Visa debit card consumer protections
August 23, 2011 8:10 AM   Subscribe

Who pays the fees on a Visa debit card (when used as a Visa); and when used as a Visa, do standard credit card consumer protection laws apply, or the much weaker debit card protections?

I have a bank account that I can only (easily) access via a Visa-branded debit card. I know it works as a "regular" Visa in addition to its debit and ATM functionality, but don't fully understand the fee and consumer protection implications (nor do the terms of service make that at all clear).

Normally, I would prefer to use it in credit-card-mode for a variety of reasons (no PIN, better legal protections, buyer-favoring dispute handling, better international support, etc). Those perks normally come at a price, though - Credit cards have much higher fees associate with the transaction.

So really, my question(s) boil down to one core point - Does a Visa debit card, used as a Visa, count as a "real" Visa credit card for all intents and purposes, or does it occupy some nebulous "watch your butt" hybrid territory?

Thanks, AskMe!
posted by pla to Work & Money (7 answers total) 2 users marked this as a favorite
Can't answer the protection issue, but the merchant always pays the fees.
posted by scolbath at 8:15 AM on August 23, 2011

Best answer: If you sign for anything you get CC protection.

Visa FAQ
posted by JPD at 8:17 AM on August 23, 2011

My husband and I have the same banking situation. He lost his card once, and the finder quickly racked up a bunch of purchases. The difference between a debit and credit card was this: with a credit card, you're not out any money, because the credit card company is floating you the amount. With the debit card, you lose $X straight out of your bank account, until you get it back. You're essentially floating the bank and the thief money. It took about a week for the money to re-appear in our account, and it caused all kinds of other problems with bills being paid on time.
posted by desjardins at 8:24 AM on August 23, 2011

I do merchant transactions, but I don't do much in the debit end, so I'm fuzzy on the particulars, but merchants pay less to run a debit card in most cases. The presumption is that it's harder to do fraud when a PIN is required, and debit cards are also not typically cards that give big rewards, incentives, miles, etc. when used (merchants pay more when they accept those cards - the higher the incentive levels, the more they pay. That's right, it's not really AMEX and Visa Platinum who's paying for your trip because they love you so much).

Merchants can do subtle things to give you an incentive to run a card as a debit card, but they can't really put roadblocks in your way if you tell them to run it as credit (or so it seems, from what little I've bothered to pay attention to the bulletins). For example, a gas pump will offer you a menu option to run credit or debit, but if you just stick your card in and it's a debit card, it will ask for your PIN.

My own bank is offering a tiny cash-back incentive to try to get me to run debit transactions instead of credit ones. I haven't really looked into it, but apparently the banks pay less to process debit as well.

desjardins is correct; the protection is really quite similar, but the thing you get into with debit cards is that you're generally operating with limited funds in your checking account, and if the bad guys tap it, you're out the use of that money while things are sorted out. Also, hotels will generally put a big authorization on your card up front. Even gas stations create a small problem because they generally authorize as much as $75. This gets settled overnight and your actual gas purchase gets posted instead, but if you buy gas and then go to buy something the same day if you're a little low on funds, it will get you. But most of these problems are going to apply whether you say "credit" or "debit" when you use the card - the issue is that it's a credit card/debit card that taps a limited amount (your bank balance + whatever overdraft line you may have set up).
posted by randomkeystrike at 9:05 AM on August 23, 2011

Best answer: Let me answer this the best that I can. From your perspective, there will be minor differences that are unlikely to affect you.

If you choose to process a debit transaction as a credit card, it usually means that it will go over the Visa/MC credit rails and not debit rails. As such, you may get some of the network protections, which are mentioned above. Network protections include zero liability for fraud. Visa and MC have voluntarily extended charge-back rights for some debit protections, but these are generally less strong than the statutory rights (more on this later).

While these contractual rights make the two situations similar, the legal frameworks are different. Credit transactions are addressed by the Truth in Lending Act and Reg Z. This provides stronger protections, including a right to dispute transactions. Debit transactions are addressed by the Electronic Funds Transfer Act and Reg E. Reg E and Reg Z give different timelines in how disputes are handled and what is required of you. They also have different limits on fraud liability, but network agreements usually make this difference disappear.

Ultimately, if there is a fraudulent transaction that is authorized, the money is taken from your account before you can dispute it - and then will remain out of the account during part of the dispute. This is a difference between a credit card and a debit card, but not between processing debit as debit and debit as credit.

Long story short: almost no difference from your perspective. The strength of your chargeback rights may vary, depending on the type of card.
posted by allen.spaulding at 9:10 AM on August 23, 2011

Regarding fees, the merchant you are making a purchase with will pay a fee. Depending on the credit card company/banking institution, there may be fees and interests that you may incur at the time of purchase. You may want to read the fine print on that.

As for which may be safer, I would suggest to use a credit card rather than a debit card. Either one will have protection for the card holder, but when you make a purchase using a debit card, the money is coming right out of your account. If there is fraud or theft and your card is being used, you will have to wait for your funds to be recovered. There is usually an investigation to verify that you are a victim of theft or fraud first.
posted by Yellow at 9:52 AM on August 23, 2011

I think my answer was still a little unclear, so let me try my best to clarify.

When you select "pay as credit" at the point-of-sale, it only changes which payment network processes the transaction. It does not change the fact that it is a debit transaction. Credit is not extended in this situation. The entire transaction is governed by the EFTA.

Paying as credit will likely lead you to use the Visa/MC credit rails, which come with some contractual network protections. These include zero liability for fraud, which is more than what is extended in EFTA.

At the same time, Visa's Debit Networks increasingly have similar rights so this difference is small. You will almost certainly have less of a charge-back right than you would have had you used credit. You may have more of a charge-back right than you would have had you used debit.

So in short, if you use debit as debit, you get EFTA protections and perhaps some Visa Debit protections, depending on which card is used and which rails are used. If you use debit as credit, you get the same EFTA protections and maybe slightly more network protections. Both of these offer fewer protections to consumers than a credit card, which gets protections from the Truth in Lending Act.
posted by allen.spaulding at 11:55 AM on August 23, 2011

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