Protections for Debit Card Holders

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Protections for Debit Card Holders

Debit cards do not yet have the same level of protections that credit cards do. As debit card use grows, the legal landscape surrounding their use may change. For now, there are some laws that protect cardholders.

The Electronic Funds Transfer Act (EFTA) was passed years ago to regulate electronic transactions. It protects you from errors, loss of funds, and theft of your debit card. Its protections are not as sweeping as those of the Truth in Lending Act, which provides protections for credit cards.

Errors

Under EFTA, in the event of error your financial institution must do the following:

• Investigate the error and resolve it within 45 days.
• Investigate errors involving new accounts (opened in the last 30 days), point-of-sale transactions, and foreign transactions within 90 days.
• Recredit the amount in question if it takes more than 10 business days to complete the investigation (20 business days if your account is new).
• Notify you of the results of the investigation.

On your end, you are responsible for contacting your institution as quickly as possible, with as many details as you can.

Losses or thefts

If you report the debit card missing before any transactions occur, you will not be held liable for any losses that occur. Your loss is limited to $50 of any unauthorized transactions if you notify your institution within two business days. Your loss is up to $500 if you notify your institution between 2 and 60 days. If you wait until after 60 days, you are liable for all losses that occur.

As a goodwill gesture, many banks have reduced that $500 limit noted above to only $50. Some banks do not charge you anything if unauthorized withdrawals appear on your statement.

For your part, you must provide your notice in writing.

Overdraft protection

It goes without saying that some consumers are not vigilant with their finances and can spend more than is in their accounts (in other words, they cause an overdraft). Overdraft fees are the natural result of this. However, fraud and merchant errors can also cause an overdraft.

There are protections available for overdrafts. Customers in good standing with their institutions can have overdrafts covered. The institution simply gives them the amount of the overdraft as an instant loan. For this service, there is an overdraft fee. If they have another account at that institution, the institution can borrow from this account to replace the amount of the overdraft. Fees for this service may be lower than regular overdraft fees or even waived, depending on the institution and your standing with it.

In 2010, the Federal Reserve began allowing customers to opt out of this overdraft protection. That means that they will not get overdrafts covered—instead, their debit purchases will be declined. This protects customers from overdrafts as well as fees and—in the minds of some—their own lack of vigilance over their money.