Do online purchases make you nervous? I’m all about shopping (and banking/investing) online, but there are still people out there — especially amongst the older set (Hi Mom! Hi Dad!) — who aren’t very comfortable with e-commerce.
Well, according to a recent article in the NY Times, if you do venture online, credit cards are the safest payment medium. The reason for this is that the Truth in Lending Act caps a consumer’s maximum liability for unauthorized credit card use at $50. Better yet, when a card is used online, the maximum liability is $0.
Debit cards ranked second. The reason for this is that debit cards are governed by a different law – the Electronic Funds Transfer Act. Under this law, if you report fraudulent transactions within two days of “discovering the problem” (pretty ambiguous), your liability is capped at $50 (or $0 for online transactions).
If, however, you miss the two day window and wind up reporting the problem within the 60 day window, your liability is capped at $500 offline and $0 online. Beyond 60 days, all bets are off and your liability could be unlimited. If you’re concerned, your best bet is to check with your bank to see what their policies stipulate.
If the fraudulent activity results in overdrafts, you might also be facing penalty fees from your bank even if you’re held responsible for the actual losses. Moreover, debit card fraud means that your money (not just a portion of your credit line) has gone missing until you get things straightened out.
Coming in third place are online payment services such as PayPal, Google Checkout, or BillMeLater. These services add a layer of isolation between your payment information and the vendor, and can actually make fraud less likely. However, if your account is used fraudulently, it can be much harder to get your money back than with a credit card.
In other words… Choose your poison.
In many cases, banks have stepped up and are offering debit card protections that rival those of credit cards, but they’re not required to do so. Online payment services can be a good option as long as you jealously protect your login credentials. If your account is compromised, however, you could be in for a huge headache.