From the Office of Minnesota Attorney General Mike Hatch


Trade and commerce during ancient times often occurred through bartering and the exchange of precious stones. Barter and stones were supplanted by metal coins, which dominated trade and commerce until merchants introduced and popularized the use of “checks” during the Middle Ages. Paper currency, first circulated during the late 1600s in the colony of Massachusetts, had until very recently been society’s preferred medium of exchange.


Today, the use of credit cards and debit cards is more prevalent than ever as more consumers use “plastic” to purchase goods and services than either cash or check. In 2003, consumers used credit cards in 21 percent of consumer purchases and debit cards in 31 percent of consumer purchases. Although credit and debit cards tend to look alike and often bear the same “Visa” or “Mastercard” insignia, they differ significantly in several important respects, including billing structures, error notification requirements, and financial liability in the event of unauthorized use.


The Minnesota Attorney General’s Office encourages consumers to know these important differences between credit and debit cards.


Picking Plastic: Credit or Debit?
Unlike debit cards, which automatically deduct any charge from your checking account without incurring interest, credit cards allow consumers to buy goods and services on credit. Consumers using credit cards have the option to either pay the monthly balance in full, or simply pay the minimum amount and incur finance charges. The amount of interest owed depends on your annual percentage rate, or APR.


The APR is disclosed when you open the credit card account and is noted on each bill you receive. Credit card companies sometimes offer new members an “introductory rate,” which will rise after a set period of time. Credit card companies also sometimes include a provision in the credit card agreement that permits them to raise your interest rate if you “default,” such as pay late, go over your credit limit, or bounce a check – including checks to accounts with other creditors. Finally, credit card companies sometimes reserve the right in their credit card agreements to simply increase your interest rate for any reason at all. In selecting a credit card, be sure to read the entire credit card agreement and understand if and how your interest rate may increase.

Follow up:

Credit Cards and the Fair Credit Billing Act (FCBA)
This federal law establishes procedures to promptly correct billing mistakes and protects you from credit card fraud. Specifically, the act protects you from:

• Charges not made or authorized by you. Under the FCBA, if you report the loss or theft within 60 days, your maximum liability for the unauthorized use of your credit card is $50. If you report the loss or theft of your credit card before it is used, the card issuer cannot hold you responsible for any unauthorized charges. Additionally, under the FCBA, if the loss involves only your credit card number, but not the actual card itself, you are not liable for unauthorized use.
• Billing and accounting errors. If you find a billing or accounting error, you have 60 days to notify the credit card issuer in writing. The card issuer is required to investigate the problem within two billing cycles or 90 days after receiving your written notice. You do not have to pay the amount in question during the investigation.


Debit Cards and the Electronic Funds Transfer Act (EFTA)

The federal Electronic Funds Transfer Act of 1978, along with the Federal Reserve Board’s Regulation “E,” provide guidelines for electronic banking and debit card use. If you report a debit card (or ATM card) missing before it is used without your permission, the card issuer cannot hold you responsible for any unauthorized charges or withdrawals. If unauthorized use occurs before you report the card lost, the amount for which you can be held responsible depends upon how quickly you report the loss.
• If you report the loss within two business days, you cannot be held responsible for more than $50. If you report the loss after two days, but before 60 days, the most you could lose is $500. (Visa and Mastercard have agreed to cap losses at $50, even if reported after the two-day time frame. This protection, however, is not written into law.)

• If you do not report the loss within 60 days, you risk losing all the money in your account plus any unused portion of your line of credit.
• If unauthorized transfers or errors show up on your bank statement, report them to the card issuer as quickly as possible in writing. The card issuer has ten business days from the date of your notification to investigate the error.



Source: The Pine Journal