit cards are directly linked to the user’s bank account. There are not interest fees associated with debit cards and they are often more convenient to use in stores.
Other features:
• Usually easier to get than a credit card
• No check approval or identification required to make purchases
• Require a personal identification number for security
• Some come in a combo credit card/debit form
Debit Card Fraud
Most people think credit cards when they think about fraud and identity theft, but debit card theft is quickly on the rise as consumers drop credit cards in favor of debit card. A survey produced by Actimize, an anti fraud firm that monitors and surveys financial institutions, reported debit card theft will grow about 10-14% in 2009. A recent large debit card theft hit California, Missouri, Wisconsin and several other states. Thieves stole information and PIN numbers from ATMs in a Hancock Fabric Store. The estimated loss to banks is so far is $40,000. Thieves have used text messages, phone calls, and direct mailings to get access to consumer debit cards. Wal-Mart recently discovered some of its employees stealing debit card information from consumers at the register.
As far as the banks and credit card issuers are concerned, there is a difference in liability and financial responsibility between debit cards and credit cards:
• Credit card fraud liability is $50
• Debit card fraud liability is $50 if the consumer notifies the bank within 2 days of learning about the fraud. The liability jumps to $500 or more after 2 days. It could be up to the entire amount stolen under certain situations.
Debit Card Overdraft Fees
Since debit cards allow consumers to withdrawal money directly from their bank accounts, it can be easy to overdraw if the consumer is not paying attention. Banks charge a fee to cover these overdrafts, sometimes up to $39 for each overdrawn transaction, no matter the amount of the purchase. Banks are expected to make more than $27 billion in over draft fees this year. The Federal Reserve announced new overdraft rules in November to inform consumers of their rights. The rules would inform users of overdraft fees and debit card policies. The banks would need permission from the debit card user in order to charge overdraft fees at retail stores and ATMs. The rules would not apply to recurring monthly bill payments or overdrawn checks. The new protections will go into effect July, 2010.
Debit Card Reward Programs
Since debit card use is outpacing credit card use, banks are adding reward programs to entice more consumers to use their debit cards to rack up points. Like credit card users, debit card users would be eligible for earning points to buy products, earn frequent flyer miles, and get cash back. Since the debit card reward programs are relatively new, they are not as generous as traditional credit card reward programs. The consumer needs to read the fine print on any debit card reward offer to make sure it is a worthwhile program for their needs.
Education on Debit Card
As consumers tire of the fees and interest rate hike of traditional credit cards, they are looking at using the debit card as their primary source of spending power. Debit cards are not without risk however, and it can be easy to fall into traps and get caught in identity theft. It is in the consumers’ best interest as with any financial product to educate themselves on the potential risk and rewards of debit card use.
Similar Posts:
- New Overdraft Rules: To Opt in or Not to Opt in
- Study finds bank overdraft fees increased 35 percent
- Report: Consumer protections may reduce overdraft revenue by 5 percent
- Overdraft fees can weigh on some consumers’ budget process
- Banks’ fees are not so courteous
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