Credit Cards Offer Better Protections Than Debit Cards

EARLIER THIS YEAR, 1,000 Stop & Shop customers had their credit and debit card information stolen after thieves replaced store card-reading devices with ones that captured account data. It's just one in a string of high-profile credit- and debit-card data breaches that have affected companies as varied as T.J. Maxx and Marshalls, Citibank, and payment processor CardSystems.

The lucky victims — if such a thing can be said — are those who got their credit-card data stolen, says Scott Bilker, founder of DebtSmart.com. Under the Fair Credit Reporting Act, your credit-card issuer can't hold you responsible for any of those unauthorized charges. "Usually, they give you a new card, a new account number, and that's that," he explains.

But consumers whose debit-card data gets lifted are subject to a different set of rules and regulations — ones that may well leave you unprotected. "You're in a fundamentally weak position angling to get the grocery money put back in your checking account," says Jean Ann Fox, director of consumer protection for the Consumer Federation of America. Best-case scenario, you're out of cash until the bank investigates your claim. And there's a very real chance you could lose some — or all — of that money for good.

Debit transactions are regulated under the Electronic Funds Transfer Act. Under these rules, just how much you'll be able to recover depends on how quickly you discover the problem. If you notify your bank within two business days of learning about an unauthorized transaction, your liability is $50, maximum. Between two and 60 days, your liability is $500; after that, it's unlimited.

Banks build on these rules with their own policies. These so-called "zero liability" policies claim to free the consumer from fees and losses should unauthorized purchases be made to your debit account. In most cases, the banks promise to fully reimburse you. "But there's no law that says they have to," says Bilker. "It's all on their terms and their interpretations." Fact is, if the theft occurred for a reason that the bank deems your own fault, you're likely out of luck.

Even if you are eligible for reimbursement, don't expect to get your missing cash back quickly, says Fox. Some banks issue temporary credits, but it's a rare concession. In most cases, before you can be reimbursed, your bank must assess the charges to determine the extent of your liability. That investigation can take as long as a week.

So when isn't a bank likely to honor some or even all of your claims? When you fall into any of the following four loopholes:

So sign away whenever possible. While it takes an extra step, it offers an extra layer of protection. For other perks to signing, click here.