4 PLACES YOU SHOULD NOT SWIPE YOUR DEBIT CARD

Original Story: USAToday.com

Breaking news such as the massive data breach at Experian or Target now seems common. Leaving aside the victims of actual fraud, I hear constantly from people who've had to swap out every debit and credit card, or whose cards were unilaterally replaced by their bank. This causes all sorts of problems.

Sometimes it makes you long for the days of cash. While cash is not practical for everything, there are very compelling reasons to consider it or other alternatives instead of those debit cards.

Of course, you also have to watch where you get your cash, too. Criminals are good at installing near-invisible skimmers on ATMs. These steal your card information and then a miniature camera over the keypad steals your PIN. It's everything a thief needs to drain your account.

Avoid out of the way ATMs in isolated areas. When you can, use ATMs in a restricted-access foyer. You should also hold your hand over the keypad when you enter your PIN. This blocks a camera from seeing what you're doing.

CREDIT OR DEBIT: What's best for consumers?

Now that you know how to safely get cash, here's where you should use it.

1. GAS STATIONS

ATMs aren't the only places criminals can install card skimmers. Gas stations are a favorite target for thieves. Last year, four men were arrested for allegedly stealing $2.1 million using skimmers at gas stations in the south. The skimmers were installed in the pumps and were even equipped with Bluetooth — which allowed the thieves to come by and extract the collected numbers and PINs wirelessly!

To keep the odds in your favor, use cash. If nothing else, use a credit card at a gas pump. It's not widely appreciated that consumer responsibility for debit-card charges are different than they are for credit cards. Credit-card charges are easier to contest, and you're only liable for up to $50 of fraudulent purchases.

With a debit card, you have to report a fraudulent purchase within a few business days for the $50 liability limit to kick in.

2. RESTAURANTS

Restaurants, too, can be a source of trouble. Some unscrupulous servers bring handheld card skimmers to work to swipe your card info. Even low-tech thieves can just write down the card numbers.

To make matters worse, many restaurants use older computer systems for processing cards. These are easy for hackers to install card-swipe software, as in the Target hack. The price paid can be quite high; Subway got hit in 2011 by Romanian hackers, who got away with $10 million from 150 restaurants.

One of the lesser noted aspects about the coming end to Microsoft's XP operating system is that many restaurants and ATMs still use the XP infrastructure.

3. STORES

Restaurants and gas stations make juicy targets: a steady steam of customers, some not from the area. The same goes for stores.

For small purchases cash is the way to go. Use cash at the grocery store or while buying clothes. For larger purchases, use a credit card instead of a debit card. Again, you have less liability than you do with a debit card.

Bonus tip: Some people use cash at stores to avoid the store tracking what they buy. However, stores can still track your purchase history if you still swipe a loyalty card.

4. ONLINE

OK, you can't use cash online. But please, use a credit card, not a debit card. The fraud protections are better and a hacker can't overdraft your bank account with a credit card. You don't need to be fighting overdraft fees on top of everything else.

You can also check with your bank to see if it offers one-time credit card numbers for online buying. Since each number only works once, it won't do a hacker any good to steal it.

Of course, one drawback to using a credit card is the interest payments if you don't pay on time. This site can show you the real cost of using a credit card.

Finally, I know this is a lot of work, particularly when it seems that everyone is busy and overworked; but remember as well to check your bank statements, and credit reports, regularly for suspicious activity.

Cash or Credit? More Consumers Turning to Debit Cards

CNBC

 

Wary of the economy, shoppers are increasingly shying away from credit cards, opting to use cash, checks or debit cards rather than to "pay later" on a credit card.

In fact, use of debit cards surpassed that of credit cards last year, according to a new study released by Javelin Strategy & Research.

The study found that in 2009, only 56 percent of consumers surveyed during a particular month had used a credit card, down sharply from 87 percent in in 2007.

What's more, if this trend persists, credit card usage in 2010 could fall to 45 percent, the market research firm said.

"People are extremely wary," said James Van Dyke, president and founder of Javelin. "They can't tell which way the economic winds are blowing. They are just incredibly uncertain."

Van Dyke sees this as "a sea change" in consumer behavior.

Javelin suspects debit card usage will continue to grow in the years to come. Based on Javelin's research, the total purchase value for debit cards rose between 3 percent and 7 percent depending on the card brand from 2007 to 2009.

Consumers in their twenties helping to drive the trend as they are more likely to use a debit card than other forms of payment, Van Dyke said. One reason is that some consider it a better way to budget their money.

"Credit cards don't make sense for many young people," Van Dyke said.

Then, there are lower-income consumers, some of whom are being paid their salaries on reloadable prepaid cards rather than by getting a paycheck deposited into an account, Van Dyke said.

One danger here is that reloadable prepaid cards is a payment category that remains largely unregulated under the new credit card laws.

That's more bad news for the nation's biggest credit card issuers. These companies are already seeing a less profitable future as consumers spend less and pay off their credit card bills. And, raising interest rates and imposing new types of fees isn't likely to fill the gap.

Instead, credit card issuers will need to come up with new types of products to encourage card-spending.

MasterCard, for example, announced last month that it plans to offer its Citi cardholders a new card that allows users to set spending controls and receive real-time spending alerts aimed at helping them avoid overspending. The program, dubbed inControl, also will allow customers to determine where, when, how and for what types of purchase their cards may be used.

This type of product goes right to the heart of why some cardholders are refraining from using their credit cards—they want to be in control of their spending.

Roughly 16,000 companies in the U.S. issue credit cards, but the six largest lenders are Citigroup, JP Morgan Chase, Bank of America, Capital One Financial, American Express and Discover Financial Services.

Credit-card loan balances at these six lenders have dropped 20 percent since their peak in the second quarter of 2008, to $544 billion, according to Credit Suisse.

