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  • Target Hacked – Credit Cards vs. Debit Cards

    Posted on December 19th, 2013 Brian No comments

    The world seems to be going crazy this morning with news that some 40 million credit cards were stolen from Target’s databases. My Twitter feed is aflame, it’s all over my news sites, and I’ve even received email from family members warning me to get all my cards reissued. I’m not going to, though. I only use credit cards, so it’s not my problem.

    If my number just happens to be one of the 40 million stolen, and if a thief happens to actually try and use it, and if the credit card companies’ powerful automated anti-fraud systems don’t happen to notice that I couldn’t possibly be buying a new television from Amazon in Kazakhstan while also paying for dinner at Chez Billy, then in that unlikely scenario my total projected costs will be a grand total of $0, plus a minor inconvenience while my card gets re-issued.

    How can this be?

    In the United States, the law limits consumer liability for credit card fraud to the first $50, so no matter what happens, I’m only out $50. As a bonus, credit card companies nearly always waive that $50 charge, as they would rather not piss me off and lose me as a customer over a another person’s crime.

    But if you use debit cards, the story is different. The consumer protection laws are far more lax, with a potential maximum liability of up to $500 – 10x more! And even though most cases of fraud will probably eventually be resolved, in the meantime, the missing money is your money. The bank can take up to 10 days to investigate the fraud, and during that time your checking account will sit empty. When you use a credit card, you’re buying things with somebody else’s money. While they investigate the fraud, you’re not out a nickel.

    The moral of the story is: Use credit cards instead of debit cards. Or use cash. But either way, cut up your debit cards.

    [You can find more information on the legal difference between credit cards and debit cards at US PIRG.]

  • Confession of a Credit Card Deadbeat

    Posted on May 19th, 2009 Brian 6 comments

    The roiling economy has uncomfortably squeezed the profits of various huge financial mega-corporations.  As the bottom-of-the-barrel customers are no longer able to honor their obligations, the fatty underbelly of fees and interest which the poorest consumers have struggled to pay is suddenly looking a little lean.  To make back their profits, the credit card companies are looking to eliminate the cash-back and frequent flier miles, reduce or rescind interest grace periods, and reinstate annual fees. Stack of Credit Cards

    There’s no way this could backfire.

    An amusingly twisted word in the credit card parlance is “deadbeats”.  Counter-intuitively, these companies use that term to describe their very best customers.  Do you pay your card off in full every month?  Do you rarely, if ever, accrue interest or late fees?  Do you regularly cash in your frequent flier miles and cash-back bonus?  Yes?  Well, since you don’t make much money for them, they don’t like you.  They tolerate you, but you’re gaming the system, getting a free ride.  You’re a deadbeat.

    It’s nice to know what they really think of you.

    Don’t weep, though.  They still make plenty of money from customers like me.  Every time we use our cards, the merchant is charged hefty fees for privilege of accepting our card of choice.  We don’t pay that directly, but we pay it indirectly through higher prices in restaurants, shops, and online.

    But it’s not enough, so they’re coming after the good customers.  Ironically, they’re coming after the customers who need them least. I admit it: I am a credit card deadbeat.  And if I suddenly have to pay an annual fee or lose my grace period, what incentive do I have just to not carry cash?  I will happily abandon the credit card companies, tossing their aggressive advertising, obnoxious phone calls, and invasive behavior tracking right along with their annual fees and interest rates.  And good riddance!

    And, assuming I’m not the only one happy to return to legal tender, then the credit card companies are sowing the seeds of their own doom.  As their best customers jump ship, their balance sheets will be left a ghetto of poor credit customers.  As losses mount from those who can no longer pay, the ratio of good assets to bad will finally topple the once-mighty giants of consumer finance.

    Stack of Credit Cards modified from the original Too Much Credit by Andres Rueda under a CC Attribution 2.0 Generic license.