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Consumer advocates have cautions about using debit cards online

Monday, November 11, 2002

By Eileen Alt Powell, The Associated Press

NEW YORK -- As debit cards grow in popularity, more Americans are starting to use them to shop on the Internet. Before you join their ranks, there are pros and cons you should weigh. Debit cards -- also known as cash cards, money cards, check cards or ATM cards -- have an advantage over credit cards because they don't put you in debt. And many consumers find that debit cards help them budget because they function by pulling money directly from a checking or savings account, so they can't spend more than they've got.

The problem with online use is that debit cards and credit cards are governed by federal regulations that offer different protections for each in case of loss, theft or fraud.

Credit card transactions fall under the Fair Credit Billing Act, which sets your liability for lost or stolen cards at a maximum of $50 if you report a problem as soon as you discover it. Debit card transactions are regulated by the Electronic Fund Transfer Act, under which a card holder who is scammed can be liable for $500 or more.

The Federal Trade Commission has a consumer's guide to e-payment protections on its Web site at www.ftc.gov.

The major card associations, Visa and MasterCard, have tried to reassure consumers by promising them "zero liability" for fraudulent or unauthorized use of both credit or debit cards.

Some financial institutions are going further.

Bank of America in Charlotte, N.C., recently announced it not only will honor the zero liability protection for its debit cards, it also will reimburse a customer's account within 24 hours for unauthorized card transactions.

"There's been tremendous growth in the use of debit cards, but there are still some concerns, especially if the (debit) card is lost or stolen," said Robert E. Whyte, Bank of America's debit card executive. "This concern over security was something we felt we could do something about."

Consumer advocates applaud the move by Bank of America and other financial institutions, but they still have reservations.

"A number of banks have been trying to add additional protections to try to make debit cards more secure and to encourage consumers to use them," said Mari McQueen, a financial expert at Consumer Reports in Yonkers, N.Y. "But these are not legal protections, and consumers should be aware of that."

She added: "A policy can change, because it isn't the law."

McQueen said a major concern was that fraudulent use of a consumer's debit card can have "a domino effect" on a consumer's finances.

"As a practical matter, when a debit card is used, the money is gone from your account," McQueen said. "What else will have happened before you get it back? Will all of your checks have bounced with $25 in penalties each?"

Susan Grant, vice president for public policy at the National Consumers League in Washington, D.C., recommended that consumers who want to use debit cards online should take a careful look at a card issuer's Web site to learn exactly what protections are offered.

"These policies do vary, and it can be an uphill battle getting the money reinstated in your account," she said.

Grant added that settling disputes about defective merchandise or misrepresented goods or failure to deliver ordered items can be more difficult with debit card purchases than with credit, even if the card issuers promise equal treatment.

"You just don't have the same leverage, because they've got your money," Grant said.

As a result, she said: "We generally suggest that consumers use their debit cards in cash-and-carry situations. Credit cards are better when you're ordering things for future delivery, whether off the Internet or from catalogs."

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