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A debt to debit, but do check

Updated: May 3, 2013 12:14PM

About 6 months ago, I wrote a column urging shoppers to put away their check books, and start using their check cards -- those debit cards that can be used to draw money from your checking account either at an ATM, or in place of a credit card at a store cashier.

My intent was to speed the lines and shorten the waiting time at the grocery store, while encouraging the use of plastic instead of paper.'Zero liability?'

I pointed out that the Visa Checkcard, which is by far the most widely used debit card, has a "zero liability" policy if used fraudulently. Since Visa debit cards processed nearly half a trillion dollars in spending in 2006, the trend to debit is well under way.

But that column generated dozens of e-mails, some chastising me for my lack of patience at the grocery store, and others that pointed out some deficiencies of debit cards.

But the e-mail that really made me think twice came from someone on the front line of identity theft. Here's part of what he had to say:

"I am a Chicago Police sergeant [28 years on the police force], and day after day my people have to make reports for all types of identity theft. You were mistaken in so many ways in the article. ... The first thing I tell people is NEVER EVER use a debit card. . . .

"When someone gets that card or just the number, they can drain your checking account. Sure you can catch it IF you check everyday, but by then the damage is done, and any other charges or bills that get paid automatically start bouncing. It takes time to correct the theft, and by then the damage is done and the other bills still need to get paid."

Obviously, I had some re-thinking to do. So I called Visa, and here's what I learned.

Credit and debit transactions are governed by separate federal regulations. Regulation E says you are liable for a maximum of $50 on any fraudulent credit-card transaction.

But Reg Z makes a distinction for debit transactions: $50 if the fraudulent transaction is reported within two days (which means you should review your checking account online daily) or $500 after that time limit, and even more if you've received a bank statement in the interim and did not dispute the fraudulent withdrawals.

Under Reg E, banks are required to give you "provisional credit" within 10 days, while they investigate your situation. But that 10 days could be a nightmare for people living paycheck to paycheck. And that's what the police officer was pointing out.

Visa says it definitely does have a "zero liability" policy, but only if your debit transaction goes over its Interlink network. That's a key distinction, one that a consumer is simplynot able to make when entering a PIN at the merchant.

Visa says about 40 percent of all debit transactions are done over its Interlink network, while the balance travel over various other banking networks. But Visa's zero liability policy is not in effect if your trans- action goes over those other networks!The merchant on your side

That's a huge distinction from using a credit card, where the card issuer is automatically initially on your side in dealing with a merchant in a disputed transaction.

According to the Visa representative, "Consumers should always sign for their purchases to be guaranteed of zero liability."

When using your debit card to pay, you have a choice of using your PIN or tapping the box that says "credit" so you'll be given a receipt to sign.

By signing, you turn your debit purchase into a transaction that must go over the VISA network. That's what I've been doing since I learned these distinctions, and I think you should, too. And that's The Savage Truth!

Terry Savage is a registered investment adviser. Check out Terry's answers to reader questions at, and click on Business. Distributed by Creators Syndicate.

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