While banks don't hesitate to promote the conveniences of using debit cards, they are not adequately warning consumers about the risks, a consumer group recently reported about California's largest banks.
The California Public Interest Research Group said company brochures from seven out of eight major California banks don't provide information about liability if a consumer's debit card is used fraudulently.And that liability is surprisingly large. According to current state law, card holders could be forced to pay for hundreds of dollars of unauthorized charges, even if the card holder reports the fraud within a week of discovering it.
"A lot of consumers out there don't know about the dangers of debit cards," said Angie Farleigh, spokeswoman for the consumer group.
Debit cards look like credit cards and are used to pay for purchases and to withdraw cash. But unlike credit cards, which compile purchases into one end-of-the-month bill, debit cards take money directly out of the customer's account as soon as the purchase is made.
Many customers like the convenience of debit cards, since they're accepted at hundreds of thousands of locations. Many people use debit cards to help limit their spending, since a card's charge limit is set by the balance of the account.
Financial institutions like debit cards because they save them the hassle - and cost - of processing paper checks. Also, banks get close to 2 percent of the total purchase price of each debit card transaction as a cash windfall, considerably more than they receive for ATM and traditional credit card transactions.
But the report said that only Glendale Federal Bank's brochure explained the customer's liability in the case of fraud, while pamphlets from Bank of America, California Federal, Great Western, Home Savings, Union Bank, U.S. Bank and Wells Fargo did not.
Moreover, brochures of all eight banks did not tell consumers that banks can take between 10 and 45 days before they replace money stolen from an account. That means money taken illegally won't be available to the account holder for up to six weeks.
"People don't realize that in that little card you are carrying around your entire savings and checking accounts," Farleigh said.
Moreover, when asked to provide all information about debit cards, only half of the eight banks surveyed gave out the Electronic Funds Transfer Act Disclosure brochure, a government booklet that spells out customers' liability.
John Stafford, a spokesman for the California Bankers Association in San Francisco, disputed the group's findings.
"All kinds of information is included when you get a debit card," he said.
Stafford also pointed out that consumers are liable for only up to $50 for fraudulent charges on debit cards issued from Visa and MasterCard. All the eight banks in the survey offer either a Visa or MasterCard debit card.
But the $50 cap is a voluntary policy that can be rescinded at any time, CalPIRG said.
If the policy is changed to reflect current laws, then debit card holders can be made to pay for all the fraudulent charges if they don't notify the bank within 60 days from the date the bank statement containing the false charges is mailed to the customer.
The liability is limited to a maximum of $500 if the bank is notified after two days and before 60 days of discovering any unauthorized charges, and up to $50 if customers tell the bank within two days of finding the loss.