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Press Release |
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Jean Ann Fox Ed Mierzwinski |
WHAT IS AN "UNSECURE" DEBIT CARD?
The general term "debit card" describes a bank card that directly reduces your bank account balance when you use it for making purchases or withdrawing cash. There are two general types of debit cards: the traditional debit card and the new "unsecure" card.
The traditional debit card is probably most familiar to consumers as a device for making cash withdrawals at ATMs by entering the plastic card and a secret personal identification number (PIN) into the machine. More and more, the traditional, PIN-based card can also be used to make purchases at retail outlets as stores equip themselves with point-of-sale (POS) terminals into which consumers enter their PIN numbers.
Unlike the traditional debit card, though, the "unsecure" card can be used without a PIN. The "unsecure" card can be used by whomever has gained possession of the plastic and presents it for payment. Like with a credit card, a person can use the card for purchases by simply signing a slip of paper or reading the card number over the phone.
Both Visa U.S.A. and Mastercard International offer an "unsecure" debit card product. Marketed under the program names of VISA "check card" and "MasterMoney," respectively, there are now about 60 million "unsecure" cards in circulation in the U.S.
DEBIT CARD FRAUD IS LIKELY TO SKYROCKET WITH THE "UNSECURE" MODEL -- MAKING IT EASY FOR THIEVES TO ELECTRONICALLY PICKPOCKET
A CONSUMER'S CHECKING ACCOUNT BALANCE AND OVERDRAFT LINE OF CREDIT
We anticipate a large increase in debit card fraud if the "unsecure" card becomes widespread. This is because the "unsecure" card system operates without a reliable security system to protect against identity fraud. By stealing the card, or even the card number, a criminal can drain a consumer's bank account and overdraft line of credit.
In fact, in terms of security, the "unsecure" debit card is like a credit card. The only mechanism standing between the thief and the consumer's wallet is a clerk's casual comparison of signatures. And even that minimal security device is gone when the card is used to make purchases over the phone.
Credit card fraud involving unauthorized use of the card has been a significant problem for consumers in recent years. While "unsecure" debit card fraud losses are currently smaller, they could equal or exceed the high volume of credit card fraud losses if the number of "unsecure" debit cards in use increases.
DEBIT CARD FRAUD CAN HURT CONSUMERS EVEN MORE THAN CREDIT CARD FRAUD
Consumers can withhold payment on unauthorized credit card transactions that show up on their monthly statements. As a result, consumers victimized by credit card fraud are not in the position of having to recover stolen funds.
On the other hand, consumers victimized by debit card fraud are forced to take action to recover their funds, which have already been taken from their bank account. Even if a consumer eventually recovers those funds, it could take days or weeks to do so. Meanwhile, the consumer may have no money to meet daily expenses.
BANKS ARE FREE TO REFUSE TO MAKE VICTIMIZED CONSUMERS WHOLE IN A WIDE VARIETY OF CIRCUMSTANCES
Under current federal law, consumers must take several steps to even partially recover financial losses when they are victimized by debit card fraud.
BANKS WILL EARN BIG PROFITS FROM "UNSECURE" CARDS WHILE CONSUMERS SUFFER FROM NEW RISKS
Despite the increased fraud loss risk, many banks have decided to move aggressively forward with the "unsecure" debit card product because the card promises huge profits. Issuing banks can earn far more on an "unsecured" debit card transaction than on the more secure traditional variety.
The "unsecure" card generates a 2 percent fee per transaction while the PIN-based card generates only about 10 to 20 cents, depending on the network.
ACKNOWLEDGING THE RISK, SOME BANKERS HAVE TAKEN THE HIGH ROAD BY REFUSING TO MARKET THE "UNSECURE" CARD
While most of the largest banks in the country have moved ahead with an "unsecure" product, some bankers have decided the product is just too risky. As quoted in the Washington Post , the chief financial officer for First Virginia Banks Inc, Richard Bowman, has indicated that his bank decided NOT to offer the "unsecure" product for that very reason: "I think that ("unsecure") debit cards can be really dangerous. Once someone loses a debit card or it is stolen, someone can clean them out."
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