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Dinged when signing for a debit card purchase

Posted on Jul 30, 2006 by Tom Fragala

WSJ.com has an article about signing for your debit card purchases. Banks are trying to get consumers to use signature-backed transactions versus using your PIN—they can make more money that way. Banks (the card issuers) get a higher fee on these purchases. PIN-backed transactions should actually be less risky for merchants and the issuers, so the fee should be lower all around (often it isn’t, which is scandalous). The article points out that some banks are now providing consumers incentives (both negative and positive) in the form of point-of-sale fees (penalties) if you use your PIN and extra perks if you don’t. What should you do? Well, it depends, but I’m going to rain on the entire parade and tell you to avoid using your debit card altogether (if that’s feasible).

I wrote a blog post on debit cards versus credit cards here. I was shocked to read in the WSJ article that debit cards are one-third of all card transactions. These are generally a bad idea from a security and risk standpoint for consumers. My blog post points out the pros and cons. I do realize that people are too far in debt and misuse their credit cards. So some folks use debit cards to avoid this problem. That’s fair, I suppose. However, if you are someone that pays all your bills every month, I recommend avoiding debit cards for purchases. Your protections are far less robust with debit cards than credit cards.

Update: I don’t think my original post sufficiently displayed the outrage we should all feel if it is true that banks are penalizing their customers for using a PIN with a debit card transaction. It’s a far less risky transaction—for you, the bank (card issuer) and the merchant. A fraudster would have to have stolen your card and the PIN. Debit cards are proven to be far safer at the point of sale. So it is outrageous for your bank to charge you a fee for using a safer transaction. It’s a totally upside down way of looking at it. We’re trying to reduce fraud aren’t we?