Each year around this time, a majority of Americans either use credit or debit cards to buy gifts. As a banker, you are often expected to know the ins and outs of both. The information below may serve helpful, should you want to write an article for your bank's newsletter or for some e-mail marketing. Here are some tidbits that may prove useful.
Purchasing on credit instead of a debit card is similar but not exactly the same. Using a credit card gives customers certain rights under the Fair Credit Billing Act that are not afforded to debit card users. Credit card users are protected against "billing errors" such as fraudulent charges, math errors, or goods that weren't delivered as agreed (great for online purchases).
When it comes to debit cards, however, they are less safe than credit cards. Consumer protections for debt cards largely fall under the FTC's Electronic Fund Transfer Act. For debit cards, it is up to the issuing bank whether you can dispute a debit or get a refund for non or late delivery. While a majority of banks offer such type of purchase protections (banks can purchase such insurance from a 3rd party), many do not.
"Billing errors" are the most common dispute and include being double charged, mischarged, or charged for something you did not get. Here, both credit and debit offer strong protections. However, there is a large gray area for the 2nd most common set of complaints that include "delivering as promised." Here, if the wrong good was delivered, or was delivered late, the consumer may not have solid recourse. This also goes for any "guarantees" that the merchant gives you including those that read along the lines of "your money back if you are not completely satisfied." For credit cards, It helps that the merchant is domiciled in the state of purchase or 100 miles or less from the billing address of purchase, as there is a somewhat archaic carve out under the Fair Credit Billing Act that treats local merchants with a higher standard. In addition, FTC requires that all goods, unless a delivery time is stated, must ship within 30 days of purchase.
This gray area can be partially mitigated by a few easy tips. Make sure you verify the merchant's contact information before ordering if you are not familiar them. It is not uncommon for both legitimate and fraudulent companies to operate during the holiday season. If you don't know the merchant, check online, research reviews or call them for references in order to conduct an extra level of due diligence. Another set of tips is to know the details of the item you are purchasing; keep records and understand the company's policies on privacy, returns and dispute resolutions. It seems crazy, but according to the BBB, most unresolved problems with legitimate merchants are a result of the consumer not being able to provide proof of what they purchased or not knowing the details of the transaction. The best protection is preventative.
Finally, because of the low threshold for opening any business and the lack of regulation, merchants of all types will always present a material transaction risk. Having a bank or card company help in disputes is valuable. The trust and expertise of a banker as a 3rd party to a transaction will be even more important in the future, as online purchases continue to grow.