Back to Basics: Using Your Debit Card
Posted by Michelle at 12/02/09 02:33 PM

When you use a debit card to make a purchase, the cashier will often ask, “Debit” or “Credit?” What does this mean?

The bottom line is with either choice, you have the same consumer protections that come with using a debit card.

For instance, in case the charge was fraudulent or if there’s a mishap with the transaction and you notice it in your billing statement. These protections are courtesy of a federal regulation and enable you to limit your loss to either $50 or $500, depending on how quickly the unauthorized transaction has been reported to the bank.

However, there are some differences:

If you use the PIN option, or the “debit” option, you won’t be covered under Visa or MasterCard Zero Liability policies. This is because signature based purchases, or by selecting the “credit” option, the transaction is run over the card networks. PIN-based, or “debit” transactions run on other networks such as STAR.

If you use the signature option, or the “credit” option, the transaction may take longer to clear as these may not clear in “real time.” This could lead to making purchases for more than the amount that currently reads in the account, which could lead to overdrafting the account. Of course, this could still happen when you select the PIN or debit option (with purchases where the final amount is uncertain such as at restaurants, the gas pump, car rentals or hotels), but it may occur more often when you choose the “credit” option with other purchases.

PIN based or “debit” transactions are cheaper for the merchant, compared to signature based or “credit” transactions.

No matter what option you choose, know that under the law, your protections remain the same, and that you will need to remain vigilant and check your account regularly.

One final note: These debit card protections have not yet been extended to all plastic cards that can be used to debit an account. For instance, prepaid debit cards do not have guaranteed consumer protections.

Comments (4)

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1 Posted by PMF at 12/02/09 07:54 PM

Wait: Clarification please?? In the case of a fraudulent charge - it would be the thief - not me using the signature option, and much less likely to use the pin option (I don't give my pin out - but still not impossible). It would be unlikely that I would be using my own debit card to defraud myself.

On the other hand - I could agree to buy ocean front property in Arizona - and then, I'm guessing I'd be using the signature option.... or no - if I paid for something online, there would be neither a pin nor a signature. What then?

2 Posted by Michelle at 12/03/09 11:34 AM

PMF,
There are arguments on both sides as to whether signature based or PIN based debit transactions are more secure. Some may argue that PIN based are safer, but there have been security problems in the past when terminals have stored PIN numbers--which can be hacked.

As for your protections if the debit card or the debit card numbers are used fraudulently--they are the same whether the thief used a PIN or signed your name. Debit card protections are provided under federal law and regulations.

For online purchases, you'll get the fullest consumer protections when using a credit card. But we generally don't recommend using a credit card unless you can pay off the balance in full.

3 Posted by Bill at 12/05/09 06:59 PM

The main reason you are asked this question is because the RETAILER pays a substantially lower rate to process a debit transaction. Usually a percentage is charged to the retailer (2% to 5%) when a card is used with a signature. When the same card is used as a debit with the pin pad it is processed more like a check and the retailers fee is usually fixed at around 75 cents. Some stores will ask you if you want to draw extra money when you use the pin-pad. If you say yes they may actually make money because now they can charge you an ATM fee. As a retailer I prefer my customer use the pin-pad especially when they are charging large amounts. Paying $30 to VISA or MasterCard for a $1000 purchase or 75 cents, that is the difference. Which would you prefer? When you pay using the pin pad you save the retailer money and lower the fees that the banks get.

4 Posted by Michelle at 01/12/10 11:02 AM

The New York Times ran an article last week, "How Visa, Using Card Fees, Dominates a Market," http://www.nytimes.com/2010/01/05/your-money/credit-and-debit-cards/05visa.html?scp=2&sq=visa&st=cse, that delves deeper into this issue.

New York Times Bucks blog follows up with additional consumer advice and provides more information on the difference between signature based and PIN based debit transactions at http://bucks.blogs.nytimes.com/2010/01/11/the-safety-factor-when-signing-or-punching-in-a-pin/

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