By JENNIFER SARANOW SCHULTZ
Last week’s New York Times article “How Visa, Using Card Fees, Dominates a Market” detailed the behind-the-scenes struggle between banks and retailers to encourage customers to sign when making debit card purchases or to punch in their PIN because of the higher fees that stores pay banks for signatures.
Many readers took issue with the notion in the article that the debate over signing versus typing in a PIN “is a pointless distinction to most consumers, since the price is the same either way.”
Some readers said they felt there actually was a big difference between signatures and PINs for consumers in terms of fees and cost, safety and protection against fraud and purchase records, among other issues.
We’ve boiled this down to four main points: which costs more, which is safer, which offers more protection in the case of fraud and which is easier to track.
Last week, we looked at the cost differences for consumers and on Monday, we looked at which use of a debit card might better protect consumers’ accounts from the risk of fraud. (To be sure, many people think using credit is better than using any kind of debit transaction, but we’ll save that issue for another series.)
In this installment, we look at the differences in protections available if you’re a victim of signature vs. PIN transaction fraud and we’ll cover the remaining issue in our next installment.
Q.
What are the differences, if any, in protections available if you’re a victim of signature vs. PIN transaction fraud?
A.
If you’re the victim of fraud, the protections available to you can be very different depending on whether the transaction in question was done with a signature or a PIN and depending on which network processed the transaction.
Federal law generally limits consumer liability in debit card transaction fraud to $50, if the consumer notifies the financial institution within two business days. When timely notice is not given, the cap under federal law is $500, assuming other reporting requirements are met.
But some transaction networks offer consumers “zero liability,” meaning they mandate that financial institutions reimburse cardholders. Assuming those consumers meet certain fraud reporting requirements, they would pay nothing for unauthorized transactions.
Both Visa and MasterCard offer such a zero liability policy if the purchases in question are made with signatures. Visa, for instance, offers a zero liability policy for signature transactions processed over the Visa network, and MasterCard offers a similar policy, assuming certain requirements are met.
The protections for PIN purchases, however, are more varied. While Visa offers zero liability as well for PIN transactions processed over Interlink, its PIN debit network, MasterCard doesn’t offer a similar zero liability policy for PIN transactions “at this point,” said a MasterCard spokeswoman.
According to the spokeswoman, MasterCard does not offer zero liability for PIN purchases for a number of reasons, including, most important, the fact that its network processes only a small percentage of the PIN transactions used with its cards.
Financial institutions, however, may offer their own zero liability policy or other protections for PIN transactions. For instance, while the Star network, which processes PIN transactions, does not require that financial institutions offer zero liability, it is “aware of financial institutions that do offer zero liability as standard practice for all debit card transactions — whether they are PIN or signature authenticated,” said a spokeswoman for First Data, the parent company of the Star network.
To find out what protections you have for PIN transactions, look at the back of your debit card to see which networks may handle your transactions and check with your bank to see if you’re guaranteed anything beyond federal regulations for fraudulent PIN transactions.
According to David Robertson, publisher of the Nilson Report, a major reason for the additional protections for signature transactions is that there’s a much greater risk of fraudulent signature than fraudulent PIN transactions. “Visa and MasterCard have tried to mitigate that differential between the signature and the PIN networks by offering zero liability,” he said.
If you’re worried about fraud, Michelle Jun, a staff lawyer at the Consumers Union, recommends using your credit card instead of your debit card because of the additional protections available for credit cards.
The federal liability cap for credit cards is $50, and when you report a fraudulent credit transaction, a hold is put on your account and you don’t have to pay the disputed amount.
