[ PIRG's Consumer Program | Watchdog | Banking Issues
PIRG CONSUMER WATCHDOG FACT SHEET #6 APRIL 1997, REVISED AUG 1997 

PIRG:  ATM Debit Cards

1. INTRODUCTION

Look in your wallet. Pull out your ATM card. PIRG has been receiving complaints about fraudulent use of new ATM "debit" cards with Visa or Mastercard logos. The new cards can be used with or WITHOUT a secret code (PIN) in gas stations, grocery stores or restaurants, or even over the phone, just like a credit card.

When the cards are used without a PIN, it is called an "off-line" transaction. A thief who has a copy of a debit card restaurant receipt can drain your checking account, even if your card itself or PIN hasn't been stolen. Worse, under the law, your liability is higher for debit card fraud than for credit card fraud, although VISA and Mastercard have announced that their issuing banks are voluntarily reducing liability, due to pressure from PIRG and other consumer advocates. Worse, regardless of your ultimate liability, with ATM debit card fraud, the thief has your money, from your checking account, and you still have to fight to get it back from the bank.

 VISA calls its ATM card a VISA CHECK CARD. Mastercard calls its card a MASTERMONEY CARD. Some banks issue one, some the other. Banks are pushing them hard, and replacing expired "plain old ATM cards" (which can be used in some restaurants and gas stations with a PIN or secret code) with these slick debit cards, without asking if you want one.

 Here's why: More merchants have credit card readers than PIN-based readers and banks make more money when you use an off-line debit card than when you make a PIN-based on-line transaction (the bank gets a percantage fee, or merchant discount, from the merchant who accepts the off-line card, instead of a smaller flat fee for PIN-transactions). 

For either debit card transaction, both banks and merchants make more money and face lower risks than when you write a check-- the bank saves money on check clearing costs, there is less float time, and the merchants doesn't need to worry about bounced check risks or bounced check fees.

 The cards also offer consumers convenience, but at a price.
 
 

2. QUICK FACTS: WHY ATM DEBIT CARD PROBLEMS ARE WORSE THAN CREDIT CARD PROBLEMS AND PIRG'S RECOMMENDATIONS

(1) YOUR LIABILITY IS GREATER THAN WITH A CREDIT CARD: The law limits consumer liability for credit card fraud to $50. For debit card fraud, your liability is $50 if you notify the bank with 2 days of learning of the fraud, and $500 or more after two days, up to the entire amount stolen under certain circumstances. 

  • Although the banks have announced voluntary plans to limit liability to $50 or less, it should be the federal law (as it is in Massachusetts).

(2) THE THIEF HAS YOUR MONEY AND YOU HAVE TO GET IT BACK: Your debit card usually accesses your checking account. If the thief drains it, you have to fight with the bank to get your own money back. Meanwhile, your other checks could bounce and you could face bounced check fees, bad credit reports, cash flow problems and other hassles. (With credit card fraud, you simply fight with the bank about getting disputed charges off your account, not getting your own moeny back.) 

  • Reinvestigation timetables under the law must be toughened, banks should issue provisional refunds quickly and banks should be required to make consumers whole after fraud occurs by restoring credit reports, sending apology letters to creditors, etc.

(3) BANKS GIVE YOU THESE UNSECURE CARDS WITHOUT ASKING AND MAKE IT HARD TO GET A PLAIN OLD CARD: Consumers should have an affirmative choice whether to take on the risk and hassles of one of these cards or continue with a plain old ATM card.
 
 

  • Banks should be required to give consumers a clear choice between PIN only and off-line cards and consumers should be allowed to return unsolicited off-line cards to receive PIN-only cards without hassle. Banks should be prohibited from mailing unsecure cards that do not require affirmative activation.

3. THE DETAILS: BEFORE YOU ACCEPT AN ATM-DEBIT CARD FROM YOUR BANK, KNOW THE FACTS

"Easier," "more convenient," "less burdensome," and offering "greater access to your money" than checks, "traditional" ATM cards, or credit cards...this new "debit" card appears to have it all, according to the banks.

 Most banks have either issued, are promoting, or are considering giving their customers a new access device known as a debit card -- often called "check cards." A debit card is an upgraded ATM card branded with the Mastercard, VISA, or other familiar credit card company logo. In addition to using it either in ATM machines or at the relatively small number of merchants with PIN-based card readers, you can use your new ATM card in "off-line" transactions at many of the thousands of locations credit cards are accepted (Although not all, for example, while most car rental firms will let you pay your final bill on a debit card, most require that you "rent" the car on a credit card). 

While offering consumers definite advantages -- you can save money because you are spending money from your checking account rather than paying interest on a credit account and you can use them everywhere credit cards are accepted -- debit cards also come with their fair share of risks. Unfortunately, many consumers may learn of these risks only after they have lost money from their bank account.

 1) THIEVES HAVE EASIER ACCESS TO YOUR MONEY. Banks promote the fact that debit cards work like a credit card to allow you to make purchases at department stores, entertainment locations and specialty stores -- places where you cannot usually use a traditional ATM card. The major difference between the new debit cards and traditional ATM cards? Debit cards can be used without entering a personal identification number or PIN, in what is known as an "off-line" transaction.

 Unlike a credit card, however, if you lose your debit card, a thief can drain your entire bank account (and even your line of credit) -- without knowing your PIN. Furthermore, unlike a check, a photo ID is generally not required by the merchant to use a debit card.

 AND EVEN IF YOU DON'T LOSE YOUR CARD, a thief who knows your card number can drain your bank account. Although on-line transactions (where a PIN is required) and ATM machine receipts include a truncated (or shortened) version of your account number, off-line receipts include the full number. Save or completely destroy all receipts. 