The decline reflects not only moves by consumers to pare back debt, but also bank efforts to weed out risky borrowers.

A month look at consumer credit will be issued later Wednesday by the Federal Reserve.

The New Card On Campus: Prepaid Debit

As Colleges Limit Marketing Of Credit Cards, Issuers Push High-Fee Alternatives

Many colleges have tightened rules on credit-card marketing on campus in order to discourage students from racking up huge amounts of debt. Now another kind of card is being pushed on campus -- with its own set of issues.

This fall, financial-services companies are focusing more of their campus marketing on "prepaid debit cards," which work like standard debit cards except that they aren't linked to a traditional checking account. Among the issuers aggressively marketing their cards this year: U.S. Bancorp and Wal-Mart Stores Inc.

The cards typically carry hefty fees and offer fewer consumer protections than credit cards. Fees are often charged when the card is activated, when it is used at an ATM and even when there's a lack of transaction activity.

They also offer less protection than credit cards do when a card is lost or stolen. If a missing prepaid debit card is reported within 48 hours, cardholders are not responsible for more than $50 in unauthorized charges. Yet if reported two to 60 days afterward, cardholders could be held accountable for up to $500 dollars in unauthorized charges. After 60 days, users face losing their entire balance. With a lost credit card, users face a maximum $50 liability, regardless of when the loss is reported.

Another drawback: The cards don't help users establish a credit history, as they are not considered a line of credit. That may hurt students when they look for an apartment or shop for private student loans down the road.

On the plus side, it's virtually impossible to incur an overdraft with prepaid debit cards. And students can't get into thousands of dollars of debt, as they can with credit cards. The average college graduate carries $2,748 in credit-card debt, according to a 2007 survey by student lender Nellie Mae. And nearly one in four graduates leaves school with more than $5,000 in credit-card debt, according to a recent survey by Zogby International that was commissioned by credit reporting agency TransUnion Corp.

Prepaid cards are making inroads as a growing number of colleges limit how credit cards can be marketed on campus, in order to protect students from runaway debt. Tulane University, Georgia Institute of Technology and the University of South Carolina, for example, forbid credit-card companies from soliciting on campus. The University of Arizona allows only merchants that are sponsored by a university group.

But financial institutions are still permitted to promote student checking accounts and prepaid debit cards on most campuses. In addition to fliers and T-shirt and cupholder giveaways, banks and other card issuers are increasingly using technology to reach the student population.

Facecard, a prepaid debit card offered by Iowa-based MetaBank, a unit of Meta Financial Group, promotes its MasterCard prepaid debit card through the social-networking site Facebook, as well as its own Web site, Facecard.com. The card allows users to swap money between friends online and monitor spending over the Internet and via their cellphones. An average of 5,000 cardholders are added every month, according to Ed Braswell, chairman and CEO of edo Interactive, which developed the card.

Although there's no fee for using it for retail purchases, the card imposes other costs. There's a $1.50 fee for ATM withdrawals, in addition to whatever fees are charged by the dispensing bank. There's also a $4.95 monthly inactive-account fee if the card goes unused for more than 90 days. Additionally, cash and checks cannot be uploaded to the card, only money through bank accounts or other credit and debit cards.

Facecard is being promoted at orientations, merchant fairs and other high-traffic events for freshmen at 50 colleges this semester. Among the enticements: "prewards," coupons that offer incentives to shop at marketing partners. For example, a student would receive a text message notifying her that a local restaurant has loaded a $2 preward onto her Facecard, redeemable only at that restaurant. The student would then head to the restaurant and presumably spend more than $2.

Retail giant Wal-Mart Stores is also making a bid to court campus consumers. Its new Student Money Card, backed by GE MoneyBank, a unit of General Electric Co., is actually two cards -- one issued to a parent and another to a student. Parents can then monitor how much money is spent and where it goes from another location. They can also add money to the card.

There's a one-time charge of $7.46 to activate the two cards, along with a $4.94 monthly fee that is waived if the account balance exceeds $1,000. Cardholders pay a $2 ATM withdrawal fee, plus whatever the host bank charges. They can, however, withdraw up to $100 per transaction when making a purchase at a Wal-Mart store without incurring any fees.

For parents with accounts at banks like U.S. Bancorp and National City Corp., the Visa Buxx prepaid debit card may offer a way around some of the fees. Like Wal-Mart's Student Money Card, both the parent and the student receive a card and can track spending online. Students cannot spend more than what's in the account, but there are several charges: a $10 enrollment fee ($15 for non-customers), a $2.50 bank teller fee, a $2 inactive-account fee and a $10 overdraft fee, which can occur if a charge isn't processed immediately. Transactions at bank-owned ATMs are free, but there's a $1.50 fee for non-bank ATMs.

So far, the Buxx card has been marketed to parents, according to Brian Triplett, global head of prepaid products for Visa. Since it was designed primarily for high-schoolers, there hasn't yet been a major push to sign up cardholders on college campuses.

Students who opt for debit cards should investigate their bank's overdraft policies and fees, say experts. "It's unlikely that the first offer that shows up in the mail is the best out there," says Ben Woolsey, director of marketing and research for Creditcards.com, an online credit-card marketplace. "The same goes for cards that are marketed on campus at events. Like all consumer goods, comparing before buying is a good idea."

When Laura Palazzolo, of New Hyde Park, N.Y., entered New York University this fall, she says she was bombarded with offers for debit cards from area banks handing out fliers on campus.

She hopes to avoid using plastic too much. "I'm really trying to be careful," says Ms. Palazzolo, 18. "It's a little overwhelming when [companies] target you because you're a freshman." For now, she's using a student checking account she set up through her parents' bank that comes with a debit card.

By: Mary Pilon
Wall Street Journal; September 11, 2008