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Problems with Debit Cards

High fees may be imposed if there are insufficient funds in account.

No right to stop payment.

Debit Cards

If you have a deposit account at a bank, you probably can obtain a debit card from the bank. Many consumers like to use them instead of cash and checks. With a debit card, you also can draw cash from your bank account at an ATM. Most debit cards have a Visa or MasterCard logo. You can use them in stores that honor cards with that logo.

When you use a debit card, it is a “buy now, pay now” transaction. The money you spend on a debit card is automatically subtracted from your account. If you do not have enough money in your account, the bank can refuse to honor the card and the merchant will not permit you to buy goods or services with the card.

A debit card looks very much like a credit card. However, it differs from a credit card in important ways. It may be much easier to qualify for a debit card than a credit card. With a credit card, you buy now, pay later. For that reason, banks may refuse to issue credit cards to consumers with poor credit ratings. Or banks offer those consumers cards with very high interest rates and fees. Unfortunately, debit cards do not have the same protections that credit cards have. For example, you have much less protection with a debit card if your card is lost or stolen. Also, you do not have a credit card’s protection if the merchant does not sell you what she or he promised.

What’s in the name?

Debit cards often are called check cards. This is a misleading name because it sounds like a debit card works like a check. But the two are different. When you write a check and give it to the merchant, usually the money does not come out of your account for a couple of days at least, and often longer. That gives you a little time to put enough money in the account to make sure the check does not bounce. Also, if you pay with a check and become dissatisfied with your purchase, you can tell your bank to stop payment on the check and they will do so if you notify your bank promptly after you gave the check to the merchant. With a debit card, the money comes out of your account right away and you cannot stop payment unless you live in Michigan.

Who issues debit cards?

Usually, banks and credit unions issue debit cards.

How do debit cards work?

“On-line” debit cards require you to type your Personal Identification Number (PIN) into a terminal at the store or the ATM. The terminal connects to a system that reports whether the bank where you have an account will honor the transaction. The funds are immediately removed from the account if the bank authorizes the transaction.

“Off-line” cards require you to sign a transaction slip, like in a credit card transaction. The funds will be removed from your account at a later time, but you cannot stop payment.

What are the problems or abuses with debit cards?

Confusion: It may be difficult for you to figure out exactly how much is in your checking account at the time you are paying for a transaction with a debit card. The funds in many checking accounts are withdrawn when consumers write checks, use ATM cards, and authorize recurring bills like rent, utilities, or mortgage payments to be withdrawn automatically each month. Also, the bank may subtract fees for various reasons from the consumer’s balance.
Overdraft fees: If you do not have enough money in your account to cover the amount of the purchase you are making with your debit card, the bank may refuse to honor the transaction, and you will have to pay some other way. However, the bank may honor the card even though you do not have enough money in your account. When the bank does that, the bank treats the transaction as if you have taken out an "overdraft loan" - which is a very expensive type of short-term loan.
Unauthorized use: Persons may use your card without your authorization or permission. For example, someone may steal your card or you may lose it and the finder may use it. A thief may use your card to pay for purchases even if the card never leaves your possession; thieves have ways to discover enough information about your card so they can buy products on-line or by phone. The first you may learn about the unauthorized use of your card may be when the bills your bank pays automatically do not get paid, checks start bouncing, the bank charges you fees for each bounced check or the people you tried to pay by check are still demanding your money. What happened is that the thief used your debit card to take money out of your account, so not enough was left to pay your checks and other obligations.

What you can do if you have a problem with your debit card?

It is important for you to notify your bank as soon as you discover there is a problem with your debit card. Under the law, if you tell your bank within two days of discovering your debit card was lost or stolen, the bank cannot remove more than $50 of the amount the thief stole from your account. If you do not inform the bank until after the two days, you may owe up to $500. If you should have noticed the problem on your monthly statement and you do not tell the bank within 60 days of when the bank sent you the statement, you may not have the right to demand that your bank reimburse you for any of the money the thief charged on your card. Contact your bank when you have this problem. Some banks give consumers more protection than the law requires.

If you report certain types of errors to the bank, the bank must investigate. These errors include an unauthorized transfer, an incorrect transfer, or an error the bank made in recording the amount of purchases made with the card. If the bank cannot resolve your complaint within ten business days, the bank must recredit your account the amount of money in dispute while the bank tries to determine if your claim is valid. The bank then has a total of 45 days to complete its investigation. This right to an investigation and recredit does not apply if your complaint is about the merchant’s failure to deliver merchandise or the quality of the product you purchased. You have to go directly to the store to resolve that sort of problem.

Sometimes banks do not comply with the laws that protect consumers who use debit cards. For example, the bank may hold you liable for the total amount of an unauthorized transaction even though you reported the loss of your card within two days. The bank may take actions that cost you money and damage your credit rating based on your not having enough money in our account when in fact you had enough. The bank may refuse to investigate your complaint and recredit your account when it is required to do so.

AFFIL can’t guarantee that help is on its way, but these are our best suggestions for getting help with a debit card:

File a complaint: You can file a complaint with your state banking department and whichever federal banking agency supervises your bank. It is important that you let these agencies know about your problems. If enough consumers complain, the agencies are much more likely to take appropriate actions.
Contact your state legislator: You may also write to your state legislator and ask that your state regulate these loans to better protect consumers.
Contact your federallegislator: You may also write to your U.S. Congressperson and Senators. It is important that they know your story so they can decide whether changes in the federal laws on debit cards need to be made.
Find a lawyer: AFFIL is not a lawyer referral service and cannot refer you to a specific lawyer. If you want to talk with a lawyer who might help you with your debt problems, you can review the list of members of the National Association of Consumer Advocates (NACA). You can also contact your state bar association’s lawyer referral service.