Are Debit Card Disputes the Same as Credit Card Disputes?
Debit card disputes are very similar to credit card disputes...at least from the merchant’s perspective. From the cardholder’s point of view, however, debit card disputes can cause much more trouble than a credit card dispute.
To understand how debit card disputes differ from credit card disputes, it's important to consider how the cards themselves function.
Both are plastic cards that represent the user’s account, and both are used for cashless transactions. Thus, it’s easy for consumers to consider them interchangeable—two sides of the same coin. However, a credit card is attached to a line of credit, whereas a debit card is a direct link to the cardholders bank account...and that’s where things can get sticky.
The primary difference between the two is the level of mandated fraud protection. When it comes to a dispute, debit card customers have more to lose.
Liability in a Dispute: Debit Cards vs. Credit Cards
Credit card users have a federally-mandated liability cap in cases of identity theft or fraud. The Fair Credit Billing Act (FCBA) ensures that credit card users are liable for no more than $50, regardless the amount of the fraudulent charges. Cardholders who report a card lost before it’s used aren’t held responsible for any unauthorized charges at all.
Of course, in many situations, the disputed charges aren’t even noticed until they show up on the cardholder’s monthly statement. That’s why most modern credit cards up the ante by offering “zero liability” protection: cardholders are not responsible for any fraudulent changes, even if they reported the fraud after the fact.
Debit card fraud protection, however, isn’t covered in the scope of the FCBA. Those transactions fall under the Electronic Funds Transfer Act (EFTA), which is very different. Consumers may still be covered, but the guaranteed coverage is conditional, depending on when the card is reported lost:
|If the missing card is reported..||The Customer is responsible for...|
|Before any unauthorized transactions||$0|
|Within 2 days of discovering the loss||Up to $50|
|More than 2 days of discovering the loss||First $500|
|60+ days after statement is sent||Any/all fraudulent charges|
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This lack of a liability cap is often the reason experts push credit card use over debit cards. But remember, the above chart only represents what banks are required to do; In more and more cases, banks are offering “zero-liability” in the event of either a credit card OR a debit card dispute. So if the protection is the same, does it make any difference which type of card is used?
Customers’ Perspective: Debit Cards vs. Credit Cards
For consumers, using a credit card over a debit card has another important advantage in cases of fraud: an unauthorized charge on a credit card is using “potential” money. In other words, there’s no actual cash involved, just a line of credit provided by the bank.
In the case of a debit card dispute, things are different. The money is immediately withdrawn from the customer’s account, which can cause cash-flow issues and increases the likelihood of overdrafts. Worse, if the customer has multiple accounts linked, a fraudster may be able to clean out all those accounts.
Even if a bank agrees to forego liability for their customer, the debit reversal can still present other problems. For example, debit card disputes require an actual cash refund. Due to the nature of transaction processing, that could take a week or more.
Merchants’ Perspective: Debit Cards vs. Credit Cards
In terms of the transaction itself, any differences between debit cards and credit cards on the merchant’s end are negligible. The most notable divergence shows up at the chargeback stage: timing. The credit card chargeback process can be drawn out much longer than a debit card chargeback because the fraud protection is the same on day one as it is on day 30.
Another notable difference is the chargeback amount. Because a debit card holder has more liability, the chargeback amount might not be the total transaction amount. That—and the length of time it may take to resolve a debit card dispute—might prompt a greater number of fraud victims to approach the merchant directly for a refund. That’s a solution that merchants should encourage as being in everyone’s best interest.
Minor differences aside, however, by the time the issue reaches the chargeback stage, the process to dispute debit card chargebacks is basically the same, regardless of what type of card was used. But while consumers are likely to get most—or all—their money back for fraudulent charges, merchants must go through the entire chargeback dispute process to recover any of their funds. Even then, they’ll be hit with chargeback fees, no matter the outcome of the dispute.
To the card networks and the merchant’s acquiring bank, a chargeback is a chargeback. Every chargeback—regardless of the type of payment card—negatively affects the merchant’s chargeback ratio.
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Unfortunately, there is little merchants can do to prevent things like identity theft. What they can do is strive to provide top-notch customer service—including keeping clientele advised of fraud policies.
If customers believe the merchant can help them resolve a fraud issue faster and easier than the bank, they’re that much more likely to reach out first. Otherwise, sellers can expect to sink a great deal of time and resources into fighting chargebacks.
Chargeback alert programs exist that may help by alerting merchants to potential fraud disputes early. This allows businesses to actively offer a refund to the customer. They’re not a complete chargeback solution, however: they won’t help at all against friendly fraud, for example. And again, we’re talking about investing time monitoring the program—time that would be better spent growing the business.
Merchants Need a Complete Solution
Debit card disputes aren’t as common as other forms of transaction disputes, but they can still cause merchants headaches. Overall, reducing the risk of chargebacks and increasing the recovery of funds requires a multi-tiered approach, as well as expertise and experience that most merchants simply don’t have.
Outsourcing is almost always a better solution. Our free, no-obligation ROI analysis can show you just how much more you can earn by taking control of chargebacks. Contact Chargebacks911® today to learn more.