Americans' preferred form of plastic is now the debit card. Visa Inc., which runs the biggest card payment network in the country, says U.S. consumers are now spending more money with debit cards than with credit cards. The company says consumers spent $206 billion on Visa debit cards in 2008, compared with $203 billion on Visa credit cards.
But the fraud protections for the two types of cards aren't necessarily the same. Some consumer advocates say they should be.
Debit card use has been growing steadily for a number of years, and the recession has also reduced credit card use as consumers try to avoid taking on more debt.
This is a milestone for U.S. consumers, who have long relied primarily on credit cards for electronic payments, catalog orders and Internet purchases.
Anita Ramasastry, a law professor at the University of Washington and a specialist in payment systems, says debit cards have caught on partly because they look so similar to familiar old credit cards. They have the same kind of number — usually four groups of four digits — and an expiration date. The only difference is the word "debit" on the card.
Debit cards draw money directly from a consumer's bank account. But when a consumer uses a credit card, it's the equivalent of borrowing the money.
Debit cards can be used to buy things almost anywhere a credit card is accepted, including the Internet.
But if your number is stolen, the two cards are no longer so similar.
Different Levels Of Protection
Ramasastry says Americans' experience with credit cards have taught them to expect a high level of protection from fraud.
"With credit cards, by law, my maximum liability for an unauthorized transaction is $50," she says. The trouble comes when consumers expect the same protection from their debit cards. But when it comes to debit cards, the law is less forgiving.
The debit card rules for fraud protection are complex; Ramasastry calls it a "tiered" system. With debit cards, the longer customers take to report fraud, the less money they're guaranteed to get back.
Ramasastry, who has experience working with card regulations at the New York Federal Reserve, says it doesn't make sense for the laws to treat the two kinds of plastic so differently. Consumers use debit and credit cards interchangeably, she says, so the government should harmonize the rules.
But in practice, the fraud protections often are the same.
Many banks voluntarily extend credit card-style protections to their debit cards, and stolen funds are replaced more quickly and fully than the law requires. Bill Sheedy, president of Visa North America, says that's what's expected of all banks that issue Visa debit cards.
"The requirements for our issuers ... is that they provide zero liability and immediate credit to our consumers if there is a dispute," he says.
But there have been cases of banks that have been slow to replace missing funds. Some consumer groups say legislation is needed to ensure the best fraud protections are in place. Some think that's something the Obama administration's proposed Consumer Financial Protection Agency might undertake.
Sheedy won't comment on federal regulations, but he says he believes consumers are already comfortable with the security of both credit and debit cards.
"The trends are clear," he says. "The consumer and merchants want to transact in an electronic form, and we think Visa debit is a big part of that."
Consumers' Security Concerns
Still, there are holdouts. Security remains a concern for Dave Ahrens of Gig Harbor, Wash. He works in information technology, and he's convinced merchants can never guarantee they won't lose customers' debit card numbers.
"It's really tough for somebody to make sure your data is being handled properly," Ahrens says.
He figures the best way to protect a debit card number is to not have one at all. Some consumers achieve this by asking their banks for ATM-only cards. Most banks will provide this kind of card if the customer requests it.
But Ahrens doesn't even want an ATM card.
"I prefer cash," he says. Once a week, he goes to the teller at his bank and withdraws money for the week.
"It's a subtle budget thing," he says, referring to the wad of bills in his wallet. "If I don't have it, I don't spend it."