Fraud Liability – Credit Card vs Debit Card

While credit cards and debit cards look virtually the same, there are some significant differences when determining liability for fraudulent transactions.

Criminals are stealing card data at an alarming rate. This information can be obtained in many ways, from skimming devices, data breaches, hacking, or that unsuspecting email  you clicked on that put malware or spyware on your computer just to name a few. The person who steals your information will then turn and sell that on the black market. Criminals get paid big money to provide valid card numbers. Once the card numbers are proved to be valid, fake cards are created with your information on them and then sold again to other criminals who go out and buy large ticket items, gift cards, baby items or other items in high demand.

So, what happens if your Debit Card is compromised?

Your Debit Card is linked directly to your checking account. Anything that is spent on that debit card is deducted from your working balance. And when the money is gone it is gone.  If you don’t notice this right away it can cause other problems including overdrafts and bounced check fees.  Disputing these charges with your financial institution can take time and you may not get your money back right away or at all depending on the circumstances.

Your liability when using your debit card depends greatly on the policies of your financial institution. In the worst-case scenario that you don’t notice the fraudulent charges for more than 60 days, you could be responsible for all the charges. Be sure to get the full details from your financial institution regarding their polices on fraudulent transactions.

How about my Credit Card?

By definition, spending with a credit card means you are spending money you don’t have, it’s a loan.   So, unless you don’t have enough money in your checking account to make a purchase, why would you ever use a credit card? Fraud protection is one big reason. Credit cards provide automatic, predictable fraud protection that limits your liability in case your card is stolen or used without your permission.   And thanks to the Fair Credit Billing Act, you have little or no liability for unauthorized charges, damaged goods or for merchandise that was never delivered. Credit card issuers also provide dispute settlement when you order something that wasn’t what was promised or if the merchant refused to refund you. This type of protection is very important for mail/internet ordering or in cases of identity theft.

When shopping online or by telephone it is best to use a credit card not linked to your checking account.