Debit cards bring risk of wiped-out account

McClatchy Newspapers (MCT) - Out of cash? No checks?

Not a problem for millions nationwide who rely on a debit card to pay for everything from appliances to trips to the zoo.

But as consumers _ and merchants, too _ enjoy the convenience of plastic cash, computer hackers and thieves increasingly are tapping into electronic networks or are using portable card-reading devices to electronically pickpocket your financial information.

Banks and merchants are fighting back, but experts say the cardholder is the best defender. Check your accounts regularly, don't let your card stray from sight and put major purchases on credit.

The detective who heads the financial crimes unit of the Fresno Police Department takes it further. A lot further. "I never use my debit card, ever," said Sgt. Sherree Flores. "It is just too risky."

Statistics show Flores to be in the minority. But she is right about the dangers.

Last month, a high-profile case brought debit-card security to a whole new level. About 100,000 customers of Forever 21 had their debit- or credit card information hacked over a three-year period by a nationwide ring of thieves as part of a larger scheme.

The indictment of 11 people on charges of conspiracy, fraud and theft in this case renewed efforts by some financial experts and law enforcement officials to warn against using debit cards.

The case isn't expected to dampen consumer enthusiasm. Debit-card use went from 10 billion transactions in 2001 to 25 billion in 2006, according to the American Bankers Association. The ABA estimates that in 2006, 63 percent of U.S. households had at least one debit card. That figure is expected to rise to 73 percent next year.

For some, debit cards provide an effective way of controlling spending. Debit cards pull money from your checking account, so you can't spend more than you have.

Using only a credit card can increase the potential for overspending. A study by Dun & Bradstreet found that credit card users spend 12 percent to 18 percent more than when they use cash.

"And with this current economic environment and with so many budgets being stressed, using a debit card will force people to not spend more money than they earn," said Martha Lucey, president of ByDesign Financial Solutions, a nonprofit credit counseling group in Fresno. "And that is an advantage, especially if you are trying to make ends meet."

Lucey said convenience also is a huge issue _ people don't have to go to an ATM for cash or take the time to write checks for their purchases. Debit cards also are easier to get than a credit card.

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But security experts, including Joanne McNabb, chief of the California Office of Privacy Protection, advise consumers that a debit card does not provide the same level of protection against fraud that a credit card does.

With debit cards, there is a sliding scale of liability that varies depending on how soon a consumer reports a problem. The consumer is liable for up to $50 if the suspected fraud is reported within two days.

"But as the time rolls on, the liability limit goes up," McNabb said. Wait any longer and much more can be drained from your bank account.

Credit card customers who report their card lost or stolen before it can be used face zero liability. If the card is used before it's reported, then the maximum liability is just $50.

Additionally, credit card users who dispute charges on their bill don't have to pay the disputed amount until the issue is resolved.

Debit cards don't have that protection. They are like an open door to your checking account, McNabb said.

"Once they get in, your account could be wiped out," she said. "And even though you very well may get your money back within 60 days, your checks may bounce or you may not be able to make your mortgage payment. It makes things very inconvenient."

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Consumers also face potential overdraft charges for checking accounts that have been overdrawn.

The American Bankers Association recommends that consumers check their bank statements online on a regular basis. The sooner a problem is spotted, the better.

If you must use your debit card, do it at trusted merchants and for small amounts. Use your credit card for larger purchases.

Also, before you swipe your debit card, inspect the card reading device to make sure it looks secure. Thieves have pirated legitimate card readers such as those on gasoline pumps with their own. The transaction goes through, but the thief's device also swipes your code and card number.

"It is just like a little tape recorder," said Flores, with the Fresno Police Department. "It records everything that is swiped through it."

The devices are tiny. Sometimes, unscrupulous employees carry them.

Flores is working on a case involving a waitress at a Fresno-area restaurant who may be responsible for 80 cases of stealing customers' debit- or credit card information. She declined to offer any more details.

Flores said that to protect herself, she doesn't use her debit card and makes sure not to lose sight of her credit card when making a purchase. At restaurants, she said she prefers to pay the cashier for her meal.

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"I have been in this unit (financial crimes) enough to know that all it takes is a skimming device in the palm of someone's hand for a person at a counter, or a waiter or waitress, to get your information," she said. "It can happen just like that."

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© 2008, The Fresno Bee (Fresno, Calif.).