PhotoIt can happen. You lose your wallet or your purse is stolen. Quick, how many and what kind of credit and debit cards have been lost and, more importantly, what is your liability if some unauthorized person uses your cards?

The answer all depends on what type of card it is. If you're lucky, the thief will try to use your credit card. And it's the card you should be using too.

“A credit card is the safest type of payment vehicle for people to use for two reasons,” said Odysseas Papadimitriou, CEO of Card Hub, a credit card comparison site. “First, card network liability policies are simply more advantageous to the consumer when it comes to credit card transactions than transactions involving debit cards, prepaid cards, or ATM cards. Credit cards also make fraud easier to deal with given the inherent way in which they work.”

Consumer fraud liability study

Papadimitriou, whose firm has produced a new consumer fraud liability study, says consumers have up to 25 days to pay their bill once their monthly statement becomes available. It's assumed the consumer will be more likely to notice and report suspicious charges before they have to pay.

Credit cards, then, offer the best fraud liability protection for consumers, as all four major card networks provide $0 liability guarantees for unauthorized credit card transactions. In cases of fraudulent credit card use, it's usually the merchant that accepted the card as payment who is on the hook.

That's not always the case with a compromised debit card.

Debit cards

Odysseas Papadimitriou

“With a debit card, on the other hand, money gets removed from your account at the time a purchase is made,” Papadimitriou said. “That means you’ll not only have to try to recoup your lost funds, but you may also inadvertently bounce a few checks in the meantime if you aren’t keeping a watchful eye on your account activity. Plus, you also have to consider the psychological trauma, if you will, that comes with unexpectedly finding your bank account empty.”

But there are ways consumers can reduce their risk when using a debit card. When using the card to make a purchase, you have the choice of processing it as a debit or credit transaction. If you choose “credit,” you authorize the purchase with your signature. If you process it as a debit transaction, you use a PIN.

Consumers get better protection when they sign for a purchase instead of using their PIN. In fact, Consumers are not liable for fraud related to signature debit card transactions, regardless of the card network. Reloadable prepaid cards offer the same fraud liability protections as traditional debit cards.

If you do use your PIN for a transaction, your liability will vary, depending on whether it's a Visa or MasterCard. Visa offers limited protection, depending on the network that processes the transaction. MasterCard does not offer added liability protection for unauthorized PIN debit card transactions.

Discover and American Express

Discover, meanwhile, extends its $0 liability guarantee to all PIN debit transactions and American Express is not in the business of providing debit-based PIN transactions. But Papadimitriou says both cards set themselves apart in the fraud protections they provide.

Photo“People who have Discover and American Express cards in their wallets benefit from something that that VISA and MasterCard users don’t: blanket liability coverage and the peace of mind that comes with it,” Papadimitriou said.

“They know that no matter what type of card they use or transaction they make, the hit for any fraud that may crop up won’t be theirs to take. Since the dangers of fraud are largely psychological, in that the incidence of it is quite low and the chances you’ll personally lose any money are even lower, Discover and Amex have a distinct advantage over the competition in this regard.”


There are several lessons here for consumers. First, make a credit card your primary spending vehicle, rather than a debit card. It's much safer.

When using your debit card, select the credit/signature option instead of entering your PIN. It will limit your liability.

When paying in a restaurant, always fill in all the fields, including tip, even if you are paying the tip in cash. Put $0 in the box instead of leaving it blank.

When you do use you PIN, safeguard it carefully, and don't share it with anyone else.

Finally, if you haven't already, make a list of your credit and debit cards, their account numbers and expiration dates, along with customer service telephone numbers. Print out the list, do not save it on a computer. Place the list in a secure location, just in case.

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