With the recent electronic data theft from Target, Neiman Marcus, and others in the 4th quarter of 2013, many people are looking for an alternative to their bank or credit union issued debit card. We are getting a lot of questions like:
- How safe is my debit card?
- What happens if I find unauthorized electronic debits in my bank statement?
- How do I get reimbursed for unauthorized usage of my card? How long does it take?
Bank customers and credit union members all over the country have concerns about the safety of their data. Let’s be clear here, your financial institution very likely has the best anti hacking software made today. There has not been a significant breach of banking data since 2011. How often are retail merchants the victim of identity theft hackers? It seems like every month we hear about a new breach!
The problems really lie with the retailers like Target. Their security was so poor the thieves were able to use common malware that had been used before in other data breaches and the bad guys didn't even encrypt where the money was going! Essentially, Target was broken into by an amateurish gang who left all kinds of evidence of what was happening, but Target’s IT department failed to recognize the danger. (See the article in the Minneapolis Star Tribune for a story on the methods of the thieves.)
Target will not be paying for anyone’s monetary losses resulting from the fraud. They won’t be paying the millions of dollars it cost the financial institutions to replace all the compromised debit and credit cards. Retailers have no responsibility to their customers when there is a data breach. For many of you this is a very surprising revelation but that is how it works today. The financial institutions are forced to pay for their customer’s losses after a hacker has broken into the merchant’s computerized payment system. Target’s breach cost banks and credit unions $200 million so far! It cost credit unions in Wisconsin $750,000 alone. The numbers for California are still being calculated.
(Okay, I am done with my “I am so mad at Target’s weak data protection.” screed. Now, let’s talk about Debit Card security.)
The debit card is a viable alternative for paying in store charges as well as preauthorized transfers. When managed properly, it has very strong anti-fraud/anti-theft procedures. The Federal regulation known as Regulation E provides consumer protections for fraud against unauthorized use of a debit card. One has 60 days from the issuance of their account statement in which the problem or error occurred to contact their financial institution and file a Reg E complaint. This is true for banks and credit unions.
Once the complaint is filed it takes about 48 hours for most institutions to issue provisional credit to their clients for the disputed items. Each will have a different procedure so you should make yourself familiar with the procedure at your institution. The reimbursement is pending an investigation into the fraud. Most investigations are completed within 10 days resulting in final credit or revocation of credit. Reg E limits a consumer's liability for unauthorized electronic fund transfers, such as those arising from loss or theft of an access device, to $50; if the consumer fails to notify the depository institution in a timely fashion (>60 days after the statement was issued), the amount may be $500 or unlimited.
The key to this is that customers of banks and credit union members need to keep an eye on their accounts. It is so much easier today than 10 or 15 years ago as we now have online and mobile banking. Our customers and members can keep up on their accounts while on the run and be able to address any inconsistent transactions immediately with their institution. The faster someone reports an unauthorized transaction, the faster the institution can reimburse them.
One of the reasons credit cards are being pushed as a payment alternative is that the credit card companies are pushing this issue and have been for many years. My friends at Visa would want people to pay all their bills and groceries with a credit card and then write one check at the end of the month to pay all. According to the credit card companies this protects your checking account from being exposed to fraud. Of course, the credit card companies would be very pleased if you could only pay a portion of their bill. Then the consumer will be paying interest and that is the issuers’ primary desire!
For domestic payments, I would use my debit card and keep a close watch on my checking account thru my online banking program. I would definitely use a credit card when traveling internationally.
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Real World Budgeting for Teens and College Students
Saturday, March 22, 2014 - 10:00 -11:00 a.m.
Chesbro Financial Center, San Jose, CA
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