Article Highlights:
- There are clear differences in the rules regarding consumer liability with credit cards versus debit cards when fraud occurs.
- Debit cards are tied directly to the consumer's checking account, which can make a stolen card much more inconvenient than a similar circumstance involving a credit card, said Trina Parsley, manager of the supervision and risk department for the Denver branch of the Federal Reserve.
- The consumer's liability can include all card activity if the cardholder fails to notify the card issuer within 60 days of receiving a statement that includes the unauthorized transfer, according to federal rules.
There are clear differences in the rules regarding consumer liability with credit cards versus debit cards when fraud occurs.
But, as a practical matter, the costs borne by a consumer who has been a victim of fraud vary little, one industry expert said.
However, there are a couple of reasons why debit cards may be more risky.
Debit cards are tied directly to the consumer's checking account, which can make a stolen card much more inconvenient than a similar circumstance involving a credit card, said Trina Parsley, manager of the supervision and risk department for the Denver branch of the Federal Reserve.
"The biggest difference in terms of the immediate effect is that money's out of your checking account," Parsley said. That can lead to inadvertent bounced checks and overdraft fees, she said.
Federal rules limit consumers' responsibility for unauthorized use of credit cards to $50. With debit cards, that liability also is set at $50 if the consumer notifies the financial institution within two days after learning of an unauthorized transaction. After two days, under federal rules, that liability can rise to $500.
The consumer's liability can include all card activity if the cardholder fails to notify the card issuer within 60 days of receiving a statement that includes the unauthorized transfer, according to federal rules.
However, Parsley said, companies typically limit consumer liability to $50 even with debit cards.
"The bank would have to show the consumer was a little bit negligent," she said. "Most institutions just go with the $50. We don't see very often they try to invoke (the higher liability amounts)."
Ken Lin, CEO of Credit Karma, said consumers who are concerned about fraud should use credit cards instead of debit cards because of the certainty of the federal rule that limits liability to $50.
"I take more solace in the fact that it's government stipulated," Lin said.
