8 Reasons to Worry About Debit Cards
May 13, 2011— -- Reports of debit card fraud have rocked Michaels, a national chain of arts-and-crafts stores, after the company reported it had discovered tampering with the card-reading equipment at stores in 20 states. The massive security breach put the spotlight on the safety of debit cards, one of the most popular ways in America to spend money.
"I don't have a debit card. I believe it's one of the worst financial tools ever given to the American public," says Frank Abagnale, a former fraudster turned security consultant who was the inspiration for the film "Catch Me if You Can."
At Michaels, thieves were able to install skimmers to gain access to debit card information, including personal identification numbers, to recreate debit cards and take money directly from customers' accounts, according to The Wall Street Journal. The thieves allegedly stole money from the bank accounts of victims in increments of $500.
Debit cards have grown in popularity. "More consumers now have debit cards than credit cards, and consumers use debit cards more often than cash, credit cards, or checks individually," according to a 2008 Survey on Consumer Payment Choice.
"Most people think using your PIN number is the safest way to pay," says Gerri Detweiler, a personal finance expert at Credit.com. "No one would think inside a reputable store someone could tamper with a debit card."
"If they can do it there, where can't they do it?" she asks.
Five years ago, TJ Maxx had a massive security breach: data for 45 million credit card and debit card accounts were stolen. Late last year, thieves targeted ALDI supermarkets in 11 states from Connecticut to Virginia, stealing names, card numbers and PIN codes. Debit card loss has risen from $662 million in 2005 to $788 million in 2008, according to the American Association of Bankers.
"The safest form of payment that truly exists on the planet is the credit card," says Abagnale. "I removed 99 percent of the risk because I spend the credit card company's money. If someone looks over my shoulder and gets my number, I have zero liability."
Detweiler says credit cards make sense for most purchases, but if you're drowning in debt, a debit card may be your best bet.
Here are 8 Reasons to Worry About Debit Card Purchases:
No Account Access: Consumers may be unable to access bank accounts if a debit card or banking information has been compromised. Consumers may be required to wait 7 to 10 business days for a new card to arrive to begin making charges using their personal funds.
Delays: "The bank may eventually give you your money back if you lose money with a debit card but until then you're out of your own money," says Ed Mierzwinski, director of Consumer Program at U.S. PIRG, a consumer advocacy group.
