August 17, 2009
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News: Debit Card Controversy
The first of the new credit card reform provisions take effect this month. As lenders and customers try to adjust to the new rules, some confusion still exists. To avoid the unfair and deceptive practices of the financial industry, many Americans have curbed their credit card spending and have become more dependent on their debit cards. Recently, many have discovered that debit cards have their own set of problems. Some that could end up costing the user even more than the credit card would have. To make up for the loss of earnings from the reduction of card spending, banks have initiated some very stiff penalties and over-draft fees associated with debit cards.
Banks have nothing to lose when consumers use debit cards instead of credit cards. In fact, they actually earn higher earnings. They receive the same electronic transaction fee at the point of sale; and if consumers are not careful, for each over-draft, they charge another hefty fee. Many banks have launched a campaign to encourage Americans to use their debit cards by dangling inviting reward points in front of them. Americans need to take a couple of things into consideration when making the decision to switch from credit to debit. If you pay your balance in full each month, you could lose out on some valuable rewards. Despite the new rewards being offered by banks for debit card transactions, credit card rewards are still more plentiful. Each bank is different; therefore, it is important that you compare the differences in rewards.
Another important point to remember is that credit cards come with greater fraud protection. Federal laws protect consumers from fraudulent charges and errors with a limited liability of $50 and in many cases, the lender will waive it. However, with their debit card, the consumer could lose anywhere from $500 or more. Meanwhile, during the dispute process, consumer's funds are tied up for days, weeks, or more. Americans need to weigh the pros and cons of using debit cards and seek alternative methods for paying in vulnerable situations such as shopping on line.