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It’s happened to nearly everyone: Our credit or debit card is lost or stolen, and then we find fraudulent charges on our account. And the Covid crisis has unfortunately made fraud even more common. But the theft of your card or bank information doesn’t mean you’re on the hook for all the losses. On the contrary, in the vast majority of cases, you’re entitled to a refund of almost all fraudulent charges. Here are the basic steps you should understand to get as much of your money back as possible.
Credit or Debit?
Whether to pay with debit or credit is an age-old question that depends upon multiple factors. Generally speaking, if you have good credit management skills and pay-off your cards on time every month, you should pay with credit as often as possible, in order to enjoy cash back, points and other rewards. From a safety perespective, however, this can expose you to more instances of identity theft, since many credit card purchases are online, or in public shopping areas, where such theft is more common.
On the other hand, debit is best used when you have credit management challenges, for bill pay (where credit is not an option), or other automatic payments withdrawn from your checking account. Using debit to make online purchases exposes you to many of the same risks as credit. However, for in-person purchases, debit may be somewhat safer, since PIN numbers are usually required, adding an extra layer of protection.
The caveat, though, is that if your debit card information is successfully stolen and used, you may expose your entire banking relationship – including potential access to other accounts you may have with your bank.
In either case, the absolute first step you should take if your card or information is lost or stolen is to report it immediately to your bank or financial institution. (The faster you report it, the more financial protection you’ll enjoy.) But it should be noted that there are differences in the protections offered on debit vs. credit cards. Credit cards generally offer more comprehensive consumer protection. For that reason, you should know your rights, and the maximum amount for which you could be responsible in the case of fraudulent charges:
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In the event of the theft or unauthorized use of your credit card, federal law states that you’re liable for a maximum of $50 in fraudulent charges. However, if you report the loss of your card before any fraudulent charges appear, you’ll bear no financial responsibility whatsoever. And many credit card companies offer even greater protections, so it’s a good idea to read the fine print and inquire regarding their credit theft protections.
On the other hand, the maximum liability you’ll face on fraudulent debit card charges varies depending on the time elapsed between when the fraudulent charges were made and when you report the loss. If you report the card’s theft before any fraudulent use occurs, you’ll bear zero liability. Under federal law, if you report it within two business days after the fraud occurs, you will be charged a maximum of $50. If you wait 2 to 60 days after a fraudulent transaction occurs, you could be charged a maximum of $500. And if you wait more than 60 business days to report the fraud, you could be responsible for the full amount. That’s why it’s imperative you report the loss, theft, or fraudulent use of a card as soon as you notice it.
The Federal Trade Commission cites the Electronic Funds Transfer Act as the federal law which stipulates consumer protections and responsibilities in the event of card fraud.
In today’s world of electronic fraud, if just the credit card account number itself is stolen and the theft is reported before any charges are made, federal law guarantees that the cardholder has a zero liability to the issuer. Numerous credit card companies have also adopted a zero liability policy, which means the consumer is not held responsible for any fraudulent charges at all. The terms and conditions of your cardholder agreement often spell out the details.
Other Steps to Take
The theft of your cards or financial information could also lead to identity theft. First, it’s extremely important to review your entire credit report with all three credit bureaus: Equifax, Experian and TransUnion. (You can request a free report at freecreditreport.com.) There may be fraudulent charges on other accounts, too. In that case, you might even want to request a “freeze” on your credit, so that no other person can use your credit identity for a specified period.
If you find other evidence of fraud on your credit report, it’s important to report the situation immediately to all of your financial institutions, and also to the credit bureaus to protect yourself and resolve the problem. You should send the credit bureaus a written summary disputing any fraudulent charges in order to erase them from your credit history. And don’t forget to report the fraud to federal and state agencies, if possible.
Finally, make it a habit to review all charges on your credit cards and bank accounts online at minimum weekly in order to identify any unauthorized charges before it’s too late to easily dispute them. Keeping track of your finances is the best protection against any losses.
