Debit or credit? It's one of those everyday questions most people don't think too much about. And I didn't either, until I became the victim of fraudulent charges on my debit card. When I started the process to resolve the issue, I found there are some very important differences dealing with debit card fraud versus credit card fraud.
The biggest, and most profound, differences: the burden of proof of the fraud and the assumption of liability. In both cases, the rules favor credit card users over debit cardholders.
Here's the story: In early August,somebody used my debit card number for two ATM withdrawals in Los Angeles—one for $200 (plus $4 in fees) and one for $280 (plus $4 in fees).
For the record, I was nowhere near downtown LA when these two transactions occurred. But when I contacted my bank to challenge the charges, I was told the funds would only be returned to my account if I was able to prove that I did not make the ATM withdrawals in question. (Although this case involved ATM transactions, proving fraud on purchase transactions with a debit card can prove just as challenging - in case you're wondering.)
How to Prove Debit Card Fraud
To prove my case, my bank told me I needed to officially open an investigation. The investigation consisted of several pages of questions, including whether I had my ATM card in my possession at all times. Law enforcement notification or a police report was not required or suggested. This investigation report needed to be submitted within 10 days of reporting the fraud; if my paperwork was not submitted within this timeframe, my case would be closed and the money would not be credited back to my account. So, how could I prove that whomever took the money from my account was neither me, nor someone else authorized to take my money?
As I pondered how I would meet this burden, it dawned on me what a different experience I was having vs. my previous problems with credit card fraud. One time, my car was broken into and my wallet was stolen. Luckily, I was not liable in any way for fraudulent purchases made with my credit cards. Incidentally, purchases with my stolen credit card occurred literally minutes after my wallet was snatched.
Once I called my credit card company, my card was immediately disabled and the fraudulent charges reversed while I was on the telephone. It was painless to resolve the card issues, even though my life was turned upside down without a driver's license, no cash and no way to get cash.
So, why is it easier to resolve fraud with credit cards rather than debit cards? It's the law!
The Fair Credit Billing Act limits a consumer's liability for fraudulent charges to $50, and no liability if the card is reported stolen prior to any fraudulent use.
The Fair Credit Billing Act limits liability to $50 for debit cards too, but ONLY if the unauthorized use of the card is reported within two business days. If more time goes by - between reported between three and 60-business days, the liability limit can increase to $500.
Banks, of course, have the option to waive the amount their customers are liable for or charge less at their discretion, but the dollar amounts consumers are liable for cannot be greater than the amount outlined in the law.
My bank, Union Bank of California, which incidentally I do like and will stay with, had this policy statement regarding unauthorized charges on their web site. In a nutshell, the bank categorizes debit card fraud into two categories with different consumer liability and notification requirements.
- Unauthorized online transactions - No consumer liability as long as the unauthorized transaction is reported within 60 calendar days. This is almost as lenient as credit card policies.
- PIN or access code is lost or stolen- If the bank is notified within two business days after you discover the loss or theft, liability is limited to $50. However, if it is not reported within two days, liability can be as much as $500 if the bank can prove that they could have stopped the unauthorized activity if they had been informed.
I did some research on policies at other banks, and I found that the policies at the major banks are very similar, but you should check your debit card issuer's policy which should be available online or ask for it at your local branch.
A Debit of Information
Before submitting my paperwork disputing these transactions, I wondered: Would my Facebook post from Palm Springs be enough to prove that I was not in Los Angeles when the money was withdrawn from the ATM in downtown Los Angeles?
I did not have to ponder long. About seven days after I reported the fraud to my bank on the phone—but BEFORE I submitted my report—the money, including the transaction fees, was returned to my account. Curious about why the bank had determined on their own that this was fraud, I called my bank's investigation division and asked a bunch of questions. Was this connected to a string of fraudulent ATM activity? Did you catch you did this and turn them over to the police? Did you recover that money from the person who took it? How did they withdraw cash without having possession of my card?
I wish my bank could have answered these specific questions. However, a very nice customer service representative named Thelma did explain that since I flagged these transactions as fraudulent, the Union Bank fraud prevention and investigations team went to work with analysis. They determined, based on my previous spending habits, that these transactions did not fit any of my patterns. The location was off my grid and there were two cash withdrawals in a row. Not typical of me.
The good news is that I am now in possession of my $488 hard-earned dollars, and I now know once again the value of a lesson my Mom and Dad taught me early on in life: Check your statements carefully. I know what I have spent my money on and when I make cash withdrawals. It's my responsibility to check for any signs of fraud.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.