From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(October 25, 2004) — Debit cards are quickly replacing cash and checks as a convenient way to pay for purchases. While quick and easy, debits cards are not without risk, so be sure to take necessary precautions. Here is what the Virginia Society of CPAs says you need to know to manage your use of debit cards.

Dispute resolution differs for debit cards

When you purchase an item with a credit card and that item turns out to be defective, you have a right to withhold payment until the issue is resolved. This right is protected under the Fair Credit Billing Act. In merchant disputes, dissatisfied debit card customers don’t have the same protection.

Since your debit purchase is deducted from your account at or shortly after the time of purchase, you’re on your own if something goes wrong with the purchase. The bank won’t redeposit the money in your account for items that fail to be delivered, are of poor quality or don’t work. Debit cards may be a great way to pay for gasoline or groceries, but for big-ticket items, it's wiser to use a credit card.

Liability protection puts the burden on the card holder

If someone misuses your credit card, your maximum liability under federal law for unauthorized use is $50. The regulations that protect you from fraudulent use of your debit card are not as user friendly. With a debit card, your liability under federal law for unauthorized use depends on how quickly you report that your card has been lost or stolen.

For example, if you report the loss within two business days after your realize your card is missing, you will not be responsible for more than $50 of unauthorized use. Your liability increases to $500 if the lost or stolen debit card is reported within 60 days.

Failure to report unauthorized use within 60 days after your bank mails you the statement will cause you to face unlimited loss. This means you can lose all the money in your bank account and, perhaps, the unused portion of any line of credit established for overdrafts.

As with credit cards, once you've reported the loss of your debit card, you cannot be held liable for additional unauthorized use that occurs after that date. Some debit card issuers offer more protection than the law requires. However, these are voluntary measures and could change at any time.

Safety tips for protecting your debit card

CPAs recommend that you know the risks and take precautions to protect your debit card. Here are some helpful tips:

1. The best protection is to keep your debit card secure at all times and your PIN (personal identification number) a secret. Don’t use parts of your birth date, phone number or Social Security number as your PIN. And memorize your number, so you don’t have to write it down anywhere.

2. Carefully check your purchase or transaction before you enter your PIN or before you sign the receipt because funds are quickly transferred out of your deposit account.

3. If you have the option, choose a card that is PIN-based rather than one that just requires a signature. With a PIN-based debit card you have to know the PIN number to make a purchase. With a signature-based card, anyone could pick up the card and use it.

4. Review your statement carefully and promptly each month and check your balance in between. Remember, your card does not have to be missing in order for it to be misused. All thieves need is your name and card number to order goods by mail or over the telephone. Your bank account can be wiped out before you know the card is missing, or while the card is still in your wallet.

Finally, the Virginia Society of CPAs points out the key to using any credit or debit card wisely is to keep spending within your means.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

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