Debit cards too risky for online shopping

MADISON, Wis. (12/10/07)--Use the wrong payment method or the wrong piece of plastic when shopping online and someone you don't know could zero out your checking account balance in a matter of minutes. Remember some simple cyber rules to avoid becoming a statistic (Credit Union National Association center for personal finance).

It's a fact: The safest form of payment online is a credit card, although there still are risks, particularly if you don't know the reputation of the seller. But if you're a die-hard debit card user and insist on using it for online purchases, you're putting yourself at much greater risk than if you use a credit card for those same purchases.

Why? Because debit cards are regulated by the Electronic Funds Transfer Act, which is weaker than the law that regulates credit cards. What you need to remember has to do with liability:

• Credit card liability. Federal law protects you so your liability is no more than $50 (per card) if a crook uses your card fraudulently before you report the theft. Report the theft before the crook uses your card, and your liability is zero. Even if you're subject to the $50 liability, some issuers may waive that amount.

• Debit card liability. Here's where it gets sticky. If you report the theft within two business days, your liability is limited to $50, and again, some issuers may waive that amount. However, after two business days, your liability jumps to $500. And if you don't report the loss or theft within 60 days of receiving your statement, your liability is unlimited.

To further compound the problem, remember that debit card purchases are deducted immediately from your account. If the debit charges are unauthorized or incorrect--such as double billing--they may be harder to recover; to get your money back, you'll need to work it out with the merchant, which may be much more difficult for online transactions.

On the other hand, if you file a dispute over fraudulent charges made on your credit card, the card issuer's money is on the line--not yours--and it's up to the issuer to get the money from the merchant.

Bottom line: Don't use a debit card for online purchases. Use a credit card on sites of reputable sellers. And follow more simple advice from the Federal Trade Commission:

• Get the seller's phone number in case you have questions or problems.

• Type the seller's name in your search engine to see if there are unfavorable reviews.

• Read the website's privacy policy to see how your personal information will be used.

• Understand the return policies.

• When entering payment information, make sure the http:// changes to https:// in the site's URL address line.

• Don't shop online unless your computer has antivirus and antispyware software, and a firewall.

For more information, read, "Stay Safe When Shopping Online" in Home & Family Finance Resource Center.

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