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Special to the Fort Worth Star-Telegram
by Rob Schneider
Nov. 11, 1997
Rob Schneider is a senior staff attorney with the Southwest Regional Office of Consumers Union, publisher of Consumer Reports.
If you are among the millions of Texans who will get one or more unsolicited debit cards this year, think twice before putting one of them in your wallet. More than 60 million unsecure debit cards now flood the U.S. market, placing their owners in peril of considerable financial loss.
A consumer who uses one of these new plastic cards is authorizing his or her bank to withdraw, or "debit," funds without the security of a personal identification number, or PIN. This procedure exposes consumers to an unreasonable risk of fraud.
To be sure, debit cards are convenient. You can use them at ATM machines in a secure manner by using a PIN. You can use them at most retail outlets that accept VISA and MasterCard. Also you can use them over the phone. They leave behind a paper trail that helps track expenses. They can keep families from overloading their credit cards with exorbitant interest rates.
But carrying an unsecure debit card in your wallet is risky. If the card or the card number gets into the hands of the wrong person, your entire account -- and even an overdraft line of credit -- can be drained quickly. Getting your money back and your credit in order can be an unpleasant, lengthy process.
Surprisingly, the debit card craze is the reincarnation of a failed idea. Consumers rejected them several years ago, balking at the word "debit" because of its connotation of debt. So banks quietly regrouped, got more clever in their marketing tactics and renamed them "check cards." Then they practically merged them with their ATM cards. Banking experts now predict two-thirds of American households will have debit cards by the year 2000.
Earlier this year, a Consumers Union survey of seven of Texas' largest banks found it common practice to mail unsolicited debit cards to bank customers as a replacement for their ATM cards. Banks fail to fully disclose the pitfalls associated with the cards. The debit cards look like ATM cards. This causes widespread confusion whereby consumers often are unsure of what they really have in their wallets.
The banks' big push for the cards is no accident. Debit cards are big money makers for banks. Purchases made with debit cards cost less than half the amount it costs to handle a payment via a traditional paper check. They earn the banks more in merchant fees than the more traditional and secure debit cards. They also provide another source of fees for banks - some charge annual fees of $12 to $15 per year for some debit cards.
In a nutshell, a debit card gives consumers convenience by potentially compromising security. Recently, Mastercard and Visa took steps to make debit cards more consumer friendly. The card companies limited consumer liability to $50, or to zero if reported within one to two business days from the time you discover the loss. But their new policies don't go far enough. They only partially address the issue of liability and ignore fundamental security concerns.
Credit cards, on the other hand, give consumers an opportunity to review account charges, to dispute select items, and to withhold payments for an amount they suspect is the result of theft, fraud, or error. Not so with debit cards. The money is gone until the bank re-credits the account. Current federal rules give banks three weeks to re-credit stolen funds and give them wide latitude to fully re-credit your account, although Mastercard and Visa recently pledged to recredit accounts more quickly.
Meanwhile, consumers often are unaware of the loss or theft of a debit card until too late. Checks bounce. Creditors call. In essence, it's a mess.
Fortunately, not every banking institution is ready to jump on the bandwagon. For example, First Virginia Bank, Inc. has pledged to steer clear of unsecure debit cards and has urged other banks to follow their lead. But imitators are scarce.
Consumers Union supports legislation pending in Congress that would lock in the voluntary liability limit of $50 set by major banks associated with VISA's "check card" and Mastercard's "Master Money." We endorse a ban on the dangerous practice used by some banks of mailing out unsolicited check cards. Finally, we believe banks should have a legal obligation to restore any money taken through debit card theft immediately.
In the meantime, consumers should exercise caution. Each consumer must decide if the risks outweigh the benefits. Don't be tricked into using a debit card in place of an ATM card. If that's not what you want, demand a replacement card with the necessary security protection.
