Young adults unaware of debit card risks

NEW YORK (7/31/07)--Debit cards are becoming the plastic of choice for young adults. A 2007 Visa poll revealed that one-third of 18- to 25-year-olds rarely carry cash, and 76% always carry some form of payment card (Biz.Yahoo.com July 3).

Often seen as a convenient way to escape the risks associated with credit cards, many young adults are not aware of the differences and increased risks that debit cards carry.

Frequent use of debit cards coupled with poor record keeping increases the risk that young adults will overdraw their accounts. The most recent data (Center for Responsible Lending 2007) indicate that 46% of overdraft loan fees were caused by ATM withdrawals or debit-related purchases.

Along with increased potential for financial mismanagement, young adults may assume the only difference between debit and credit cards is the location of the funds' withdrawal. However, a potentially greater difference relates to the consequences of fraudulent debit card transactions.

If a credit card is lost or stolen, the consumer is responsible for up to $50 of any fraudulent charges, unless the consumer reports the loss or theft before the thief uses the card, which means the consumer's liability is zero.

Liability for debit cards is different. If the victim reports the loss or theft within 48 hours, the amount is limited to $50, although some issuers waive that fee. After 48 hours, liability jumps to $500. If the victim fails to notify the financial institution within 60 days of receiving a statement displaying fraudulent transactions, liability is unlimited--basically the amount of money in the victim's account.

These tips can help you reduce your risk:

• Choose credit over debit. This will give you more protection in case of fraud.

• Pay your credit card balance in full. This helps you build a strong credit record and prevent late charges.

• Use credit for Internet purchases. Don't use debit online--you risk losing everything in your checking or share-draft account.

• Be vigilant and stay organized. Keep all receipts, review financial statements, and check your balances often to stay on top of what is being charged.

• Protect your PIN. Choose a unique personal identification number and do not carry it with the card.

• Call immediately. Contact your financial institution if you notice a problem or suspect fraud.

Resource Links

MoneyMix: Launch Your Life website

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