A Good Finance Article

Gods know, I get all sorts of unsolicited advice from Luis and (of all people) my mother. So here I am reading (and spreading) an article about finances!

"What Debit Card Companies Don't Tell You
by David Bach

Posted on Wednesday, March 21, 2007, 12:00AM

My last column, "What Credit Card companies Don't Want You to Know," received an overwhelmingly positive response, with close to 4,000 comments posted in a matter of hours. It's exciting to see so many Yahoo! Finance readers taking an active role by posting feedback and suggestions.

One reader named Carol wrote, "I do not use credit cards because like a lot of others I got into a lot of trouble using them. After digging myself out, I cut them up and now I only use cash or my debit (bank account) card with a MasterCard logo."

A Debit Card Boom

I can relate. I also switched to a debit card after getting myself deep into credit card debt when I was in college. By using only my debit card, I became more disciplined about spending. Carol and I aren't alone: Debit card use today is at an all-time high. You may be surprised to know that consumers are actually using debit cards more often than credit cards now. In fact, according to market research firm Mintel, debit card use surpassed a trillion dollars last year.

The Benefits of Debit Cards
Using a debit card for purchases is convenient, and it keeps you out of debt. After all, you can't spend what you don't have in your account. There's also no bill to worry about -- which means no interest, no late fee, no over-the-limit fee, no annual fee, and so on. Make a purchase and the money comes directly out of your bank account. What could be simpler?

But the same things that make a debit card so simple to use is also what makes it so risky. When your debit card information is compromised, thieves have direct access to your bank account.

Seven Tips for Debit Card Use
Obviously, it's important to understand the risks of debit card use, and how to protect yourself from those risks. Here are seven tips you need to keep in mind about debit cards:

1. Know your debit card's liability policy.
Many banks advertise that they offer "zero liability" debit cards. This means that if an unauthorized charge is made on your card and the transaction is signed for, you are not liable for the fraudulent purchase -- much like if you were to use a credit card. However, it's really important to understand that in most cases, this zero-liability policy only applies to signature-based transactions when you're using a debit card with the Visa or MasterCard logo.

This means that if an unauthorized purchase is made using your debit card with your personal identification number (PIN), in most cases the zero-liability policy won't apply. What's more, the zero-liability policy for debit cards is just that -- a policy, not a federal law. Ultimately, then, liability for fraudulent transactions are subject to review by the bank that issued the card. That said, it's possible that your bank offers a zero-liability policy even on PIN transactions, although very few do. Check with your bank.

2. Lose your PIN, lose your money.
Because PIN-based debit card transactions (regulated by the Electronic Funds Transfer Act) generally don't carry the same protection as signature-based debit card transactions (regulated by the Truth in Lending Act), you want to do everything possible to safeguard that PIN. If your debit card information is stolen along with your PIN and you don't notify your bank right away, your entire bank account could potentially be wiped out.

According to the law that governs electronic fund transfers, in order to limit your liability you must report suspicious debit card use for PIN-based transactions to your bank within two business days -- which will only put you on the hook for $50. Losses reported after two days will increase your liability to $500.

That's not all -- if you report unauthorized use of your debit card after 60 days from the time you received your statement, the bank doesn't have to reimburse you at all. In fact, you might even be liable for the maximum overdraft line of credit they extended to you. It's possible that your bank could have a greater protection policy than what the law requires; check to make sure you know what yours is.

3. It's easier than you think to have your debit card information stolen.
Your physical debit card doesn't need to be stolen out of your wallet or lost in the mall parking lot in order for your information to be compromised. This month, the Wall Street Journal ran an article on an increasingly common debit card scam.

In this scam, criminals attach "skimmers" to the card-swiping devices at grocery stores, gas stations, and even banks. Undetected by consumers, these skimmers copy debit card numbers -- including PINs -- that are entered. Once the skimmer is retrieved by the criminal, the information is sold or used to create fake debit cards. (Actually, this scam applies to both credit and debit cards. However, thieves prefer to steal debit card information since credit cards are monitored more closely by banks.)

So be on the look out for physical tampering at your ATM or checkout line, which could indicate that a skimming device is present. Don't use unbranded ATMs, either -- the kind you find in convenience stores or gas stations. Also be aware of people lurking too closely at ATMs, or even for hidden cameras when you're entering your PIN. Use your hand to shield the numbers you're entering on the keypad.

4. Check your bank statement online every day.
Does that sound extreme? Trust me, it's not. While you're online checking email every day, take two minutes to log on to your bank's web site (from a secure computer, of course) and pull up your current statement. Glance over your recent transactions and make sure they're all legitimate. If you see anything suspicious, call your bank immediately. Don't wait for your paper statement in the mail. By then it might be too late.

5. Don't let your debit card out of your sight.
Make sure all your debit transactions are handled without the card being taken out of your line of sight. Once you take your eye off the card, anyone who handles it has the opportunity to steal the card information.

6. Check your credit report regularly.
If you suspect that your debit card information has been compromised, report it to the credit bureaus right away. Order a copy of your credit report and monitor it regularly. For a (genuinely) free credit report, go to AnnualCreditReport.com. They offer a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies, in accordance with the Fair and Accurate Credit Transactions Act.

7. Know when not to use your debit card.
There are certain situations in which it simply makes sense to use your credit card instead of your debit card. If you're making a "sight unseen" purchase over the Internet, for example, you have more recourse with a credit card if the item arrives in poor condition or not at all.

Personally, I never use a debit card for online purchases. It's always much more difficult to have money returned to your bank account than to dispute a charge on your credit card statement. Finally, if you can avoid it, don't use a debit card when paying for a hotel stay, car rental, or even at the gas pump. When you do, banks put a block on a certain amount of money in your account until the entire transaction is complete and posted -- which could take days. In the meantime, your money is tied up and you won't be able to access it, which could lead to fees being incurred for an overdrawn account.

When using a credit card in these situations, be sure to pay the balance in full as soon as your bill arrives."