2) DEBIT CARDS MAY SUBJECT CONSUMERS TO GREATER LIABILITY FOR UNAUTHORIZED TRANSACTIONS. While debit cards, which automatically deduct money from your checking account, may save you money over interest-bearing credit cards, there are important differences between a credit card and a debit card in terms of how much you may owe when someone makes unauthorized charges on your account. 

Credit cards are regulated by the Truth In Lending Act (Federal Reserve Board Regulation Z). Your liability for any unauthorized transactions made on your account before you report a lost or stolen card is limited to $50. Notification to the card issuer is given when you take reasonable steps to inform the card issuer in person, by telephone, or in writing, of the loss, theft, or unauthorized use of your card, whether or not the card issuer does in fact receive the information.

 ATM debit cards are regulated by the Electronic Funds Transfer Act (Federal Reserve Board Regulation E). Although many banks say your liability is limited to $50 with debit cards, you should ask to see their written policy. Some states, such as Massachusetts, may limit your liability to less than the Regulation E maximums. Ask your attorney general or state banking commissioner. (In late July-early August 1997, VISA and Mastercard banks announced that they would voluntarily limit liability to $50 or less, although some banks may not comply until 1 January 1998.)

 Under federal ATM debit card law, Regulation E, you may be held liable for unauthorized transactions in 3 tiers: 

I) $50 IF YOU NOTIFY THE BANK WITHIN 2 DAYS OF FINDING OUT YOUR CARD IS LOST OR STOLEN;

 II) UP TO $500 IF YOU NOTIFY YOUR BANK AFTER 2 DAYS OF LEARNING OF THE LOSS OR THEFT;

 III) POTENTIALLY, UNLIMITED LIABILITY FOR ALL UNAUTHORIZED TRANSACTIONS THAT OCCUR AFTER 60 DAYS FROM WHEN YOU RECEIVE YOUR STATEMENT CONTAINING THE UNAUTHORIZED TRANSACTIONS IF YOU FAIL TO NOTIFY YOUR BANK WITHIN 60 DAYS OF RECEIVING YOUR BANK STATEMENT.

Your liability for unauthorized transactions made before your statement is sent, and up to 60 days following, is based on the first two tiers of liability. If someone makes an unauthorized transaction on your account without actually obtaining your card, the first two tiers of liability do not apply, but you would be liable for all transactions that occur after the close of 60 days of receiving your statement and before you give notice to the bank.

 3) YOU MAY BE WITHOUT YOUR MONEY FOR A PERIOD OF TIME IF A THIEF ACCESSES YOUR ACCOUNT: What makes matters much worse is that while a dispute over fraudulent use of a credit card involves money you (or the thief) allegedly owe the bank, a dispute over fraudulent use of your debit card involves you fighting to get your own money back. You may bounce other checks because your account was ripped-off. You may incur late fees or have a black mark put on your credit report because of overdrafts due to fraudulent debits. (If you do have a problem, demand that the bank makes you whole by paying all bounced check fees and accrued interest on your credit line, if any, and sending letters to any creditors and to the credit bureaus, if any of your checks bounced due to the thief. Confirm later yourself that your credit reports have been corrected -- Get the PIRG "watchdog fact sheet "credit.")

 Even if the bank does not impose the maximum liability under the three-tiered structure, you can be without the use of your money for up to 10 days, and in some cases, up to 45 days while the bank investigates the reported unauthorized transaction. If the transaction resulted from a point-of-sale debit card transaction (at a merchant location), the time periods allowed for the bank to complete its investigation are doubled -- to 20 days which may be extended to 90 days.

 4) YOUR BANK MUST DISCLOSE WHAT YOUR LIABILITY IS IF IT CHOOSES TO IMPOSE LIABILITY: If a bank chooses not to impose any liability on its customers for unauthorized transactions that occur on their accounts, it does not have to make any liability disclosures. If your bank does choose to impose liability, however, whether under federal or state law or other applicable law or agreement, it must give you a summary of your liability for unauthorized transactions to your debit card and the procedures it will follow to resolve unauthorized transactions before you make the first transaction on your debit card.

 5) BANKS MAKE MORE MONEY FROM DEBIT CARDS: Banks make more money when you use a debit card than when you write a check. The bank gets a fee, or merchant discount, from the merchant who accepts the card, the bank saves money on check clearing costs, and there is less float time--the time it takes for a check to clear. The bank receives a percentage fee of up to 2% of every off-line transaction amount, as opposed to a flat fee of 7.5 to 10 cents for each on-line transaction with a PIN.

 6) PREVENTIVE STEPS TO AVOID LIABILITY FOR UNAUTHORIZED TRANSACTION: a) Watch your checking account balance.
b) Call your bank immediately to report a lost or stolen debit card.
c) Check your statements immediately for unauthorized transactions. 
d) Complain by phone and in writing to your bank as soon as you notice any transactions on your statement you did not authorize.
e) Get the full name of anyone you speak with on the phone at the bank. 
f) Ask the bank for a copy of your rights in Electronic Funds Transfer Act (Regulation E) disputes.

 7) WHERE TO COMPLAIN: a) If you cannot resolve a debit-card related problem with your bank, you should write to:
 
 Federal Reserve Board
Washington, DC  20551

b) In addition, send copies of your complaints to PIRG. 

U.S. PIRG
218 D St. SE
Washington, DC 20003.
Phone 202-546-9707
E-mail: webmaster@pirg.org

We are writing Congress and state legislatures to urge hearings on the critical problems with debit cards. Contact us (see below) if you have experienced problems with unauthorized transactions on your ATM/DEBIT card. Contact us if your bank refused to give you a plain old PIN only ATM card when you asked.

   


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