More on the Problems with Debit Cards

Debit cards seem to becoming the new cash. For the first time, the number of debit card purchases has exceeded the number of purchases made with cash, checks, or credit cards. In a recent article posted on The Street, “5 Places Never to Use Your Debit Card” by Brian O’Connell, we are reminded there are still problems with these things, beyond the college student who forgets to log all her purchases on a daily basis, thereby triggering all those horrible overdraft fees. For the record I do not have a debit card.

Hopefully it is common knowledge that using a debit card to make a reservation or for anything that requires a security deposit is a bad idea. A car rental charge that might run $125 would not hit your credit card until you returned the vehicle. Using a debit card, the same rental could trigger a $500 deposit charge that would hit your checking account the second they swipe your debit card. Of course they will return those funds when you return the car, but you do not have the use of that money until it is returned. If you carry large balances in your checking account of say, $10,000 or more, you may not view this as a problem. However, I would suggest that if you are carrying that kind of cash in a no interest account perhaps you could find a better use for your money. This also applies to hotel reservations and equipment rentals.

Recently a major identity theft ring in New York City was busted. The bandits were waiters and waitresses in upscale restaurants. They used pocket devices no larger than a tube of lipstick to steal information off their customers’ cards. Typically, if you become the victim of this kind of crime while using a credit card, your losses are limited to $50.00. If your checking account is cleaned out by a fraudulent use of your debit card, it could be much harder to get your money back. Basically, the bank could consider you guilty until proven innocent. While some banks offer debit cards with similar loss limits to their credit cards, this is not required by law. Even if you have a debit card with loss limits, during the adjudication process you have still lost control of all your money. The pendulum of common wisdom seems to be in swing. Once again, “they” are recommending customers use cash in restaurants unless they never loss sight of their cards.

Operations like phone companies, gyms, life insurance companies, and cable TV services that live on monthly fees, love to get their sticky little fingers on your checking account. Automatic debit is convenient but it is also a clever way to slide in small increases without your notice. It also makes it harder to cancel a service. Be suspicious of anything that masks or minimizes actual cost (your pain). This would also include things like “average” billing for utilities.

The article states never use a debit card to make an online purchase at a Wi-Fi hot spot since many of those business use an unsecured wireless connection. Maybe I am just paranoid, but I would be afraid of accessing my facebook account at such a place. The idea of exposing any kind of financial information to hackers and identity theft in any public computer or Wi-Fi service just wouldn’t even enter my mind.

Oh, the last problem mentioned by O’Connell, that would take us back to the first paragraph. If you are not absolutely religious about entering your debit card purchases in your check register the specter of those onerous overdraft fees is just waiting to strike.