Safeguards for Debit Card Users

Until now, the best way to minimize the chances of fraud when you swiped your debit card was to sign your name rather than punch in your PIN. By signing, holders of cards backed by MasterCard or Visa—the two dominant networks among debit cards—were assured of the same zero-liability coverage for unauthorized purchases that the com­panies extend in case of credit card fraud.

But MasterCard is changing the game. Starting October 17, it is extending its zero-liability policy in the U.S. to include both PIN purchases and ATM transactions.

MasterCard’s move is a win for consumers who prefer to keep a lid on credit card charges. But debit card users are still more vulnerable to fraud than credit card users. “A key distinction between credit and debit cards is that when a debit card is hacked, real money comes out of your account,” says Matt Schulz, senior industry analyst for CreditCards.com. You could be left high and dry until your bank refunds the money.

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Debit cards also have weaker fraud protections under federal law. Liability for credit card users can never exceed $50. But your responsibility for fraudulent debit card transactions depends on when you report the problem; it could be unlimited if you wait more than 60 days after the bank sends you your statement.

What about the competition? Visa’s policy does not extend to ATM transactions or PIN purchases not processed through Visa’s own PIN network. But to keep up with its chief competitor, it may follow suit, says Schulz. American Express offers zero-liability coverage on its credit and prepaid debit cards, including PIN transactions at the ATM (Amex doesn’t offer debit cards tied to checking accounts).