Debit card disasters: What to do when you get burned

Most people don't think twice when they hand over a debit card to make a purchase, but not Gregory Meyer. He is particularly wary of debit cards that can be used like credit cards -- and for good reason.

Last summer, Meyer, who lives in San Jose, California, used his debit card to book a rental car that he planned to drive from Memphis, Tennessee, to St. Louis while he was on vacation. The car was supposed to cost him about $240. When Meyer went to make a purchase in Memphis, he discovered that his bank account had been frozen. The rental car agency had put a $500 hold on the account, an amount that was steep enough (and that occurred far enough away from his home) to trigger a fraud alert at his bank.Meyer immediately got his account reactivated, but the $500 hold remained -- not only until he turned in the car but for two days afterward, as well. "It just ticked me off," he says, pointing out that his $500 could have been in his bank account earning interest rather than stuck in cyber-banking limbo.

In many ways, Meyer got off easy. Three years ago, an identity thief stole Lucinda Lu's debit card number and made $600 worth of fraudulent purchases. The back and forth between her bank and the merchants consumed a lot of time and caused a lot of headaches. Lu eventually got some of the charges reversed but was unable to recover close to $160 worth of the charges. "Because my loss was so small, it really didn't get any attention from the police," Lu says. Unfortunately, what's not a "big deal" for law enforcement can have a big impact on someone struggling to pay their bills. "I no longer trust debit cards, and I don't use one now," says Lu.

Jacque Tiegs of Clair Shores, Mich., had a similar experience a few years ago. She used her debit card at a hotel in Milwaukee for incidental charges and found out on her next month's bank statement that someone had run up a $3,500 bill at another hotel of the same brand in Chicago. Her bank couldn't (or wouldn't) solve the problem, and the hotel claimed she had run up the charges. Only by threatening to go to the police and offering proof that she had been out of town on a work assignment was she able to get the charges reversed.

The Dos and Don'ts of Debit Cards
Don't think that the same protections you get from your credit card apply to your debit card. If someone steals your credit card number and runs up a big bill, you won't be responsible for the fraudulent charges -- at least not until the card company completes its investigation and probably not at all if they find evidence of fraud. But if someone steals your debit card information and starts charging away, you're on the hook. The money comes straight out of your bank account. Not only are they your funds -- with no one there to cover for you -- but getting the money back can be a huge hassle that can easily take a month, if not more, to resolve.

Even if your money is only locked up temporarily, as Greg Meyer's was, it can still be devastating, especially if you don't have a large balance to tide you over. Not only that, but if the hold is greater than your balance, it can trip an overdraft protection and subsequent transactions can be denied or add to your overdraft woes.

So how do you protect yourself - and your debit card? "Be alert when there's an opportunity for so-called 'skimming' or where people can look over your shoulder to track your PIN number," says Tim Lukens, a senior vice president at Affinion Security Center, a company that makes anti-cybercrime software for big banks. Also, think twice before using your debit card at a restaurant, where you don't actually see the server swiping it, or at gas stations, where surveillance cameras can record you keying in your PIN.

Online shopping is another potential danger zone. If you can't use a credit card for online purchases, Lukens says to make sure you're only using a debit card when shopping at well-established, trusted merchants. "I think that's where consumers are at the most risk, when they don't know a site," he says. Before you enter your debit card number, look at the bottom of the web page for security seals from companies like VeriSign, Cybertrust, PCI Compliance or Truste, he suggests. Be warned, though: "A number of fraudulent sites will cut and paste logos," Lukens says. Click on the logo if you're unsure; if it's the real deal, it will take you to that site's security verification.

The FTC has created new regulations for merchants that go into effect June 1 that will require that financial institutions set up checks that will trigger a response if a customer's card is used fraudulently. This new requirement, commonly called the "red flag rule," should help, Lukens says, but thieves are clever and illegal charges can sometimes slip through the cracks.

Getting burned by a debit card once can change the way people purchase in the future. Identity theft victim Lu says she now only pays by cash, check or credit card. She even went to her bank to request an ATM card that couldn't be used for debit purchases if it fell into the wrong hands. Lu admits not having a debit card can be a hassle sometimes, especially if it involves the time-consuming process of writing a check and having it approved as opposed to just swiping a card. But she says it's worth her peace of mind. "If I felt completely secure, I'd consider getting a debit card again," she says. "But at this point, I don't think they're safe."
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