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As noted in our article on Credit Card Fraud, the majority of non-cash payments are made by a combination of credit cards and debit cards. Debit cards are by far the dominant form of card-present transactions when compared with credit cards. The most recent Federal Reserve statistical data reveals that general-purpose debit cards were used in 23 billion more card-present (when the card is physically produced at the point of sale) transactions than general-purpose credit cards. They were used slightly less than credit cards in card-not present (over the telephone or Internet) transactions.

How Debit Cards Work
Debit cards look like credit cards but replicate the functionality of paper checks. Like credit cards they have a magnetic strip, but unlike credit cards where funding is provided by card issuers, debit cards are directly tied to either a checking or savings account. A result, debit cards draw on funds in the cardholder’s bank account (checking or savings), allowing the debit card to function like a paper check. Instead of writing a check, the cardholder swipes the debit card which sends an electronic pulse to the cardholder’s bank that authorizes and directs the bank to take funds out of the cardholder’s checking/savings account and pay it to a third party (e.g., retail merchant).

The debit card’s electronic pulse qualifies it as an electronic funds transfer regulated by the federal Electronic Funds Transfer Act (EFTA). In cards that combine the characteristics of both a debit and credit card, the feature that is used to make the payment determines which law applies. If the credit feature is used, the federal Truth in Lending Act (TILA) governs who will bear the risk of loss resulting from unauthorized use. If the debit feature is used, EFTA governs the transaction.

Cyber Criminals Can Wipe Out a Checking Account
Debit cards are susceptible to the same forms of cyber criminality as credit cards. A big difference is that unauthorized debit card transactions resulting from a lost, stolen or intercepted debit card directly affect the cardholder’s bank account. Unauthorized debit card transactions can wipe out a checking account and leave it with a zero balance or even leave it overdrawn.

Liability
The EFTA regulations that govern debit cardholder liability for unauthorized transactions operate on three basic rules:

The first rule limits cardholder liability to no more than $50 for a lost or stolen debit card reported within 2 business days of loss.

The second rule is less forgiving and holds a cardholder liable for up to $500 for a lost or stolen debit card reported more than 2 business days after the loss.

The third rule, also known as the bank statement rule, subjects a cardholder to liability for each and every unauthorized transaction appearing on the cardholder’s bank statement that is not reported within 60 days of the date of the bank statement.

Safeguards
As a practical matter, current cyber security technology used by banks often catch debit card fraud in real-time, as it is occurring. For example, when a cardholder attempts a card-present transaction in Chicago while another card-present transaction for the same card number is occurring in San Francisco, a technology trigger is activated. The technology easily determines that it is quite impossible for a card-present transaction for the same card number to occur at the same time in two different places 2,100 miles apart and shuts down the card and the transaction.

Be Vigilant
By staying aware of how you are using your debit card and the restrictions imposed on your card, you can help prevent debit card fraud. Check bank statements regularly and immediately report any payments that you did not make can help you stay on top of the game. Additionally, many banks let customers set up email or text alerts that send notifications if certain types of transactions are made. Anything you can do to make a thief’s work more difficult will help safeguard your checking account and decrease your chances of becoming a victim of debit card fraud.

If you have questions, or need more information about debit card fraud, contact the skilled attorneys at Anthony J. Madonia & Associates, Ltd. today and get the help you need.