When you go to pay at a store, you likely reach into your pocket and grab a plastic card to swipe or dip and pay the balance. Most people don’t put much thought into the card they use every day, but it can have a big impact on your finances in the event of fraud.
According to data from the Federal Reserve, for non-cash payments debit outnumbers credit roughly two to one, with 33.8 billion credit cards payments in 2015 compared to 69.5 billion debit payments. But is it smart to use a debit card? Let’s look at the risks of debit when compared to credit as a payment method.
Fraud protection and liability
Most banks offer liability protection when you are a victim of fraud. This includes both debit and credit cards, but each has its own limits and debit cards open you up to far greater losses than credit cards.
Debit cards are regulated by the Electronic Funds Transfer Act (EFTA). According to the EFTA, you have up to 60 days to report a lost or stolen card. If you report the lost card within two days, your losses are capped at $50. If you report within 60 days, you can lose up to $500. After 60 days, you lose everything and have no protection from losses.
Credit cards are regulated by the Fair Credit Billing Act (FCBA). If your credit card is stolen, your maximum liability is $50 in almost all circumstances. Most banks cover this $50 for you and reimburse all losses from credit card fraud. Keep in mind that credit card fraud and identity theft and different in the eyes of both banks and the law.
If you know when your card is lost or stolen, the results are the same. But you don’t always know, and if your debit information is stolen and you are unaware, you could lose everything in your bank account with no recourse. That is simply not the case with credit cards.