Debit card fraud: What it is and how to get a refund on a fraudulent transaction

There are many types of debit card fraud, and you may not know you’re a victim until you see your bank statement. Use this guide to find out what debit card fraud is, how to get a refund and how to protect yourself in the future.

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What is debit card fraud?

Debit card fraud is when someone else obtains your card details and makes transactions on your card without you knowing. If you report a fraudulent transaction on your card, your bank should deactivate your card to prevent the person from making any more transactions.

You should always check your debit card statement to make sure all the transactions listed are legitimate. This will help you identify any unusual activity.

Types of debit card fraud

There are several different ways a fraudster could get your debit card information:

• Skimming device. The scammer can attach a skimming device to an ATM, gas pump or anywhere else you swipe your card and steal information from your card’s magnetic strip.
• Hacking retailer’s online system. Hackers can gain illegal access to companies you’ve shopped at in the past and steal your information. They can also steal this information if you shop online at sites that don’t have a secure connection.
• Stealing your physical card. A stranger, family member, disgruntled employee or anyone else could steal your physical debit card when you’re not looking and use it for purchases.
• Phishing. This happens when a fraudster tricks you into thinking you’ve received a legitimate email from someone you trust, so you provide personal information.
• Intercepting mail. Scammers could steal your debit card out of your mailbox — before you’ve even had time to realize it’s there — and use it to make fraudulent purchases.

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What should I do if my debit card is lost or stolen?

Report a lost or stolen card immediately, so your bank can stop all transactions on your account and issue a replacement card.

According to the Electronic Funds Transfer Act (EFTA), the longer your wait to report a lost card, the higher your liability becomes. For example, if you report it within the first two days, you’re liable for up to $50 of fraudulent charges. Wait up to 60 days, and your liability increases to $500. After the 60-day mark, the bank is no longer required to refund fraudulent activity, which means you could be on the hook for the full amount.

How to protect yourself from debit card fraud

Here are steps you can take to prevent yourself from debit card fraud:

• Check your bank statement. Review bank transactions at least once a week to look for any unusual activity.
• Set up account alerts. Get notified each time you make a transaction over a certain limit, so you can catch illegal activity right when it happens.
• Check for card skimmers. When you’re out and about, check any card readers you’re about to use. If there are any loose parts or hidden cameras, don’t use it.
• Make sure your network is secure. When shopping online, look for the green padlock symbol next to the URL. This ensures you’re using a secure site, which encrypts your data and lowers your chances of having your information stolen.
• Shred paper statements. If you still get paper statements, make sure you dispose of them properly by shredding them. That way no one can dig through your trash and retrieve sensitive information.
• Disable overdraft protection. When overdraft protection is enabled, your bank may transfer money from your savings account once your checking balance hits $0. This means that a fraudster could drain both of your accounts if they continuously overdraw on your account without you knowing.
• Have an emergency fund. A separate emergency fund ensures you still have some funds available in the event your main checking account information is compromised. You have plenty of strong emergency fund options, so choose one that best fits your needs.

Are credit cards safer than debit cards?

With the rise of identity theft and fraudulent transactions, more people are shying away from debit cards and relying on credit cards because they’re worried about security. But most debit cards come with a zero liability guarantee which protects consumers against any fraudulent transactions, which means security shouldn’t be your main worry.

Many people opt to use a credit card over a debit card because when someone illegally uses your credit card, they’re stealing money from a financial institution — not from you. As a result, the financial institution works really hard to get its money back. But when your debit card is used illegally, money is stolen directly from your account. It usually takes longer to dispute the charges, and your dollars are on the line if you can’t get your money back.

How do banks investigate debit card disputes?

Every bank handles debit card disputes differently. But under Regulation E, your bank:

• Must investigate a potential account error within 10 business days (or 20 business days for new accounts).
• May extend its investigation up to take 45 days but generally provides you with a provisional credit in the meantime.
• May require a written claim even after you notify them over the phone.
• Must correct the charge within one business day if it determines that there is a legitimate error.

If you suspect someone has stolen your debit card number, you should report any unauthorized charges to your bank immediately. If the unauthorized charge was a point of sale transaction, your financial institution may cancel your debit card, or close your account if it was an ACH transfer. You may also need to file a police report if the fraudulent activity is severe or you suspect identity theft

Disputing a non-fraudulent charge takes a bit longer — usually 30 to 45 days. Your bank starts the process by asking you to fill out a form that lists the payee’s name, the date of the transaction, the transaction amount and the reason for the dispute. Then, the bank contacts the payee’s bank for a refund.

During the investigation, your bank either gives you the money or holds onto it until the dispute is resolved. If the payee wants to fight the charge, they may provide evidence supporting their case. Then, the bank decides who wins the dispute.

Zero liability guarantees

If you’re having trouble coming to an agreement with the merchant, there’s always the option of zero liability guarantee. This is a guarantee offered by card issuers where a fraudulent or unauthorized transaction will not be completed. The money will not be removed from your bank account. Keep in mind, though, that you’ll need to have written proof that the transaction was unauthorized.

Make sure that you file a claim as soon as possible because some debit cards have a time limit on their zero liability guarantee. Also, remember that not all debit cards offer this option, so check first.

Another precaution debit card providers have is to monitor your card use so they can identify any transactions that seem unusual to your regular pattern. Usually, the card issuer will get in touch with you to confirm or deny the transaction in question. Card issuers want to keep your business and they’re doing everything in their power to limit the likelihood of problems arising.

Fraudulent transactions or merchant disputes?

It’s also important to differentiate between fraudulent transactions and merchant disputes. A fraudulent transaction is the result of identity theft and involves the use of your debit card for charges that you did not authorize.

On the other hand, a dispute with a merchant usually refers to the buyer and seller not agreeing on things like the wrong item being sent. Most merchant disputes are resolved amicably since the merchant doesn’t want to run the risk of the card issuer refusing to work with the company. If this does happen, the merchant will have a hard time selling anything online.

If you do have to complain to your debit card provider, be sure you have a record of all your correspondence with the merchant so you can prove you attempted an amicable agreement.

Amicable resolutions

Disputes are often mistaken for fraudulent transactions and can be settled without the involvement of the bank. An amicable agreement is usually reached for the simple reason that if there are too many complaints against a merchant, the card issuer can refuse to work with the seller again, making it difficult to sell online. If you wish to complain to your debit card provider, then you should keep a record of all dealings with the merchant to prove that you attempted to come to a reasonable solution.

The bottom line

If you’ve been a victim of debit card fraud, there are several steps you can take to resolve unauthorized transactions and keep your account secure in the future. If you’re in the market for a new debit card, remember to compare your options until you find a card that suits your needs.

Frequently asked questions

• What should I do if I've noticed my Visa or Mastercard accounts are displayed incorrectly online?

  First, check your recent receipts and transactions made by any of your additional cardholders. If there is still a discrepancy, contact your bank immediately in case someone is using your account fraudulently.

• I've tried to withdraw cash from my account using an ATM but it's miscalculated the money. What should I do?

  If this occurs, try to contact your bank as soon as possible to notify them of the problem. They should be able to get in touch with the branch that takes care of the ATM and sort it out.

• What should I do if my bank denies my fraud claim?

  You can submit a complaint online with the Consumer Financial Protection Bureau (CFPB) if you believe your bank wrongly denied your claim. The CFPB will then investigate the issue with your bank and generally have a decision for you within 15 days.